Eastman Kodak Co, the largest photograph company, will introduce new digital imaging services and products such as lower priced cameras and discontinue a Kodachrome film line to increase profit.
Film sales have dropped as Kodak tries to make a profit on a US$5 billion investment in digital imaging. Digital photography, which doesn't use film, is expected by analysts to become the main method of photography as the technology improves and costs drop.
"We are plodding ahead and we feel good about the long term," Chief Executive Dan Carp said in an interview. "We will be glad when this slowdown is over, just like everybody else."
Kodak expects sales and earnings per share to rise 5 percent to 7 percent a year, once US economic growth strengthens. The company said last month that it couldn't forecast earnings beyond this quarter because film sales were dropping faster than expected. Today's forecast left some analysts skeptical of whether Kodak's digital plan will increase profit.
"We are having difficulty understanding how Kodak can implement an effective transition from a very slow-grow analog-film business to a much more rapidly growing digital products and services business," said Gary Schneider, an analyst at Bear, Stearns & Co, who has an "unattractive" rating on the shares.
The Rochester, New York-based company reiterated that it expects second-quarter profit of US$1 to US$1.30 a share. Analysts surveyed by First Call/Thomson Financial expect earnings of US$1.09 to US$1.14 a share.
"This year has been uniquely depressed making it hard to project stability," Carp said. Growth projections depend on a significant rebound next year, he said.
Carp pledged that Kodak will continue to make investments, including acquisitions, in digital products and services. It will fund this from at least US$6 billion in free cash flow between 2001 and 2005. Carp wasn't more specific on how much Kodak will spend.
"The US$6 billion cash flow number is as good as what they use it for," given that the projection doesn't include this year, said Jonathan Rosenzweig, an analyst at Salomon Smith Barney Inc, who has a "neutral" rating on the stock.
Most companies define free cash flow as money left over after paying expenses.
Kodak will narrow its focus in the consumer digital camera market on devices priced at less than US$500. The company bought online photography company Ofoto Inc earlier this week for an undisclosed price to help online customers store, exchange and print digital images.
The company will also redesign film and packaging for one-time-use cameras and add 800-speed film. Film accounted for a three-quarters of Kodak's US$14 billion in sales last year.
Kodak is discontinuing Kodachrome 25 color reversal, a high-resolution film used by professional photographers for projection slides, and Kodak Royal Gold 1000 color negative film this year.
The products will be available through the end of 2001.
Sales from Kodak's Professional business fell 11 percent to US$367 million in the first quarter, the company said last month.
Kodak's first-quarter profit from operations dropped 48 percent to US$157 million, or US$0.54 a share, and sales fell 4 percent to US$2.98 billion.
The company also said it was firing as many as 3,500 workers to reduce expenses when it announced the drop in earnings and sales.
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