Kodak First-Quarter Sales Decline 29%, Additional Cuts
Friday, May 01, 2009
Press release from the issuing companyROCHESTER, N.Y. -- Eastman Kodak Company today reported first-quarter 2009 results, which reflect the continuing impact of the global recession, business seasonality, as well as restructuring actions that the company is taking to address the economic climate.
For the first quarter, Kodak reported a loss from continuing operations of $360 million, or $1.34 per share, and a Net Loss of $353 million, or $1.32 per share. First-quarter sales were $1.477 billion, a 29% decline from the year-ago quarter, including approximately 6% of unfavorable foreign exchange impact.
"Despite the ongoing impact of the global recession, Kodak continues to bring to market innovative products that customers are embracing, and we are gaining or maintaining market share," said Antonio M. Perez, Chairman and Chief Executive Officer, Eastman Kodak Company. "In the first quarter, our consumer inkjet printer hardware and ink revenue grew by more than 100% in a market that declined with the overall economy. We also just announced the fifth beta site for our innovative Stream inkjet technology printhead, which is ahead of plan and which gives us increased confidence that we will have a full Stream press available by early 2010. Our cash usage during the quarter was consistent with our seasonal trend, we have the financial resources to fully execute our business strategy, and we are maintaining our full-year goals."
For the first quarter of 2009:
- Sales worldwide totaled $1.477 billion, a decrease of 29% from $2.093 billion in the first quarter of 2008, including approximately 6% of unfavorable foreign exchange impact. Revenue from digital businesses totaled $972 million, a 29% decline from $1.366 billion in the prior-year quarter, primarily as a result of the global recession and continued restrictions in the credit markets. Revenue from the company's traditional business decreased 31% to $503 million, primarily as a result of accelerated industry-related declines in Film Capture and Traditional Photofinishing.
- The company's first-quarter loss from continuing operations, before interest expense, other income (charges), net, and income taxes was $336 million, compared with a loss on the same basis of $81 million in the year-ago quarter.
On the basis of U.S. generally accepted accounting principles (GAAP), the company reported a first-quarter loss from continuing operations of $360 million, or $1.34 per share, compared with a loss on the same basis of $114 million, or $0.40 per share, in the year-ago period. Items of net expense that impacted comparability in the first quarter of 2009 totaled $105 million after tax, or $0.39 per share, primarily related to restructuring charges. Items of net expense that impacted comparability in the first quarter of 2008 totaled $2 million after tax, or $0.01 per share. (Please refer to the attached Items of Comparability table for more information.)
Other first-quarter 2009 details:
- Gross Profit was 13.1% of sales, a decline from 20.3% in the year-ago period. This decline in margin was driven by reduced volumes, along with the impact of negative price/mix, lower intellectual property royalties, and unfavorable foreign exchange, partially offset by continued cost reductions.
- Selling, General and Administrative (SG&A) expenses were $308 million in the first quarter, down 20%, or $77 million, from $385 million in the year-ago quarter.
- Research and Development expenses were $110 million in the first quarter, down 21%, or $30 million, from $140 million in the year-ago quarter.
- First-quarter cash generation reflected a use of $808 million, compared with a use of $764 million in the year-ago quarter. This corresponds to net cash used in continuing operations from operating activities on a GAAP basis of $784 million in the first quarter, compared with net cash used of $767 million in the first quarter of 2008. Cash performance during the first quarter of 2009 reflects lower earnings due to weak global demand, seasonal working capital usage and restructuring payments, partially offset by a cash receipt related to a previously announced non-recurring intellectual property licensing agreement. As was the case in 2008, the company expects cash usage to be heaviest in the first quarter, with cash trends expected to be significantly improved as the year progresses.
- Kodak held $1.309 billion in cash and cash equivalents as of March 31, 2009.
- The company's debt level stood at $1.306 billion as of March 31, 2009.
Segment sales and earnings from continuing operations before interest, taxes, and other income and charges (segment earnings from operations), are as follows:
- Consumer Digital Imaging Group first-quarter sales were $369 million, a 33% decline from the prior-year quarter, including approximately 5% of unfavorable foreign exchange impact. First-quarter loss from operations for the segment was $157 million, compared with a loss of $111 million in the year-ago quarter. The first-quarter loss was driven primarily by market-related volume declines, including inventory resets by retailers and price/mix impacts, including lower intellectual property licensing royalties, and unfavorable foreign exchange. This was partially offset by improved profitability in consumer inkjet systems, driven by a more than 100% revenue increase in consumer inkjet printer hardware and ink along with lower costs as a result of the company's move to a more efficient product platform, and reduced SG&A and R&D expenses across the segment. Kodak continues to forecast an average of $250 million to $350 million in intellectual property licensing revenue in 2009 and for the next few years.
- Graphic Communications Group first-quarter 2009 sales were $603 million, a 26% decline from the first-quarter of 2008, including approximately 6% of unfavorable foreign exchange impact. This revenue decrease was primarily driven by a market-related decline of 30% in Prepress Solutions and associated workflow, including inventory resets by distributors,and a 12% price/mix-related decline in digital printing. First-quarter loss from operations for the segment totaled $60 million, compared with a loss of $1 million in the year-ago quarter. This earnings decline was primarily driven by lower volume and price/mix across several product lines, along with a negative impact from foreign exchange, partially offset by reductions in SG&A and R&D costs.
- Film, Photofinishing and Entertainment Group first-quarter sales were $503 million, a 31% decline from the year-ago quarter, including approximately 7% of unfavorable foreign exchange impact. First-quarter earnings from operations for the segment were $8 million, compared with earnings of $26 million in the year-ago period. These earnings results were driven by declines in consumer film sales volumes, price/mix across several product lines and unfavorable foreign exchange impacts, primarily in Entertainment Imaging, partially offset by significant cost reductions and the impact of previously announced changes in post-employment benefits.
Additional Actions Underway to Address Global Recession
As previously announced,Kodak is taking a number of specific actions to strengthen its operations and become more competitive in the face of the continuing global economic downturn. These actions, which are already underway, include the previously announced reduction of 3,500 to 4,500 positions worldwide, the majority of which the company expects to complete in the first half of 2009.
Additionally, in order to conserve cash and protect its investments in core digital growth businesses, today Kodak announced that its Board of Directors has decided to suspend future cash dividends on its common stock effective immediately.
The company also announced additional temporary compensation-related actions for 2009. Beginning immediately and continuing through the end of 2009, Chairman and Chief Executive Officer Antonio M. Perez will reduce his salary by 15%. Members of Kodak's Board of Directors will also reduce their direct cash compensation by 10% for the remainder of 2009. In addition, other members of the company's senior leadership team will reduce their base salary for the balance of 2009 by 10%. All other U.S.-based Kodak employees will take one week of unpaid leave between now and the final pay period of the year. The company is also exploring alternatives to conserve cash in other countries and regions beyond the U.S.
"In the face of this challenging economic environment, we continue to work on those things within our control – focusing on our core digital technologies, optimizing our portfolio of cash generating businesses, achieving the full potential of our transformational businesses, reducing our cost structure and conserving cash," said Perez. "The additional steps we are announcing today will enable us to continue our cost reduction efforts while helping to avoid the need for further position reductions beyond our current restructuring program. When the economy does improve, Kodak will be well positioned for success, and we will have a strong team in place to capture the growth opportunities that are ahead of us."
For 2009, on a continuing operations basis, Kodak maintains the goals provided in the company's February investor meeting, including:
- Digital revenue decline of 6% to 12%; overall revenue decline of 12% to 18%;
- 2009 GAAP loss from continuing operations of $200 million to $400 million; and segment earnings of $0 to $200 million;
- Cash generation before dividends and restructuring of between $75 million and $325 million; and cash generation of negative $200 million to positive $100 million before dividends and after taking into account restructuring payments;
- Earnings Before Interest, Taxes, Depreciation, and Amortization, excluding restructuring, of $475 million to $675 million.
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