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Kodak warns about results
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December 12, 2000: 2:14 p.m. ET
Film company blames consumer slowdown, reassures on future growth
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NEW YORK (CNNfn) - Eastman Kodak Co. warned Tuesday that a slowdown in consumer spending would hurt profit in the fourth quarter and early next year, but the stock soared more than 5 percent after reassurances of future growth.
The world's largest maker of photo film said its fourth-quarter profit would come in at 65-to-75 cents a share, well below Wall Street forecasts of $1.07 a share. It also warned it would earn 50-to-60 cents a share in the first quarter, below analysts' forecasts of 89 cents a share, according to First Call, which tracks Wall Street forecasts.
That is Kodak's second warning that it would miss fourth-quarter earnings targets. On Oct. 18, the company said slower industry demands and retailer price cuts would cause fourth-quarter earnings to come in between $1 and $1.15 a share, below the $1.24 a share analysts had forecast, according to First Call.
But in announcing action to help combat the near-term weakness, Rochester, N.Y.-based Kodak also said sales and earnings should improve in the second half of 2001 as economic growth recovers. Kodak expects 2001 sales to increase 4-to-6 percent.
"The slowing economy curtailed earnings growth in the second half of 2000 and will continue to do so in the first half of next year," Carp said in a statement. "The actions we're announcing today (Tuesday) will help us manage the effects of the slowdown, which we expect will moderate in the second half of 2001. In no way do the economic conditions cause us to change our strategy of using digital technologies to create a bigger picture industry than exists today."
 Eastman Kodak shares (EK: Research, Estimates), which have tumbled since hitting a 52-week high of $67.81 in August, rose $2.50, or more than 6 percent, to $42.06 by midday Tuesday.
Kodak has struggled with stiff competition in its old-line film business in recent years while it grapples with rapidly growing digital photography. To deal with the slowing demand, the company said it will slash capital spending by $200 million and reduce inventories also by $200 million.
It said earnings for all of 2000 would fall about 7 percent from 1999, caused mostly by an inability to offset the impact of a rising dollar, which hurts Kodak's sales abroad.
During a meeting with analysts Tuesday, Kodak Chief Executive Daniel Carp said weak overseas currencies were the primary drivers in the earnings shortfall, saying he expects negative exchange rates to cost the company 20 cents a share for the full-year 2000.
He dismissed the impact of the rising popularity of digital cameras -- which do not require film -- as minimal, but sees the company losing market share to the technology longer term. He expects digital photography to erode 1 percent of Kodak's growth in 2000.
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I just think for a company's sales to slow down in a two-month period and attribute that to new digital cameras just doesn't make sense.
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Jack Kelly
analyst
Goldman Sachs |
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"There is some substitution going on. There's no question about it," Carp said. "Offsetting that is, we are growing the base not only here, but internationally. There's no way in the world that 4.5 (million)-to-6 million digital cameras against an installed base of millions of cameras is going to turn it around."
However, he acknowledged the importance of recapturing that market share in the long term.
Economic factors, rather than competition from new technology, have hurt the company, Goldman Sachs analyst Jack Kelly told CNNfn's Before Hours Tuesday.
"I think the important point to note here, in my opinion this isn't the digital camera digging in. I just think for a company's sales to slow down in a two-month period and attribute that to new digital cameras just doesn't make sense," Kelly said. "That camera base is not big enough. A year or two from now maybe that'll be the case. I think this is an economic event we're seeing with Kodak."
Robert Brust, Kodak's chief financial officer, told analysts that the company will trim costs by focusing on "non-compensation costs," saying that no job cuts are planned beyond recent cutbacks, but that "we are going to be tough on new hires."
He expects further cost-cutting through attrition.
The company plans to continue buying back about $1 million worth of shares a day in 2001. Kodak's board also authorized an additional $2 billion repurchase plan over the next four years.
So far in 2000, the company has repurchased 21 million shares of its stock, Brust said.
In efforts to bring itself up to speed in the digital age, Kodak has launched several new initiatives in the last year such as Internet photofinishing services through PrintKodak, the expansion of Kodak.com and the launch of Kodak Picture Center on the Web site of drugstore chain CVS Corp. (CVS: Research, Estimates). 
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Eastman Kodak
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THOSE KODAK MOMENTS
