Eastman Kodak Company (EK) reported its financial results for the second quarter of 2011 on July 26. The company reported loss from continuing operations of 67 cents a share compared with a loss of 62 cents in the year-ago comparable quarter.
The loss incurred during the quarter was higher than the Zacks Consensus Estimate loss of 59 cents per share.
The year over year earnings decline was primarily attributable to rising raw material costs of silver and aluminum and investments to drive digital growth initiatives.
Revenue
Kodak reported sales of $1.4 billion, down 5% year over year. The year-over-year decline was primarily attributable to the increased raw material costs as well as industry related volume decline. Reported sales also missed the Zacks Consensus Estimate of $1.5 billion.
Revenue from Consumer Digital Imaging Group declined 8% year over year to $404 million compared to $438 million in the second quarter of 2010. The decline was primarily due to expected lower sales of digital cameras which were partially offset by growth in Consumer Inkjet and Retail Systems Solutions.
Revenue from the Graphic Communication Group improved 4% to $685 million in the second quarter of fiscal 2011. Growth in revenue was primarily driven by favorable foreign exchange translation, growth in Commercial Inkjet, Workflow Software & Systems and Packaging Solutions all of which grew a combined 13%.
Film, Photofinishing and Entertainment Group’s revenue dropped 14.0% year over year to $396 million. The declined was attributable to industry related volume declines.
Margins
Gross profit decreased to 14.2% from 19.5% in the year-ago quarter due to increased raw material costs, unfavorable price/mix and continued investment in the company’s strategic growth businesses.
SG&A expenses were recorded at $289 million, down from $313 million from the prior-year quarter.
Cash Flow
Net cash used in continuing operations from operating activities (GAAP basis), was recorded at $322 million versus $173 million reported in the previous quarter. Addition to properties remained static at $33 million compared with the year-ago quarter. Exiting the second quarter, Kodak’s cash and cash equivalents was recorded at $957 million.
Outlook
For FY11, the company continues to forecast total revenue in the range of $6.4-$6.7 billion, primarily focusing on the company’s digital growth business.
Based in New York, Kodak provides imaging technology products and services to the photographic and graphic communications markets across the globe. The company directly competes with its peers such as Canon Inc. (CAJ), Sony Corporation (SNE) and FUJIFILM Holdings.
We currently maintain a long-term Neutral recommendation on the stock. Kodak has a Zacks #3 Rank, which translates into a short-term Hold rating (1-3 months).
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