Eastman Kodak Co. reported a third-quarter loss of $1.03 billion, mostly due to a write-off of deferred tax breaks. Meanwhile, sales of Kodak's traditional high-profit consumer photo products dropped 28% from year-earlier levels, a decline that outstripped growth in sales of digital cameras and printers.
During the quarter, consumer digital sales rose 22% to $708 million, while traditional film and single-use camera sales fell 28% to $1.29 billion.
But the Rochester, N.Y., imaging company said digital revenue, including health-care and printing supplies, exceeded traditional-product revenue during the quarter for the first time. Total revenue rose 5% to $3.55 billion, due to the inclusion of commercial printing-supply businesses that Kodak acquired earlier this year, which accounted for 15% of total revenue.
"We continue to see widespread evidence of the success of our digital transformation," said Antonio Perez, chairman and chief executive.
Investors appeared more concerned. Kodak stock hit a 52-week low of $20.91 in midday trading. In 4 p.m. New York Stock Exchange composite trading, Kodak had rebounded slightly to $22.06, down $1.08, or 4.7%, for the day.
Analysts said that after excluding one-time charges, earnings were well below their expectations, and the 22% sales growth in consumer digital sales was shy of what the market expected. Richard Stice, of Standard & Poor's Corp., said he had reiterated his "sell" recommendation and lowered his price target from $23 to $20, a level it last hit in 1985.
Kodak is making a tumultuous transition from the world of film, where profit margins were high and product cycles were lengthy, to a low-margin digital world where products continually change. Kodak said it updated its consumer products in the third quarter, and early response from retailers has been strong.
The quarterly loss equaled $3.58 a share and included a noncash charge of $900 million, or $3.13 a share, because Kodak no longer expects to be able to use deferred tax credits from previous U.S. operating losses. A spokesman said Kodak realized late in the quarter that accounting rules required it to write off the deferred tax breaks, which were carried as an asset on its balance sheet, because restructuring plans assure continued losses for some time. If profits materialize, the company still will be able to use the tax credits, he said.
In the year-earlier quarter, Kodak reported net income of $458 million, or $1.60 a share, almost all of which was due to selling its remote-sensing business to ITT Industries Inc. Kodak's loss from continuing operations in the latest quarter was $103 million, compared with a year-earlier profit from continuing operations of $3 million.
During the quarter, Kodak recorded pretax restructuring charges of $146 million related to laying off 2,000 workers. It also wrote down $115 million in assets and inventory as part of cost-cutting.
Kodak said its financial position improved in the quarter, with debt reduced by $158 million from the end of June to $3.56 billion. Still, debt is up $1.24 billion from a year ago reflecting the cost of acquisitions. Rating agencies have downgraded Kodak bonds to junk status.
Kodak announced this week that it has been able to refinance loans that were coming due. It also said it had $610 million in cash at the end of the third quarter, up from $553 million in June. It reiterated that it expects to have more than $1 billion in cash on hand by the end of the year after the pivotal holiday selling season for digital cameras.
Mr. Perez, who took over as chief executive in June and announced that Kodak would have to accelerate its restructuring, said the company's digital revenue growth, digital earnings growth and cash flow "are in line with the expectation" that it presented to investors last month.
Kodak's photo-finishing revenue fell 49%, and health-group sales fell 1% to $635 million. In graphic communications, which is the company's commercial-printing-supplies business, sales more than doubled to $886 million, spurred by acquisitions.
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