Kodak Shares Plunge 25 Percent
ROCHESTER, N.Y. (AP) - Shares of Eastman Kodak Co. (NYSE:EK - news) slid 25
percent Tuesday to their lowest level in more than six years after the
world's largest photography company warned it will fall short of
third-quarter earnings projections due to an unexpected falloff in demand
for photography products.
"We're in a big derailment right here and we're trying to figure out what it
is,'' Bob Brust, Kodak's chief financial officer, said Tuesday.
"The thing that's amazing is how fast all of a sudden it happened and how
our sales just kind of flattened right out after having a very good
August,'' he told analysts during a conference call.
Kodak predicted earnings would be 20 cents to 25 cents per share lower than
its previously projected range of $1.56 to $1.66 a share.
Fourth-quarter projections could also be revised downward if current sales
trends persist and worldwide economic growth continues to slow, Kodak said.
The company will provide an updated view of the fourth quarter when it
announces third-quarter results on Oct. 18.
Kodak fell $14.63 to $44.38 on the New York Stock Exchange, its lowest level
since April 1994. The component of the 30-company Dow Jones industrial
average helped lead the widely watched market benchmark 175 points lower.
While Kodak has been hobbled by heightened competition in the film industry
in recent years, its announcement Tuesday served to intensify Wall Street's
uneasiness about earnings. Several top-name companies, including Intel Corp.
(NasdaqNM:INTC - news) and McDonald's Corp. (NYSE:MCD - news) have warned of
lower-than-expected profits for the upcoming quarter.
"The fear of a slowing economy - not knowing how far it can slow down or
whether it will slow down - has everybody worried,'' said Ulysses Yannas, a
Kodak analyst at Buckman, Buckman & Reid in New York.
Across-the-board weaknesses in nearly all of Kodak's businesses will likely
bring down revenues by $200 million to $300 million in the third quarter,
the Rochester-based company said. The setback came while Kodak was trying to
overcome higher costs for raw materials, rising investments in digital
photography and the adverse effect of a strong U.S. dollar in Europe.
"For shipments to deteriorate so far so fast,'' big retailers must be
cutting back on the amount of film, cameras and other photographic materials
they're buying, Yannas said. "The retailers, led by Wal-Mart, have been
exceptionally careful with how much inventory they carry,'' he said.
Brust also hinted at evidence of a slowness in sales to some major
retailers. "That may signal they're slowing down their inventories at the
end of September,'' which is traditionally the quarter's strongest period
for Kodak, he said.
While Kodak had anticipated difficulties in Europe, where the euro has shed
nearly 27 percent of its value against the dollar since its January 1999
launch, it was caught off-guard by weakness in the U.S. market.
"The surprising thing is that it's kind of widespread, you can't really pin
it down on any unit performance or any one product,'' Brust said.
Sales of rolls of film in the United States grew by around 5 percent a year
for a decade before surging 8 percent in 1998 and 14 percent last year.
Kodak's sales in that category were up another 6 percent through the second
quarter, helping to lift its second-quarter profits 3 percent. Kodak, which
posted $14 billion in revenues last year, employs 84,000 people.
From another article:
"...The company blamed the weak European currency and higher raw-material
costs for the shortfall, but investors have been wary of the company for
some time. Many feel it has been slow to move into the rapidly growing field
of digital photography..."
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