Kodak Reports Loss for First Quarter, Sales Down

“Kodak’s transformation continues. The path to sustainable growth and profitability is not a straight line, but we continue to progress, especially in the strategic technology businesses which will constitute the new Kodak,” commented Kodak ‘s recently appointed CEO, Jeff Clarke. “Our results, while within expectations, reflect the steep declines in our mature businesses, which are currently offsetting the increasing momentum we are seeing in our strategic technology businesses.

“We saw significant increases in sales for our key new products in packaging, digital printing, and digital plates, as increasing numbers of customers embraced our solutions.”

Clarke noted the company’s strong liquidity, with cash of $809 million exceeding debt of $677 million, or by more than $130 million, which he says provides flexibility to continue investing in the business to support future growth.

“In 2014, we will invest about $100 million in R&D and about $40 million in capital improvements to continue bringing innovative solutions to market for our customers, and improving the efficiency of our operations,” Clarke said.

“I’m pleased with our first-quarter reduction in SG&A. This improvement in Kodak’s cost structure will provide operating leverage to projected growth in our strategic technology businesses in the second half of the year.”

Becky Roof, Kodak’s chief financial officer, added, “As we’ve seen in the past, sales in several of our businesses are weighted toward later quarters. We fully expect to see such a pattern again this year, driving revenue and profitability growth.”

Kodak operates under two business segments: Graphics, Entertainment & Commercial Films (GECF), and Digital Printing & Enterprise (DP&E).

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.

The GECF segment had sales of $316 million in the first quarter of 2014, a decline of 18 percent from the $386 million of the prior-year quarter. Kodak says most of this decline was due to the reduction in motion-picture film and one-time licensing revenue. Although the Graphics business had a 4 percent decline in revenue, the Workflow Solutions business grew by 8 percent, while the decline in the digital plates business narrowed significantly. Recent sales momentum in the digital-plates business provides confidence in expectations for continuing improvement in performance in that business through 2014.

In the digital-plates business, customers continued to switch to Kodak Sonora Process Free Plates. Kodak says this technology platform is a breakthrough because it removes the processing step without sacrificing quality or productivity. In addition to the environmental and economic benefits of using Sonora Plates—water, waste and electricity savings—printers also receive the quality, productivity and print capability of traditional processed plates. Kodak expects to quadruple the number of customers using Sonora Plates during 2014, and is investing in increasing production of those plates at plants in Germany, China and the U.S. to meet growing demand for this revolutionary product line.

The decrease in GECF gross profit percent was driven by unfavorable manufacturing costs within Entertainment Imaging & Commercial Films primarily due to lower production volumes and the impact of fresh start accounting, as well as the decline in one-time licensing revenue.  Partially offsetting these factors was an improvement in manufacturing costs in Graphics.

The DP&E Segment consists of four product/service groups, Digital Printing, Packaging and Functional Printing, Enterprise Services & Solutions, and Consumer Inkjet Systems.

DP&E had sales of $166 million in the first quarter of 2014, a decline of 16 percent from the $197 million of the prior-year quarter. Nearly two-thirds of the decline was related to lower sales in the Consumer Inkjet business.

For 2014, Kodak says it’s “on track” to generate significant increases in equipment placements for two DP&E product lines that are essential to profitable business growth. The company expects to increase the number of Kodak Prosper Presses installed to more than 40 during 2014, while also increasing the number of Kodak Prosper S-Series Imprinting Systems by one-third to more than 1,000. Several Prosper Press customers have achieved more than one billion cumulative printed pages from their units.

The firm also expects that placements of Kodak Flexcel NX Systems in the packaging industry will increase by more than 25 percent to more than 400 units, a growth rate that it says significantly exceeds the industry average. Reflecting strong growth in placements and the benefits to customers, Flexcel System annuity volumes grew by 55 percent in the quarter.

Kodak says the decline in gross profit percent for DP&E was primarily due to consumer inkjet ink sales constituting a lower percentage of the segment’s gross profit dollars, and higher manufacturing costs due primarily to the application of fresh start accounting.