Kodak to Cut Jobs, Posts Profit Drop

Eastman Kodak Co. said Wednesday that it would cut as much as 9% of its workforce and reported a 60% drop in second-quarter profit, hurt by weakness in camera and film sales, especially in China.

Despite the soft results, its stock rose 9% on views that Kodak has come to grips with some of its problems and that the company may not cut its dividend, which at about 7% has the highest yield among blue-chip stocks.

Kodak, the leading maker of photographic film, has been scrambling for alternative markets as demand shrinks. The Rochester, N.Y.-based company said it would cut 4,500 to 6,000 jobs, or 6% to 9% of its global workforce. The cuts will be made primarily in corporate administrative departments, manufacturing and research and development, the company said.

“I think reality has hit them in the face,” said analyst Shannon Cross of Cross Research. “The economy did not come back like they had hoped; they had said that if it did not come back they would look at cutting costs.”

Kodak’s second-quarter net income declined to $112 million, or 39 cents a share, from $284 million, or 97 cents, a year earlier. The results were above the forecast the company made in June, when it slashed its expectations to between 5 cents and 25 cents. Excluding one-time items, earnings were 60 cents a share, the company said.

Sales rose slightly to $3.35 billion from $3.34 billion. Excluding the benefit of foreign exchange, sales fell 6%, the company said.

Kodak’s film and paper business faces a long-term threat from digital photography, that allows users to record snapshots onto a memory chip and delete unwanted pictures. Analysts say Kodak must shrink and fund profitable growth areas such as medical imaging, which makes X-ray products for hospitals.

Toward that end, Kodak said Monday that it would buy PracticeWorks Inc., a maker of software for dental practices and medical imaging systems, for about $466 million.

Sales in China, its second-biggest market, were particularly hard hit. They fell 19% amid a slump related to the outbreak of severe acute respiratory syndrome, or SARS. However, Kodak Chief Executive Dan Carp said growth areas performed well in the period, with digital camera sales up 65% and health imaging earnings up about 17%.

Kodak shares were up $2.27 at $26.86 on the New York Stock Exchange. The stock closed Tuesday at $24.59, its lowest level in more than 20 years.