By Gillian Wee
Feb. 8 (Bloomberg) -- Eastman Kodak Co., the world's biggest photography company, will eliminate as many as 5,000 more jobs than originally planned as it accelerates its withdrawal from the consumer film business.
Kodak now expects job cuts to total 28,000 to 30,000, shrinking the workforce to about half its size four years ago, compared with an earlier forecast of 25,000 to 27,000. That will boost restructuring costs to as much as $3.8 billion, the Rochester, New York-based company said today in a statement.
Chief Executive Officer Antonio Perez is stepping up his restructuring plans to deliver on his promise to complete Kodak's transformation into a digital company this year amid slumping film demand. The additional cuts are being driven by the sale of Kodak's health-imaging unit, the company said. Perez began the revamping in 2004 and has so far sliced 23,400 jobs at a cost of $2.7 billion.
``The metamorphosis they're going through is going to take longer,'' said Rusty Robinson, president of Robinson Investment Group in Brentwood, Tennessee, which has been selling Kodak shares and currently owns more than 27,000. ``I feel better, I don't feel great. It's just like when you have a terminal illness and you've been told you've got longer to live.''
Restructuring will cost the company $575 million to $625 million this year. Kodak eliminated 1,200 jobs in the fourth quarter as it posted its first profit in more than two years.
``The most important thing for me is to complete this transition,'' Perez said today at a meeting with investors in New York. ``I want the $500 to $600 million we keep using every year to do the layoffs to remain in our pockets starting 2008.''
Shares of Kodak fell 70 cents to $25.99 at 12:39 p.m. in New York Stock Exchange composite trading. They had risen 11 percent in the past year before today.
New Focus
Kodak is targeting gross profit margins of 28 percent to 29 percent by 2009, compared with the 25.5 percent last year, which excludes the health unit's contribution, it said today. Earnings from operations will make up 8 percent to 9 percent of revenue in two years, compared with 2.6 percent last year.
The company said today it expects digital earnings from operations of as much as $300 million this year on revenue growth of 3 percent to 5 percent as Perez starts selling inkjet printers and licenses more technology.
The company's new focus comes as it sheds its health business. Last month, it agreed to sell the unit, which makes digital X-ray machines and mammography equipment, to Canada's Onex Corp. for as much as $2.55 billion.
The new cuts mean Kodak might eliminate as much as 15 percent of its global workforce this year, leaving about 35,000 workers, said spokesman Dave Lanzillo. That's about a quarter of the company's 145,300 employees in 1988.
Sales Forecast
Revenue, excluding the health group's contribution, will be $10 billion to $10.4 billion this year, compared with $10.8 billion in 2006. Gross margins will be 25 percent to 26 percent compared with 25.5 percent last year.
Kodak's 7.25 percent note due in 2013 was little changed at 100.25 cents on the dollar, the yield at 7.2 percent and the spread widening 5 basis points to 245 basis points over government debt.
The perceived risk of owning Kodak's bonds rose, according to traders who bet on the creditworthiness of companies in the credit- default swap market. Credit-default swaps based on $10 million of the company's rose to $174,840 from $171,965, according to prices compiled by CMA Datavision in London. An increase in the contracts, used by traders to speculate on a company's ability to repay debt, suggests a deterioration the perception of credit quality.
Printer Foray
This week, Perez introduced Kodak's line of printers that use lower-cost ink cartridges to compete with Hewlett-Packard Co. Kodak also is developing commercial inkjet machines that will produce customized documents for users such as credit card companies, Bill Lloyd, Kodak's chief technical officer, said in a Feb. 6 interview.
``It generally seems that Antonio has converted Kodak to be a printer company,'' said Ron Glaz, program director at researcher IDC Corp. in Framingham, Massachusetts. ``There's still the issue that consumers aren't printing.''
Kodak, founded by George Eastman in 1880, began marketing the first consumer camera in 1886 with the slogan ``You press the button -- we do the rest.''
The company forecast digital revenue for its graphic communications group, which makes digital plates and commercial printers, to grow 6 percent to 9 percent this year.
Digital Decline
Technology licensing, which helped widen profit margins in the past quarter, will generate revenue and earnings of more than $250 million this year, Kodak said. Typical deals run 3 to 5 years, and Kodak already has agreements with more than 20 companies.
The company also seeks to boost revenue from its CMOS imaging sensor business, which will help widen margins, Perez said. The sensors might be used in products such as cell-phone cameras. Kodak has previously agreed to supply Motorola Inc. with technology to develop such devices.
Kodak lost its lead in the U.S. digital camera market last year, sliding to third as it limited sales of lower-priced models to bolster profit, researcher IDC said.
Sales last year fell 7 percent to $13.3 billion as the company limited sales to focus on profit. Kodak posted a loss of $600 million for the year, narrower than $1.35 billion the previous year.
Digital revenue fell 5.3 percent to $2.45 billion in the past quarter, making up 64 percent of total sales, as the company limited sales of lower-priced products to shore up profit margins. Profit rose 92 percent to $271 million. Traditional film revenue fell 15 percent to $1.36 billion.
To contact the reporter on this story: Gillian Wee in New York at gwee3@bloomberg.net .
Last Updated: February 8, 2007 12:50 EST
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