Kodak sharpens focus on core portfolio

At the same time, Kodak will continue its focus on cash and begins 2009 with more than $2.1 billion and no significant debt payments likely until late 2010. The broad restructuring announced last week will generate $300 million to $350 million in annual savings, plus the additional impact of the company’s portfolio actions.

“The performance of our digital portfolio is strong and Kodak’s balance sheet is solid,” said Antonio M. Perez, Chairman and Chief Executive Officer, Eastman Kodak Company. “But we see no immediate signs of economic recovery, so we are taking steps to address this by focusing investment in our core digital technologies, optimizing our portfolio of cash-generating businesses, and restructuring the company to further reduce our cost structure. In 2009, Kodak will be a smaller, more profitable company, we will continue to gain share in our most profitable digital businesses, and we will enter 2010 as a much stronger competitor.”

These high-margin annuity businesses remain at the core of Kodak’s digital strategy – to maximize Kodak’s competitive advantage at the intersection of imaging science and materials science – and represent significant, sustainable growth potential: Consumer Inkjet within the Consumer Digital Imaging Group (CDG), and Enterprise Solutions and Commercial Inkjet Printing within the Graphic Communications Group (GCG).

Together these new businesses generated about $1 billion in revenue in 2008 and compete in an addressable market of more than $100 billion. In these businesses, Kodak brings differentiated value propositions, breakthrough technology and strong intellectual property.

Consumer Inkjet continues to grow market share with a value proposition – outstanding image quality, superior image permanence and significant savings on the price of ink – that resonates with consumers who print a lot. In 2008, Kodak outpaced the consumer inkjet printer industry in retail sell-through, and achieved an inkjet cartridge attachment rate that’s nearly double the industry average. The company more than tripled its installed base of printers to over one million.

In Commercial Inkjet, Kodak’s Stream technology, introduced last year, has received noteworthy market interest in its offset-class output – rivaling offset printing’s reliability, productivity, cost and quality – combined with the full benefits of variable-data digital output. The commercialization of this new technology remains on an accelerated pace for an early 2010 market launch for the full press, with Stream print heads in the market in 2009. Stream print heads are now in beta test.

Enterprise Solutions, which develops software based on a unified workflow for graphic communications, will maintain strong margins and drive integrated solutions for customers. With more than 40,000 placements currently in the market worldwide, the business’s high margins will enhance the company’s bottom line as scale increases, Kodak said.

The success of Kodak’s core investments stems in part from the company’s ability to maximize its cash-generating businesses. These market-leading product lines represented approximately $6 billion in revenue in 2008, and include the following: Prepress Solutions and Document Imaging in GCG, Digital Capture & Devices and Retail Systems Solutions in CDG, and Entertainment Imaging from the Film, Photofinishing and Entertainment Group (FPEG). For these businesses in 2009, Kodak will focus on margin improvements, including cost reductions, as well as continuing its successful intellectual property licensing program.

Given the economic environment, Kodak is taking a conservative approach in its forecast for 2009. The company expects the external economic environment of the fourth quarter 2008 will continue through the first half of 2009, followed by a modest economic improvement in the second half. Kodak’s full-year projections are predicated on these assumptions.

“Given the limited visibility in the current environment, these assumptions represent our best estimate as to how the year will evolve,” Perez said. “We will closely monitor the global economy’s progress and adjust our plans accordingly.”

For 2009, on a continuing operations basis, Kodak expects: Digital revenue decline of 6 percent to 12 percent; overall revenue decline of 12 percent to 18 percent; 2009 GAAP loss from continuing operations of $200 million to $400 million; and segment earnings of $0 to $200 million; For the period 2009 – 2012, predicated on an economic recovery in 2010, the company expects: Average compound annual revenue growth of 4 percent; and Average compound annual digital revenue growth of between 8 percent and 10 percent.