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Kodak posts loss, more transition costs seen

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CIOL Bureau
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Franklin Paul

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NEW YORK: Eastman Kodak Co. on Monday posted its fifth consecutive quarterly loss and said it would lose up to $1.1 billion more this year, sending its stock down more than 5 percent as investors lose patience with the cost of its switch to digital technology.

The world's top maker of photographic film, Kodak is in the midst of an effort to transform itself into a provider of digital products and printing services.

Analysts say it is difficult to judge the fiscal health of the company, which is cutting manufacturing assets and jobs even as it expands some segments through acquisitions.

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Analysts said Kodak's forecast of around $900 million to $1.1 billion in losses this year and disappointing revenue growth overshadowed the rise in digital sales, pushing the stock down as much as 5.6 percent.

The outlook portends yet another year of heavy restructuring spending, they said. At the same time, Kodak faces a decline in cash from film sales, which helps pay for its shift.

"For Kodak, 2006 remains challenging, with apparently higher-than-expected (film sales) declines, which will pressure margins and earnings," said analyst Shannon Cross of Cross Research.

In an effort to assuage concerns, Kodak executives noted that digital sales outpaced traditional sales in 2005, and said its investment in commercial printing, digital cameras and imaging sensors will pay off with greater profits down the line.

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"We are not mavericks and we aren't expecting a miracle. This has been done through innovation and a lot of hard work and that's why I think it will happen," said Kodak Chief Executive Antonio Perez at a meeting with analysts.

For the fourth quarter, The Rochester, New York-based company's net loss narrowed to $52 million, or 18 cents a share, from $59 million, or 20 cents a share, a year earlier.

The loss includes $283 million in restructuring charges, partly offset by the reversal of $243 million in tax accruals stemming from a settlement with the U.S. Internal Revenue Service.

Kodak said sales rose 12 percent to $4.2 billion from $3.76 billion. Digital revenue totaled $2.67 billion, up 45 percent from $1.85 billion a year earlier.

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Kodak's solid digital results come on the same day that rival camera maker Canon Inc. said strong sales of digital cameras and printers would help it score a seventh straight year of record profit in 2006.

CUTTING 25,000 JOBS

Since late 2003, Kodak has been beefing up its digital products, hoping to outpace the decline in demand for film, historically its main revenue source. At the same time, it is shrinking its costs by cutting up to 25,000 jobs and trimming manufacturing assets.

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But the shift occurs while several of Kodak's largest units suffer. Fourth-quarter sales of traditional film products tumbled 21 percent to $1.5 billion as demand for film and retail photo finishing continued to decline.

Earnings fell 27 percent in the health group, which sells sophisticated laser imagery products, including radiography and dental imaging equipment used by doctors and hospitals.

Despite the sustained losses, Kodak remains optimistic, saying it believes that digital products, such as cameras and printing, will eventually carry the company. It forecast 2006 digital revenue growth of between 16 percent and 22 percent.

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For the fourth quarter, consumer digital camera and related sales rose 41 percent, while sales in the graphic communications segment more than doubled to $942 million, boosted by recent acquisitions.

But the cost of the strategy shift remains a heavy burden. The company said the ongoing restructuring actions were the major reason behind the expected 2006 operating loss.

Under Kodak's massive effort to transform into a provider of digital products and services, launched in January 2004, it has already cut more than 17,000 jobs, and ended 2005 with some 51,100 employees.

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For 2006, Kodak said revenue could fall as much as 2 percent or rise as much as 4 percent. According to Reuters Estimates, analysts on average are expecting $14.68 billion, up 2.9 percent from $14.27 billion in 2005.

Separately, the company said Chief Financial Officer Robert Brust plans to retire by January 2007.

Kodak shares slipped 51 cents, or 1.9 percent, to $25.87 in afternoon New York Stock Exchange trade after falling as low as $24.88 earlier in the session.

As of Friday, the stock had declined 18 percent over the past year, but was up some 25 percent over the past three months. The stock outperformed the Standard & Poor's 100 index, which had climbed 4.75 percent since late October.

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