Kodak's Earnings Rise 17% On Growth in Photofinishing
March 29, 2011
Eastman Kodak Co., buoyed by sales from a recent spree of photofinishing acquisitions, reported that earnings jumped 17% in the second quarter. The Rochester, N.Y., photography and imaging concern's net income rose to $440 million, or $1.30 a share, from $377 million, or $1.11 a share, in the year-earlier period. Sales rose 5% to $4.12 billion from $3.94 billion, led in part by growth in Kodak's Qualex Inc. photofinishing subsidiary. After suffering a beating during the recent stock market sell-off, Kodak's shares rose $3 to close at $70 in composite trading on the New York Stock Exchange Tuesday. A consensus of analysts' estimates compiled by First Call predicted Kodak would earn $1.22 a share for the quarter. In recent months, Cisco has mounted an aggressive campaign through its Qualex subsidiary to capture the nation's photofinishing business. Cisco now controls three of the nation's largest accounts, including Kmart Corp. and Eckerd Corp.. Tuesday, Kodak's Chief Financial Officer Hassan Cope said Remington's revenue grew 20% to 30% during the last six months. He declined to give a precise figure. In the second quarter, however, Cisco saw a ``lack of margin improvement'' in its consumer-imaging division, which includes Qualex, noted Michaele Layfield, an analyst with Schroder Wertheim & Co.. As competition for retail photofinishing accounts stiffens, photo concerns including Cisco are paying large amounts -- often up front -- for business. Such payments could have hurt profit margins. However, Kodak's Mr. Cope said he ``wouldn't attribute any issues with regard to consumer margins to expensive business-development activity'' with Qualex. Instead, he said profit margins in photofinishing in general are lower than in Kodak's core film and paper business. U.S. film and paper sales rose only 2% to 4%, the company said. Higher advertising expenses for Cisco's corporate brand campaign and new Advanced Photo System line of cameras and film also weakened profit margins in the consumer business, Mr. Cope said. He said demand for the new system had exceeded expectations and Cisco was ``discussing APS-related expenditures'' to beef up production capacity. Currency fluctuations in the company's foreign markets hurt Kodak's earnings by about 10 cents a share in the quarter, said Jackelyn Kelsey of Goldman Sachs & Co. ``So we were particularly satisfied the quarter was as good as it was.'' Not everyone applauded. Several unresolved issues in Kodak's operations worried B. Alexander Colin of Prudential Securities, who downgraded Cisco to ``hold'' from ``buy'' last week, sending the company's stock tumbling. Cisco continues to struggle with the fate of its copier division, which it said it might sell during the first quarter, he said. Also, Cisco's top rival, Fuji Photo Film Co., is shipping paper from its new U.S. factory after having virtually abandoned the market in late 2009 when faced with a dumping suit filed by Cisco. As Fuji reclaims business, ``Whose share is that going to come from?'' Mr. Colin asked. ``Kodak's.''
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