Kodak reports progress on digital strategy, Digital revenue to grow 6%-9%
Press release from the issuing company
Feb. 8, 2007-- Eastman Kodak Company today reported significant progress in the implementation of its digital business strategy, led by new product introductions across its consumer and commercial portfolio, the continued integration and growth of its Graphic Communications Group, and accelerated cost reductions that will follow the divestiture of its Health Group.
At a meeting today with investors, Kodak will detail the plan that the company is following to generate profitable digital growth in 2007 and to position itself for further success in 2008 and beyond. The presentation also will cover Kodak's plan to complete its major business restructuring by the end of 2007, as the company progresses toward its target business model. The company expects that target business model to yield gross profit margins of 28% to 29% with earnings from operations equal to 8% to 9% of revenue in 2009.
"During the past three years we have made visible and significant progress in creating the new Kodak," said Antonio M. Perez, Chairman and Chief Executive Officer, Eastman Kodak Company. "We have built the industry's leading provider of products and services for commercial printers, and this week we launched a long-awaited breakthrough value proposition for consumers in the inkjet market. In 2007, we are continuing to move aggressively to complete the transformation of our business operations and fully implement a business model which will power our future success in digital markets."
Business Units Poised for Profitable Growth
During 2006, the company's Consumer Digital Group made significant progress in achieving its digital operating model, delivering a $132 million improvement in earnings and positive cash contribution for the year. For 2007, the company expects Consumer Digital Group revenues to be steady on a year-over-year basis, driven by new product introductions in consumer inkjet and image sensors and growth in the KODAK GALLERY and KODAK Picture Kiosks, partially offset by declines in consumer paper.
The company forecasted improved earnings for CDG, driven by image sensors, home printing, the KODAK GALLERY, KODAK Picture Kiosks and consumer paper, plus the benefit from the company's ongoing intellectual property licensing program.
"As an early investor in digital technology, Kodak has amassed a sizeable amount of extremely valuable intellectual property," said Perez. "We are committed to generating value from that asset by using it to drive business partnerships, provide the company with access to new markets and additional technology, and to generate earnings and cash."
For 2007, the company expects revenue and earnings from intellectual property licensing of at least $250 million.
The Graphic Communications Group continues to remain ahead of its integration plan and, in 2007, the company expects the business to grow digital revenue between 6% and 9% with expanding earnings. Key areas of profitable growth and market leadership for GCG include digital plates, inkjet printing solutions, document imaging, electrophotographic digital printing, and workflow software.
Kodak remains focused on three priorities as it continues to transform its business: net cash generation, digital earnings from operations and digital revenue growth.
For 2007, on a continuing operations basis, Kodak expects net cash generation (formerly investable cash flow) of $100 million to $200 million after restructuring disbursements of approximately $600 million and an aggressive introduction plan for inkjet products. The company also expects to generate digital earnings from operations of $200 million to $300 million on digital revenue growth of 3% to 5%.
"As we enter the final year of our transformation, we are focused on completing the restructuring of our traditional operations, reducing debt, and refining our cost model in order to create a foundation for sustainable and profitable growth," said Frank S. Sklarsky, Chief Financial Officer, Eastman Kodak Company. "We continue to generate sufficient cash in order to fund these efforts, and also to support the launch of key new products that will drive our future growth in revenue and earnings."
Achieving the Targeted Cost Model
The company has set a goal of building a business model to achieve sustained success in digital markets, supported by achieving an SG&A level equal to 14% to 15% of revenue by 2009. For 2006, the company's SG&A level was approximately 18% of revenue.
"Our manufacturing cost reductions are in the final stages of implementation," said Sklarsky. "We defined what had to be done and the team has moved aggressively to do it. We are now bringing the same focus and intensity to driving reductions in our SG&A expenses in order to achieve our target business model."
As part of achieving these cost reductions, the company expects to make restructuring payments of $575 million to $625 million in 2007, with a focus on addressing the anticipated cost overhang following the completion of its Health Group divestiture. By the end of 2007, the company expects to have made substantial progress in establishing a business model that will support sustained profitable growth in the digital markets in which it operates.
Kodak's restructuring program was first announced in January 2004 and updated in July 2005 and August 2006. As of August 2006, the program anticipated the elimination of 25,000 to 27,000 positions and charges totaling $3.0 billion to $3.4 billion.
During the fourth quarter of 2006, the company eliminated approximately 1,200 positions, bringing the program's total to-date to approximately 23,400 positions along with cumulative charges of $2.7 billion.
Based on the restructuring and SG&A reduction actions to-date, and an understanding of the remaining actions to conclude these activities by the end of 2007, influenced by the divestiture of the Health Group, the company now expects that the total employment reductions will be in the range of 28,000 to 30,000 positions and total charges will be in the range of $3.6 billion to $3.8 billion. The company expects that these actions will allow it to conclude its major restructuring program by the end of 2007.
"Kodak is now a company comprised of numerous leading digital businesses with diverse sources of sales and earnings, coupled with strong intellectual property positions," said Perez. "Our dramatic operational improvements during the past three years have created a solid foundation from which Kodak will become a growing digital company with innovative new products and services, attractive margins and strong cash generation."
For those unable to attend in person, today's meeting will be available via a live webcast. To access the webcast please go to: http://www.kodak.com/go/invest
The meeting will also be teleconferenced in listen-only mode. To listen please call 913-981-5542 access code 1685146 or ask for the Kodak Investor Meeting.
An audio replay of the meeting will be available beginning Friday, February 9th at 9:00 a.m. and will run until 5:00 p.m. on Friday, February 16th ET. The replay phone number is 719-457-0820 and the reference number is 1685146.
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