Kodak Financial Woes Deepen: Film Future?

[Marco Polo]

I was curious about what the real earnings from the different Kodak groups were. The info below is from the Kodak website. The fourth quarter seems disappointing to say the least. I think Wall Street is very skeptical that Kodak can be profitable without making so much money on their intellectual property licensing (patents & lawsuits) which obviously won't last forever. Perez may be out as CEO if things don't turnaround by 2012 like he has promised.

• Consumer Digital Imaging Group full-year 2010 sales were $2.739 billion, a 5% increase from the prior year. Full-year earnings from operations for the segment were $330 million, a $295 million increase from the prior year. The year-over-year improvement was driven by intellectual property licensing transactions and improving profitability in Consumer Inkjet, which doubled gross profit dollars from ink during 2010. This was partially offset by declines in Retail Systems Solutions. For the fourth quarter, sales for the segment were $731 million, a decrease from $1.212 billion in the prior-year quarter. Fourth-quarter loss from operations was $57 million, compared with earnings on the same basis of $380 million in the prior-year quarter. These earnings results were primarily driven by a non-recurring intellectual property licensing transaction in the prior-year quarter.

• Graphic Communications Group full-year 2010 sales were $2.681 billion, a 2% decline from the prior year. Full-year loss from operations for the segment was $29 million, a $13 million improvement from the prior-year. The year-over-year earnings improvement was driven by cost improvements in electrophotographic products and lower raw material costs. Fourth- quarter 2010 sales were $757 million, a 3% decline from the fourth quarter of 2009. Fourth-quarter earnings from operations for the segment were $12 million, as compared with $36 million in the year-ago quarter. This earnings decline includes increased investment to support future growth opportunities in Commercial Inkjet and Workflow Software and Services, as well as negative price/mix in digital plates.

• Film, Photofinishing and Entertainment Group full-year 2010 sales were $1.767 billion, a 22% decline from the prior year. Full-year 2010 earnings from operations for the segment were $62 million, compared with $159 million in the prior year. Fourth-quarter sales were $439 million, a 25% decline from the year-ago quarter. Fourth-quarter loss from operations for the segment was $3 million, compared with earnings on the same basis of $53 million in the year-ago period. This decrease in earnings was primarily driven by industry-related declines in volumes and increased raw material costs, partially offset by cost reductions across the segment.

[Bob Salomon]

I was curious about what the real earnings from the different Kodak groups were. The info below is from the Kodak website. The fourth quarter seems disappointing to say the least. I think Wall Street is very skeptical that Kodak can be profitable without making so much money on their intellectual property licensing (patents & lawsuits) which obviously won't last forever. Perez may be out as CEO if things don't turnaround by 2012 like he has promised.

• Consumer Digital Imaging Group full-year 2010 sales were $2.739 billion, a 5% increase from the prior year. Full-year earnings from operations for the segment were $330 million, a $295 million increase from the prior year. The year-over-year improvement was driven by intellectual property licensing transactions and improving profitability in Consumer Inkjet, which doubled gross profit dollars from ink during 2010. This was partially offset by declines in Retail Systems Solutions. For the fourth quarter, sales for the segment were $731 million, a decrease from $1.212 billion in the prior-year quarter. Fourth-quarter loss from operations was $57 million, compared with earnings on the same basis of $380 million in the prior-year quarter. These earnings results were primarily driven by a non-recurring intellectual property licensing transaction in the prior-year quarter.

• Graphic Communications Group full-year 2010 sales were $2.681 billion, a 2% decline from the prior year. Full-year loss from operations for the segment was $29 million, a $13 million improvement from the prior-year. The year-over-year earnings improvement was driven by cost improvements in electrophotographic products and lower raw material costs. Fourth- quarter 2010 sales were $757 million, a 3% decline from the fourth quarter of 2009. Fourth-quarter earnings from operations for the segment were $12 million, as compared with $36 million in the year-ago quarter. This earnings decline includes increased investment to support future growth opportunities in Commercial Inkjet and Workflow Software and Services, as well as negative price/mix in digital plates.

• Film, Photofinishing and Entertainment Group full-year 2010 sales were $1.767 billion, a 22% decline from the prior year. Full-year 2010 earnings from operations for the segment were $62 million, compared with $159 million in the prior year. Fourth-quarter sales were $439 million, a 25% decline from the year-ago quarter. Fourth-quarter loss from operations for the segment was $3 million, compared with earnings on the same basis of $53 million in the year-ago period. This decrease in earnings was primarily driven by industry-related declines in volumes and increased raw material costs, partially offset by cost reductions across the segment.

Where is the packaging division figures?

[Marco Polo]

Bob,

Packaging is part of the Graphic Communications Group.

[Bob Salomon]

Bob,

Packaging is part of the Graphic Communications Group.

"Kodak reaffirms plan to complete transformation by 2012

At its annual investor strategy meeting today, Eastman Kodak Co. executives will detail plans to complete its transformation into a digital company with sustainable profits by 2012.
Kodak said it expects revenue in its core growth businesses – Consumer and Commercial Inkjet printing, Workflow Software and Services, and Packaging Solutions – will more than double in size by the end of 2013. During this time, Kodak will effectively manage its large, cash-producing businesses, and drive toward sustainable, profitable growth on the strength of its unmatched expertise in materials science and digital imaging science, the company said. Consumer Inkjet will achieve positive gross profit dollars during 2011, with full-year positive operational earnings in 2012, and the company’s Commercial Inkjet business will achieve profitability during 2012.
“The success of our core growth businesses demonstrates that our strategy is working,” says Antonio M. Perez, chairman CEO, Kodak. “Over the next three years, we will continue to improve our digital performance, as our core growth businesses begin to achieve profitability this year and turn profitable as a group in 2013. We are also well-positioned in several large and established digital markets, and we are committed to managing those businesses to maximize earnings and cash generation. We have sufficient resources and the financial flexibility necessary to fully implement our strategy and deliver shareholder value.”
For 2011, Kodak is focused on two key financial metrics:
Continue to build the scale of its four digital growth businesses – Consumer and Commercial Inkjet, Workflow Software and Services, and Packaging Solutions – and achieve greater than 40 percent aggregate revenue growth from these businesses.
Achieve positive cash generation before restructuring payments.
On a continuing operations basis, the company is also targeting the following in 2011:
Operational earnings of negative $200 million to breakeven, on total company revenue of between $6.4 billion to $6.7 billion;
2011 GAAP loss from continuing operations in the range of $300 million to $100 million;
A year-end cash balance of $1.5 billion to $1.6 billion, after taking into account all cash actions, including modest debt payments due during 2011.
Kodak’s core digital growth businesses – Consumer and Commercial Inkjet, Workflow Software & Services, and Packaging Solutions – together grew 18 percent during 2010. Between 2011 and 2013, the company expects revenue from these businesses to more than double, with annuity sales, from ink and consumables, growing as a percentage of revenue. In 2013, Kodak expects revenue from these businesses will approach $2.0 billion, with positive earnings.
The company also remains committed to executing its intellectual property strategy, which is focused on achieving three key goals – providing the company with design freedom to develop and introduce innovative, new products; providing Kodak with access to new markets and new partnerships; and continued income and cash generation. From 2008 to 2010, Kodak generated $1.9 billion in revenue from its patent portfolio. Through the planning period, the company expects to generate an average of $250 million to $350 million per year in intellectual property revenue.
Industry-wide demand for digital still cameras is declining, particularly in the point-and-shoot category, while other categories, including pocket video cameras, continue to grow. During 2010, Kodak grew its share of the pocket video camera market by 10 percentage points and today is the number two player. In 2011, Kodak will transform its strategy specific to Digital Capture & Devices by aggressively focusing on the most profitable segments and geographies of this market, trading top-line growth for improved earnings.
Kodak is well-positioned in Retail Systems Solutions and is the market leader with more than 100,000 retail touch-points worldwide. During 2010, Kodak added more than 8,000 new customer touch-points and is enabling direct Facebook connectivity.
The company’s Film, Photofinishing & Entertainment Group (FPEG) has maintained a strong market position in all of its key product categories, and continues to be a cash generator through the planning period. The FPEG portfolio includes Entertainment Imaging products and services, traditional photofinishing, consumer and professional film capture and services, and products for industrial material markets.
For 2011, the company is taking aggressive action to improve the operating results from these businesses. These actions include capitalizing on Kodak’s market-leading position through a continued focus on unsurpassed quality and service and the introduction of innovative, new film products; continuing to aggressively reduce costs in line with industry decline rates; and taking aggressive actions to mitigate silver pricing volatility, including the implementation of an indexed pricing model for key products and a transition to a product portfolio less dependent on silver.
Kodak enters 2011 with sufficient resources and the financial flexibility to fully implement its strategy for profitable growth.
The company’s target business model assumes, on average, a compound annual growth rate for digital revenues of 4 percent from 2011 through 2013, and a total company compound annual revenue growth rate of less than 1 percent during that period.
Kodak’s target model for 2013 includes a total company operational gross profit margin goal of 25 percent to 26 percent. The company’s goal for operational earnings is 6 percent of revenue for the total company.
“Customers are embracing our unique value propositions in new growth markets, our traction is evident, and we are committed to improving earnings and cash performance from our large, established businesses,” says Perez. “Kodak is now a company with a broad portfolio of innovative digital products and services, leading intellectual property, and dedicated employees around the world. I am confident that we will continue to achieve market success, complete our transformation into a sustainable, profitable company, and create significant value for our shareholders.”

[John NYC]

... drive toward sustainable, profitable growth on the strength of its unmatched expertise in materials science and digital imaging science, the company said.

They're headed nowhere if they don't invent something good, and soon.

It is one thing to capitalize on small video cam technology if that is booming, but ultimately that is a commodity business -- fine for keeping the payroll going for a while.

But they ultimately need to pull an Apple and do something "insanely great" with the wealth of knowledge they have across these domains above. No other company except Fuji has that. That is what makes them different than other tech/imaging companies... the materials piece.

[Ben Syverson]

Whoever creates digital sheet film first will own the market... No reason why it shouldn't be Kodak.

[Lynn Jones]

When you go "public" you become a target. When Wallstreet sees the roller coaster ride, regardless of cause, they set about to play their games. At my age I've seen this repeatedly, the company is either destroyed or it retains a name but nothing else and then self destructs. Somehow or other I can see future sales in Kodak gutters and downspouts!

My guess, with 6 decades in the business, and among other things I teach Photo History, that "the street" will take over EK, highly unqualified people will manage, and a series of product curves will be generated. They will decide that dealing with digital is the "in" thing, that some cutesy lower cost products will be emphasized, and then because of the more or less constant reduction of film sales that the "coating alleys" (and they are rather new and very expensive) should be sold and at a fire sale low price. Their mistake, as always, will be based on sales curves rather than market potential with legitimate thoughts towards a fairly "flat" curve of demand. A smart organization will take a look at the surprisingly hard core of film fanaticism and decide that this is good for at least 25 years, if you manage the busines well. Kodak and Fuji dumped very large amounts of research and developent into new films just as digital cameras started to fly high, it was probably not too smart, but some of us liked that just the same. Should the above happen, the break even point for profit would probably much lower than with the Kodak over all heavy weight on it neck, a bit like some of the European companies that always made a profit on smaller sales volume. Looking back a few years, Kodak discontinued b/w photo papers, based on sales curves. The real problem was that Kodak made the worst b/w papers in the industry. Maybe they should have created papers as good as Harman/Ilford and others.

I had over 40 years of professional experience before I started teach pro photography 21 years ago. We have taught 100% digital for over 6 years but I still shoot a small amount of film, especially b/w. I would like to hear what you think.

Lynn

[rdenney]

When you go "public" you become a target. When Wallstreet sees the roller coaster ride, regardless of cause, they set about to play their games.

Dr. Jones, you've hit my biggest complaint about corporate America. They value too much the financial techniques taught at places like the Harvard Business School, based on the assumption that good management needs no domain expertise. Then, they don't listen to the domain experts, and they do whatever they can to build the quarterly financial statement instead of building shareholder value in the long run. Maybe we need to tax capital gains at a higher rate (yes, for me, that is anathema!), and not tax dividends at the income rate as we do now. Then, companies would focus on paying dividends to stockholders rather than focusing solely on capital appreciation. Stock ownership would be more about income and less about capital gains, and companies would focus more on making their business profitable and less on making them bigger.

I recall Robert Townsend (RIP), author of Up The Organization!, offering to be a tour guide at the Harvard Business School in 25 years. He figured business would have wised up and rejected the notion that management technique supersedes domain expertise. He wrote that 35 years ago, so his wish unfortunately did not come true.

Rick "who has seen this from the inside out" Denney

[Howard Tanger]

... The real problem was that Kodak made the worst b/w papers in the industry...Lynn

I beg to differ with you; they made some very fine b/w papers. Howard Tanger

[D. Bryant]

The real problem was that Kodak made the worst b/w papers in the industry.


Lynn

Wow! Such bloviated palaver. Since your statement falls under opinion I'll have to give you a pass even though factually you are incorrect. Kodak made some wonderful B&W paper, as good as anyone but that's not to say Ilford and many others didn't do the same.

Don Bryant