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Kodak's 3Q Profits Tumble 63%

The world's largest photography company, which is betting heavily on digital imaging, is wrestling with a three-year drop in film sales.
ROCHESTER, N.Y. (AP) -- Eastman Kodak Co., betting its future on digital photography as it wrestles with a three-year slump in film sales, posted a 63 percent drop in third-quarter profit but handily beat Wall Street's forecasts.

The world's largest photography company said Wednesday it earned $122 million, or 42 cents a share, down from $334 million, or $1.15 a share, in last year's third quarter.

Excluding restructuring and other one-time items, however, earnings were $252 million, or 88 cents a share. That beat the consensus forecast of 57 cents a share among analysts surveyed by Thomson First Call.

Sales rose 3 percent to $3.447 billion from $3.352 billion a year ago. Excluding the impact of the dollar's strength, sales fell 1 percent.

Last month, Kodak slashed its generous annual dividend by 72 percent to fund a major shift away from its ailing conventional film business and into the fast-growing but highly competitive digital arena.

The company expects to have more than $1 billion in digital imaging sales this year. By year's end, industry analysts think that filmless digital cameras, which record snapshots on computer chips, could begin outselling traditional film cameras for the first time in the United States.

Kodak took a charge of $125 million, or 44 cents a share, in the third quarter to cover the cost of job cuts. It is eliminating up to 6,000 jobs this year, which will shrink its payroll to around 62,000 from a peak of 136,500 in 1983.

It also lowered its estimated annual effective tax rate from 24 percent to 19 percent, which boosted its earnings by 10 cents a share.

In its photography division, Kodak said U.S. revenues fell 4 percent to $1.01 billion even while sales of consumer digital cameras surged 117 percent. Health imaging sales edged up 1 percent to $571 million and commercial imaging sales rose 6 percent to $373 million.

U.S. sales of consumer film products, including 35mm film and single-use cameras, fell 12 percent, hurt by price competition. Kodak controls about two-thirds of the U.S. film market but profits have been hit by falling prices and a drop in sales dating back to August 2000.

In sharp contrast, sales in its online photo-sharing service jumped 43 percent, inkjet paper sales were up 33 percent and revenues from its photo kiosks and related products rose 14 percent.

A potent group of investors angered by Kodak's decision to shrink its annual dividend from $1.80 to 50 cents as its shifts hard toward bolstering its digital businesses was staging a forum Wednesday to examine ways to prod the company to change course.

As many as 60 institutional shareholders that control about 25 percent of Kodak's stock were expected to attend the meeting in New York. The group, led by Providence Capital Inc., wants Kodak to try alternative strategies to boost its stock, which is trading at 18-year lows.

For the first nine months of the year, Kodak earned $246 million, or 86 cents a share, down from $657 million, or $2.25 in the first three quarters of 2002. Sales rose to $9.54 billion from $9.39 billion.