Eastman Kodak Posts Loss but Digital Sales Soar

Eastman Kodak Co., which turned picture-taking into a mass-market pastime a century ago, is quickly making up for a sluggish start in filmless photography in the 21st century.

Its digital sales, which surged 40% in the fourth quarter, will eclipse revenue from film and other iconic, chemical-based businesses for the first time in 2005.

“You’re watching a great transformation,” Kodak Chief Executive Dan Carp declared Wednesday at an investors’ meeting in New York.

The world’s biggest film manufacturer posted a preliminary loss of $12 million in the October-December period, mainly because of one-time costs to cover job cuts. But its results, reflecting robust gains in the digital arena, handily beat Wall Street forecasts.

The transition from analog to digital imaging has been painful: A year ago, Kodak said it would eliminate 12,000 to 15,000 jobs by 2007, shrinking its workforce to around 50,000 from a peak of 145,300 in 1988.

In the fourth quarter, Kodak lost the equivalent of 4 cents a share, compared with a profit of $19 million, or 7 cents a share, in the year-earlier quarter.

Excluding restructuring costs totaling $395 million, or $1.07 a share, and other items, profit was $236 million, or 78 cents a share. Analysts surveyed by Thomson First Call had forecast earnings of 66 cents a share.

Sales rose 3% to $3.77 billion from $3.65 billion in last year’s fourth quarter.

In all of 2004, Kodak earned $649 million, or $2.16 a share, up sharply from $265 million, or 92 cents, in 2003. Sales rose 5% to $13.52 billion from $12.9 billion.

Kodak said it remained on course to boost revenue to $16 billion, or about $3 a share, in 2006. It expects to earn $2.60 to $2.90 a share this year.

But Kodak also cautioned that it found errors related to its income taxes in 2004 that might require a restatement.

“This situation arises from tax accounting errors, not misconduct,” Kodak’s chief financial officer, Bob Brust, told investors. “It involves complex tax rules, in many cases relating to our restructuring actions overseas.”

An accounting review should be completed in six weeks, “at which time we will issue final results for the fourth quarter and for the year,” Brust said.

Kodak shares rose 11 cents to $31.66 on the New York Stock Exchange. Its shares are down from a 52-week high of $34.74 in November.

Digital product revenue swelled to $1.78 billion in the fourth quarter, propelled by a nearly 50% jump in sales of both digital cameras and photo kiosks. In contrast, sales of traditional products tumbled 16% to $1.98 billion.

Digital accounted for around $5.5 billion of sales in 2004, including $1.78 billion in the fourth quarter, but will vault as high as $8 billion this year, Kodak said. Chemical-based businesses will account for around $6.6 billion in 2005, down from $8 billion last year.