In Landmark Third Quarter, Kodak Returns to Profitability

Kodak Tower Postcard-1930[1]Driven by strong sales increases for key strategic technology products and intellectual property licensing payments, last week, Eastman Kodak reported net earnings of $19 million for the third quarter of 2014. Net earnings in the third quarter of 2013 were $1.99 billion as a result of a $2.21 billion reorganization item gain in that quarter. Operational EBITDA increased to $89 million in the third quarter from $42 million in the previous-year quarter.

Sales in the quarter were $564 million, up $1 million from the previous-year quarter, despite declines totaling $43 million in the Consumer Inkjet and Entertainment Imaging films mature businesses.

“Our first profitable quarter since our emergence is a milestone,” commented Kodak CEO Jeff Clarke. “Strategic technology product areas, especially in our graphics business, are showing momentum, and we continue to invest significantly in our technology and to build our installed base.

“However, Kodak continues to operate too closely to our breakeven point. While our costs are down, we will continue to re-engineer processes, streamline our organization, and improve execution and accountability to accelerate and broaden our momentum.

“Our digital plates and CTP platesetter product lines delivered solid growth, with continuing robust growth in sales of KODAK SONORA Process Free Plates. Customers worldwide recognize the cost, workflow and environmental advantages offered by this product line, which eliminates use of water, chemistry and energy associated with processing of plates without sacrificing quality. We also showed strong growth for our unique packaging solution, the KODAK FLEXCEL NX System. Our KODAK PROSPER Systems had growth of more than 50 percent in pages printed.”

Chief Financial Officer John McMullen said, “Kodak is on track to meet guidance for 2014 revenue of $2.1 to $2.3 billion and Operational EBITDA of $145 to $165 million. Liquidity remains strong, with a cash balance of $744 million.”

Table 1: Kodak Earnings Summary
Millions of dollars3Q 20143Q 20139 Months
2014
9 Months
2013
Sales $ 564 $ 563 $ 1,573 $ 1,740
Gross Profit $ 156 $ 107 $ 347 $ 390
Percent of Revenue 28% 19% 22% 22%
Net income (loss) $ 19 $ 1,986 $ (77) $ 2,045
Operational EBITDA 1 $ 89 $ 42 $ 119 $ 116

Graphics, Entertainment & Commercial Films (GECF): The GECF segment consists of the Graphics and Entertainment & Commercial Films groups, as well as Kodak’s intellectual property and brand-licensing activities.

GECF segment sales were $400 million in the third quarter of 2014, an increase of 13% from the $353 million of the previous-year quarter.

Table 2: GECF Segment Financial Overview
Millions of dollars3Q 20143Q 20139 Months
2014
9 Months
2013
Revenue $ 400 $ 353 $ 1,075 $ 1,110
Gross Profit $ 102 $ 44 $ 183 $ 191
Percent of Revenue26%12%17%17%
Selling, General and Administrative (“SG&A”) $ 42 $ 56 $ 148 $ 183
Research and Development (“R&D”) $ 5 $ 5 $ 15 $ 14
Segment Earnings (Loss) $ 55 $ (17) $ 20 $ (6)
Operational EBITDA 1 $ 89 $ 36 $ 134 $ 108

A significant decline in motion picture film was more than offset by $51 million in non-recurring intellectual property licensing revenue. Unit volume in the digital plates business was up for the second quarter in a row, led by KODAK SONORA Process Free Plates. Combined with solid growth in computer-to-plate (CTP) platesetter sales, unit volume growth more than offset price erosion and resulted in a modest increase in revenue for the Pre-Press Solutions business.

Operational EBITDA for GECF improved in the quarter by $53 million to $89 million. Kodak says the improvement in gross profit percent was driven by the gain in intellectual property and brand licensing, as well as manufacturing cost reductions in Graphics, primarily from positive comparisons as a result of fresh start accounting and lower material costs.

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