ROCHESTER — Eastman Kodak Co. narrowed its third-quarter loss to $43 million, lifted by vigorous inkjet printer sales, lower costs and a big licensing deal with a digital-camera business.
Its adjusted earnings handily beat Wall Street expectations, driving its stock up more than 10 percent Thursday.
The results offered glimmers of hope that the picture-taking pioneer is springing back from the economic downturn in its decade-long struggle to transform itself into a digital photography and printing powerhouse.
But analysts say the July-September quarter also raised some troubling signs: pricing pressures in Kodak’s low-end digital camera business, stiff competition from Hewlett-Packard Co. in retailer kiosks, and a slump in movie-film revenue mirroring a migration to digital-cinema alternatives.
One-time licensing payments “are fine,” said Shannon Cross of Cross Research in Livingston, N.J. “But it doesn’t reflect significant strength in the core business, which is what we keep waiting to see. … I don’t think that improvement is coming through fast enough.”
The camera-licensing agreement with an undisclosed rival — part of a Kodak drive to safeguard its rich array of 1,000-plus digital-imaging patents — added about $210 million in gross profit to the quarter, Chief Executive Antonio Perez said in a conference call with analysts.
Kodak’s ability to generate licensing fees and royalties from intellectual-property disputes — both in negotiations and through the courts — shows no sign of slowing, Perez said.
“I look at IP the way we look at the rest of the business — we have an asset,” Perez said.
Kodak has said it expects to generate an average of $250 million to $350 million annually through 2011 from intellectual property. It has already booked $770 million this year. It is also suing Apple Inc. and Research in Motion Ltd. over camera technology in their iPhone and BlackBerry smart phones.
“It is obvious now looking back that maybe we were too conservative with the numbers we gave you in IP,” Perez told analysts. “The track record is nothing less than spectacular.”
Kodak lost the equivalent of 16 cents a share in the quarter, which compares with a loss of $111 million, or 41 cents per share, a year earlier.
Sales fell 1 percent to $1.76 billion. But revenue from digital businesses rose 10 percent to $1.33 billion, propelled in part by a 26 percent jump in sales of consumer inkjet printers and ink. That helped boost the segment’s profitability for the fourth straight quarter.
Traditional film-based revenue slid 25 percent to $431 million from $572 million, hit by industry-related volume declines and rising costs for silver and aluminum. Operating earnings in the photographic film, photofinishing and entertainment film unit narrowed to $20 million from $47 million.
Excluding items, Kodak said it lost $5 million, or 2 cents per share. Analysts polled by Thomson Reuters expected Kodak to lose 31 cents per share on sales of $1.61 billion.
Its shares jumped 41 cents, or 10.3 percent, to $4.38 in afternoon trading. They are trading at the low end of a 52-week range of $3.26 to $9.08.
The 129-year-old company, based in Rochester, N.Y., is banking on replacing the huge profits it once made from photographic film with ink revenue from promising new lines of digital inkjet printers for both consumer and commercial markets.
Those investments have yet to pay off. Kodak doesn’t expect to generate its first profits from home inkjet printers until 2011, or from a bevy of versatile, high-speed digital presses until 2012.
Kodak doubled the number of consumer injket printers installed in 2009 to more than 2 million units. Ulysses Yannas, a broker for Buckman, Buckman & Reid in New York, expects more than 5 million will be installed by 2011.
“I’m focusing on how well they are progressing on the printing side,” Yannas said. “To me, that’s the Kodak story, as it used to be a film story in the past.”
Kodak is relying on leaner costs to see it through its transition into a digital imaging powerhouse. It has chopped almost 50,000 jobs since 2002 and its work force of 20,300 is its smallest since the 1930s. But after a $3.4 billion turnaround from 2004 to 2007, its momentum was stalled by the recession.
Gross profit widened in the quarter to 27.1 percent of sales from 20.3 percent, driven by the one-time licensing deal and steady operational improvements. The company maintained its full-year revenue outlook of $7.5 billion to $7.7 billion.