Kodak’s Digital Revenue Exceeds Film Sales in ’05

On its bumpy journey into the digital era, Eastman Kodak Co. sped past a historic milestone last year by generating more revenue from digital imaging than from film-based photography, the company said Monday.

But as Kodak posted its fifth quarterly loss in a row, many analysts questioned why the company’s booming digital business wasn’t helping the bottom line.

“The revenue growth is there, but what level of profitability can they extract from it?” asked analyst Matthew Troy of Smith Barney Citigroup in New York.

Although Kodak’s overall earnings appeared to beat expectations, Wall Street seemed nervous about the photography icon’s lower-than-expected fourth-quarter profit from its fast-expanding digital business. The stock slipped more than 2% to close at $25.75.

The 125-year-old company, which is eliminating as many as 25,000 jobs, lost $52 million, or 18 cents a share, in the October-to-December quarter, compared with a loss of $59 million, or 20 cents a share, a year earlier. Sales rose 12% to $4.20 billion from $3.76 billion a year earlier.

Excluding one-time items, including an income tax refund that boosted profit by $243 million, Kodak earned $151 million, or 51 cents a share. The average forecast among analysts surveyed by Thomson Financial was for earnings of 39 cents a share on sales of $4.15 billion.

However, Kodak’s digital profit of $161 million, hit by shortfalls in its health-imaging business, were not as high as analysts had hoped.

“Some of us were looking for $175 million in digital earnings,” said Ulysses Yannas, a broker with Buckman, Buckman & Reid Inc. in New York.

For 2005, Kodak lost $1.37 billion, or $4.76 a share, versus a profit of $556 million, or $1.94 a share, in 2004. Revenue rose 6% to $14.27 billion from $13.52 billion a year earlier.

Digital sales reached 54% of total revenue in 2005, exceeding sales from film, paper and other chemical-based businesses for the first time.

“Perceptually, that means something when the history books are written on this company,” Troy said. “But what the Street and investors are increasingly focused on, rightly so, is what kind of profitability can you get from those revenues?”