NEW YORK (Dow Jones)--Eastman Kodak Co. (EK) swung to a first-quarter profit on surging margin from recent patent deals and a rebound in revenue, though the company continues to face depressed consumer demand.
Kodak's shares dropped 14.5% to $7.14 in recent trading as the company's profit fell short of analysts' expectations and it reaffirmed a forecast of marginal revenue growth for the year.
Still, President and Chief Operating Officer Philip Faraci said on a conference call, "We continue to see tangible results from our forward growth initiatives."
The company, which has been trying for years to rebrand itself as a digital imaging powerhouse, has relied on patent revenue to offset declines in sales tied to discretionary consumer spending and commercial business. Kodak booked $550 million in nonrecurring revenue from an intellectual property settlement with Samsung Electronics Co. (SSNHY, 005930.SE) this quarter, which it said in a filing with the Securities and Exchange Commission more than offset price pressure from spending weakness.
Kodak reported a profit of $119 million, or 40 cents a share, compared with a prior-year loss of $353 million, or $1.32 a share. The results included restructuring and other charges of 42 cents and 39 cents, respectively. Revenue rose 31% to $1.93 billion.
Analysts polled by Thomson Reuters forecast earnings of 90 cents on revenue of $1.9 billion.
Gross margin increased to 41.1% from 13.1% on a patent deal, and increased 4.6 percentage points without it.
Some industry watchers worry that Kodak is relying too much on its intellectual property and courtroom prowess. While the tactic has been successful in cushioning the company from some weakness during the recession, there's no assurance Kodak will win pending claims against Apple Inc. (AAPL) and Research in Motion Ltd. (RIMM, RIM.T) or future suits.
"It's good that they got this, that they're deriving revenue and profit from this IP portfolio," said Dave Novosel, an analyst with GimmeCredit. "On the other hand, the question becomes, can you rely on that going forward or at some point do those revenues not come in as they did? Is there something else beside that?"
Kodak expects to generate $250 million to $350 million in IP-related income per year for the next few years, though it will book more than that for 2010.
Revenue from Kodak's consumer digital business, which is the company's largest and includes cameras, consumer printers and the Kodak Gallery, more than doubled to $891 million. The company has made a push into consumer inkjet printers, but some analysts expressed concern that Kodak wasn't putting enough funds into research and development to create a competitive edge.
"I don't believe there's enough dynamism on their side to really move the needle much more," said Robert Sethre, chief executive of printing and imaging industry analyst Woodford Group.
Sales in the film, photofinishing and entertainment group fell 14% to $431 million, as traditional film sales continue to deteriorate. Sales in the graphic communications group, which includes commercial printing, edged up 1% to $611 million. Kodak recently started shipping a new line of commercial inkjet printers, which it hopes will turn a profit by 2012.
Though Kodak reiterated most of its full-year forecast, the company widened its expected loss from continuing operations to a range of $50 million to $150 million as it books charges for retiring some debt early. The company in February said it expected to report a loss of $50 million to a profit of $50 million for the year. Earlier this year, Kodak repurchased $300 million in 10.5% notes purchased by private equity firm Kohlberg Kravis Roberts & Co. as part of a $700 million capital injection.
Kodak said its next significant debt maturity now isn't until 2013, with most debt due in 2017 and beyond.
-By Melissa Korn, Dow Jones Newswires; 212-416-2271; melissa.korn@dowjones.com
