Kodak Reports Fifth Quarterly Loss, But Strong Digital Imaging Growth

January 30, 2006 – Kodak announced its fifth straight quarterly loss this morning, the third quarterly loss since its new CEO, Antonio Perez, took over in June of 2005. Kodak cited “restructuring charges, tax benefits and cumulative effect of an accounting change” while switching their focus from film to digital technology as the overall reasons for the loss.

The silver lining that Kodak CEO Perez pointed out in a statement is that the successful fourth quarter in digital imaging reflected the new way that Kodak will be managed in 2006. Perez reminds those watching that “Kodak is now more than halfway through our transformation,” and that Kodak “will be expanding the margins of our digital business, now that we’ve amassed the scale necessary to be a market force.”

Kodak’s five year restructuring plan involves a complete shift in their core business from film to digital imaging. Overall digital imaging sales went up 45% to $2.67 billion. Digital imaging now makes up 54 percent of Kodak’s total 2005 revenue and, according to Kodak, this is “the first time in the company’s history that digital revenue exceeded traditional.”

Kodak’s quarterly profit did grow by $243 million, even though that growth was negatively offset by the $283 million Kodak had to pay in an after tax restructuring cost settlement with the IRS. Film sales declining at a higher than expected percentage also dampened Kodak’s digital growth progress; film industry sales declined 21% to $1.51 billion. The company’s net loss was $52 billion or $0.18/share, up slightly from the $59 million and $0.20/share loss in Q3 2005.

When it comes to the digital camera market, however, Kodak is strengthening steadily. In 2005 there was a 95% increase in the sale of Kodak EasyShare printer docks, a 41% increase in “consumer digital capture sales” (digital cameras included), a 23% increase in Kodak Picture Maker kiosks and a 65% increase in “home printing products and ink jet media.” Total digital imaging sales, which these segments fall under, rose 45 percent with an increase from $1.85 billion to $2.674 billion in revenue. Total sales rose 12 percent to $4.197 billion from only $3.76 billion in Q4 2004.

Kodak also announced today that its Chief Financial Officer and Executive Vice President since 2000, Robert Brust, plans to retire once his contract expires in January 2007. Kodak is voicing this as a planned retirement, rather than a forced one due to their financial problems. Brust had already served 31 years at General Electric and is now 62.

Concurrent with this announcement, Kodak officially announced that a search for Brust’s replacement will be conducted by executive staffing service Heidrick & Struggles. They indicated that they will be searching both within and outside the company for talent, and want to leave plenty of time to “find and groom” Brust’s successor before his departure.

Kodak expects that 80% of their revenue should come from digital imaging by 2008 and surge to $17 billion. Overall revenues for 2005 were $14.268 billion. They were at $13.52 billion in 2004.