Kodak posts slight sales gains, announces more layoffs

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Eastman Kodak Co. on Wednesday announced an acceleration of its digital transformation, which the company said "are consistent with its expressed goal of building a business model to achieve long-term success in digital markets." The company also announced another round of layoffs is in the works.

The company recommitted to the goals presented to investors in January: digital revenue growth in 2005 of approximately 36 percent, and digital earnings from operations this year in a range of $275 million to $325 million. Kodak continues to expect net cash provided by operating activities this year of $1 billion to $1.2 billion.

Second-quarter revenue grew 6 percent, totaling $3.686 billion, from the same period a year ago. The net loss, on the basis of generally accepted accounting principles in the U.S. (GAAP), was 51 cents per share, primarily reflecting charges associated with the previously announced restructuring of Kodak's traditional infrastructure, in-process research and development charges related to acquisitions, and an asset impairment charge relating to an investment in Lucky Film company, Kodak said.
 
Sales from the Health Group grew 3 percent to $694 million. Earnings from operations for the segment were $113 million, compared with $124 million a year ago. Good news came from a bump in margins to 16 percent from 11 percent in the first quarter of 2005. While the traditional business within Health performed better than expected, revenue growth in the digital products portfolio was less than anticipated, the company said.

Kodak also said that company-wide it will extend the number of layoffs that originally started in January 2004. Kodak had set the number at 15,000 positions but is now upping that to 22,500 to 25,000 "as part of the effort to accelerate its digital transformation and to respond to a faster-than-expected decline in consumer film sales." It also is reducing its traditional manufacturing infrastructure to approximately $1 billion, compared with $2.9 billion in January 2004. "When largely completed by the middle of 2007, these activities will result in a business model consistent with what is necessary to compete profitably in digital markets," Kodak said in a release. No specifics were provided as to how the Health Group will be affected by the layoffs.

"Kodak is a company with product portfolios that are proceeding on two very different tracks," said Antonio M. Perez, CEO and president, Eastman Kodak Co. "As sales of our traditional consumer products and services decline faster than anticipated, we are moving more aggressively to reduce cost. At the same time, we continue to make significant progress growing the sales and earnings of our digital portfolio. Second-quarter digital sales, for example, increased 43 percent, and we made significant progress in improving our digital earnings.

"In 24 months, as a result of the actions announced today, we will bring to an effective end the significant restructuring charges associated with the transformation and essentially complete the transition to our digital business model," Perez said. "In that time, we intend to improve upon the success we are enjoying in digital markets. In June, for example, our digital revenue exceeded our traditional revenue on a monthly basis for the first time ever, paving the way for us to achieve the full-year goal of having digital revenue surpass traditional revenue.

"From this point forward, we will measure success based on three priorities --digital revenue growth, digital earnings growth and the generation of cash to fund our business," Perez continued. "The announcements made today represent another aggressive step in support of those priorities.

"Our Health Group has expanded beyond the radiology market to offer customers a portfolio of digital products and services to capture, share and manage medical and dental images and information," Perez noted.