Kodak Cuts Outlook, Sees Job Cuts

Eastman Kodak Co. on Wednesday sharply cut its third-quarter profit outlook as softness in its health imaging unit and fallout from last week's air attacks compounded the impact of overall economic weakness on the photography giant's business. 

Rochester, New York-based Kodak, the No. 1 maker of photographic film, also said its efforts to trim costs could include further job cuts. After the news, Kodak's stock fell to its lowest level in more than 10 years. 

Almost 50 U.S. companies have said their earnings outlook would be affected, at least in part, by the attacks last week that destroyed the World Trade Center in New York and damaged the Pentagon outside Washington, D.C. More than 5,000 people are dead or missing in the attacks, which are expected to tip the economy into recession. 

But Kodak said that it noticed its results softening even before the attacks, with total sales through the end of August down 7 percent from a year earlier, accelerating the trend of declining revenues seen in the previous three quarters. 

Earnings in its health imaging unit, Kodak's second-biggest business with some 15 percent of sales, will fall short of expectations. Along with short-term operating issues, the company cited margin pressures from aggressive price competition in both the digital and traditional segments of that business. 


The warning raised eyebrows among Wall Street analysts who noted that Kodak must now weather problems in what was considered a growing segment, even as it fights the tougher battle of spurring it troubled consumer division. 

``We remain concerned,'' said Salomon Smith Barney analyst Jonathan Rosenzweig, who holds a ``neutral'' rating on the stock. ''Recent market share losses in single-use cameras and even roll film leave us wary about Kodak's ability to quickly overcome that without prices tumbling, especially in a lackluster economy.'' 

Kodak's third-quarter earnings, excluding charges, will not likely exceed 65 cents per share, the company said. That compares with previous per-share forecast of 90 cents to $1.20. In the third quarter last year, Kodak earned $1.40 a share. 

Wall Street analysts had estimated profits of $1.00 to $1.10 per share with a mean forecast of $1.03 per share, according to research firm Thomson Financial/First Call. 

``Unfortunately, the U.S. economy is showing signs of further slowing, exacerbated by the Sept. 11 attack,'' Kodak Chief Financial Officer Bob Brust said. ``We are also beginning to see weakening economic conditions in other countries around the world.'' 

Shares of Kodak on Wednesday closed at $37.61, off 5.6 percent, or $2.22, after earlier hitting a low of $33.80, its lowest in about a decade. The decline came amid a similar slump in broader markets, with the bellwether S&P 500 index dropping more than 4 percent during the day, before narrowing its losses at the close. 

While the company, which earns most of its revenue from consumers interest in snapping, developing, and distributing their pictures, said that while it believes a recovery will eventually occur, it sees no signs of it yet. 

``The negative sales trend in U.S. consumer film sales that were visible in June have continued, while both Kodak Professional and Entertainment imaging continue to be impacted by reduced advertising spending,'' Brust told analysts on a conference call. 


Brust attributed about 40 percent of the drop in guidance to health imaging concerns. The company had expected margins in the sector to improve during the year, but it has not happened. 

``It is now clear that a number of factors including competitive reaction to our market success has had a greater impact on overall realized prices that we fully anticipated,'' Brust said. ``As a result, we see a much longer path to margin recovery than we originally anticipated.'' 

Kodak, which has worked to cuts costs as it deals with flagging consumer demand for its camera, film, and services, on Wednesday said that more staff cuts may come. 

``As we pursue cost reductions, we will continue to go after non-people-related expenses,'' Brust said. ``However, it is inevitable that we will have to eliminate additional jobs. 

Earlier this year, the company set plans to trim up to 3,500 jobs, out of its worldwide work force of about 78,000. 

Other imaging and photography industry stocks also fell on Wednesday, a day when most major stock market indices traded lower. 

Polaroid Corp. fell 16 cents, or 15 percent, to 90 cents a share, and Xerox Corp. was down 88 cents, while printer maker Lexmark International Inc. fell $3.10, or about 7 percent, to $42.90.