Kodak profit beats forecast, shares rise


NEW YORK -- Eastman Kodak Co. reported higher-than-expected quarterly earnings Thursday as cost cutting trumped lower sales of film, cameras and developing services.

Kodak, whose shares rose 5%, said its profit margin climbed to 26.2% in the second quarter from 21.4% a year earlier, thanks in part to lower spending on design and manufacturing.

"We have improved dramatically in the way we design our products," Kodak Chief Executive Antonio Perez said on a call with analysts. "We took advantage of much lower cost and much more efficient ways of (making) our products and distributing our products."

The Rochester, New York-based company, which is in the final stages of a long, expensive shift away from film toward digital products, posted net income of $592 million, or $2.06 a share, compared with a year-earlier loss of $282 million, or 98 cents a share.

Excluding one-time items, operating earnings were 45 cents a share, far above analysts' average forecast of 9 cents a share, according to Reuters Estimates.

Revenue fell 7% to $2.51 billion from $2.69 billion and was just shy of an average Wall Street forecast of $2.53 billion.

Despite a positive reaction from investors, analysts said they found it difficult to evaluate Kodak's financial health as it is growing in some areas, such as commercial and consumer printing, while shedding people and capital in other segments.

The results were "a mixed bag", said Shannon Cross of Cross Research, saying part of the gains came from a 16% decline in research spending, an area where Kodak needs to invest.

"From an operational standpoint there was some improvement, but it wasn't as good as the headline would make you believe," she said. "There was operational improvement from cost-cutting."

Since late 2003, Kodak has focused on digital devices, hoping to outpace the drop in demand for film, historically its main revenue source. At the same time, it is reducing costs by cutting some 30,000 jobs and trimming manufacturing.

In April, Kodak completed the sale of its Health Group to an affiliate of Onex Corp. for $2.35 billion. The company recognized a pre-tax gain of $980 million on the sale.

Kodak shares closed up $1.38 to $26.93 on the New York Stock Exchange after going as high as $27.40.

For the second quarter, Kodak said its digital revenue rose 3% to $1.460 billion, while revenue from its more traditional products fell 17% to $1.044 billion.

Profit at its commercial printing unit rose to $44 million from $16 million, while earnings at its film unit rose to $137 from $119 million in the year-ago quarter,

The company on Thursday reiterated that it sees 2007 digital earnings from operations at $150 million to $250 million, with digital revenue growth of 3% to 5%. It expects total 2007 revenue to be down 4% to 7%.

Kodak did not detail how its new consumer inkjet printers had performed since their introduction earlier this year, but said its goal continues to be to sell at least 500,000 units in 2007. It aims to grow the business to $1 billion in revenue by 2010.

In addition it said it will expand sales of the printers to retailers Dell Inc and Amazon Corp.