Kodak posts narrower 3Q loss of $43 million

ROCHESTER (NEW YORK): Vigorous inkjet printer sales, lower costs and a licensing gain from a rich array of digital-imaging inventions narrowed Eastman Kodak Co.'s third-quarter loss to $43 million.

Kodak's adjusted earnings handily beat Wall Street expectations Thursday, and its stock surged more than 12 percent in morning trading.

The photography and printing company said it lost the equivalent of 16 cents a share in the July-September period. That compared with a loss of $111 million, or 41 cents per share, a year earlier.

Sales fell 1 percent to $1.76 billion from $1.78 billion, though revenue from digital businesses rose 10 percent to $1.33 billion, boosting profitability in that segment for the fourth straight quarter.

Revenue gains were driven by an undisclosed intellectual-property licensing payment and a 26 percent jump in sales of consumer inkjet printers and ink.

Analyst Shannon Cross cautioned that pricing pressures in Kodak's digital-camera business, stiff competition from Hewlett-Packard Co. in retailer kiosks and a slump in movie-film revenue reflecting a migration to digital-cinema alternatives are troubling signs.

One-time licensing payments "are fine," Cross said, "but it doesn't reflect significant strength in the core business, which is what we keep waiting to see. ... I don't think that improvement is coming through fast enough."

Traditional film-based revenue slid 25 percent to $431 million from $572 million, hit by industry-related volume declines and rising costs for silver and aluminum. Operating earnings in the photographic film, photofinishing and entertainment film unit narrowed to $20 million from $47 million.

Excluding items, Kodak said it lost $5 million, or 2 cents per share. Analysts polled by Thomson Reuters, whose estimates typically exclude items, expected Kodak to lose 31 cents per share on sales of $1.61 billion.

Its shares jumped 12.3 percent, or 49 cents, to $4.46 in morning trading. They are trading at the low end of a 52-week range of $3.39 to $9.08.

The 129-year-old picture-taking pioneer, based in Rochester, New York, is banking on replacing the huge profits it once made from photographic film with ink revenue from promising new lines of digital inkjet printers for both consumer and commercial markets.

Those investments have yet to pay off. Kodak doesn't expect to generate its first profits from home inkjet printers until 2011, or from a bevy of versatile, high-speed digital presses until 2012.

Kodak doubled the number of consumer injket printers installed in 2009 to more than 2 million units. Ulysses Yannas, a broker for Buckman, Buckman & Reid in New York, expects more than 5 million will be installed by 2011.

"I'm focusing on how well they are progressing on the printing side," Yannas said. "To me, that's the Kodak story, as it used to be a film story in the past."

Kodak is relying on leaner costs to see it through its transition into a digital imaging powerhouse. It has chopped almost 50,000 jobs since 2002 and its work force of 20,300 is its smallest since the 1930s.

After a $3.4 billion turnaround from 2004 to 2007, Kodak's momentum was stalled by the economic downturn.

Gross profit widened in the quarter to 27.1 percent of sales from 20.3 percent, driven by the one-time licensing deal and steady operational improvements. The company maintained its full-year revenue outlook of $7.5 billion to $7.7 billion.

Revenue from cameras, video cameras, printers, kiosk prints and other consumer digital imaging devices and services surged to $670 million from $535 million. The segment notched an $89 million operating profit in contrast with an $89 million loss in last year's third quarter.

Sales in its graphic communications group fell 2.5 percent on increased investment spending for commercial printers, packaging and software, and segment losses from operations almost doubled to $19 million.