Eastman Kodak (EK)
Q2 2011 Earnings Call
July 26, 2011 11:00 am ET
Antonio Perez - Chairman, Chief Executive Officer and Chairman of Executive Committee
Antoinette McCorvey - Chief Financial Officer and Senior Vice President
Sandra Rowland - Vice President of Corporate Finance Group and Director of Investor Relations
Chris Whitmore - Deutsche Bank AG
Ananda Baruah - Brean Murray, Carret & Co., LLC
Mark Kaufman - Rafferty Capital Markets, LLC
Shannon Cross - Weeden & Co., LP
Previous Statements by EK
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Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Eastman Kodak Second Quarter 2011 Sales and Earnings Conference Call. [Operator Instructions] This conference is being recorded today, July 26, 2011. I would now like to turn the conference over to Sandy Rowland, Director of Investor Relations. Please go ahead.
Good morning, and thank you for joining us today for Kodak's second quarter 2011 sales and earnings conference call. Here with me today are Antonio M. Perez, Kodak's Chairman and CEO; as well as Ann McCorvey, Kodak's Chief Financial Officer. Antonio will begin this morning with his observations on the quarter, and then Ann will provide a review of the quarterly financial performance.
Certain statements during this conference call and question-and-answer session, may be forward-looking in nature or forward-looking statements as defined in the United States Private Securities Litigation Reform Act of 1995. For example, references to the company's expectations regarding the following are forward-looking statements: revenue, revenue growth, gross margins, cost savings, SG&A and R&D cost reductions, earnings, cash generation and usage, increased demand revenue and profitability for our products, including Commercial Inkjet, Consumer Inkjet, Workflow Software and Packaging, potential revenue, cash and earnings of intellectual property licensing and a potential outcome of intellectual property infringement litigation, liquidity, liquidity, potential proceeds from asset sales and actions to mitigate the effect of commodity cost increases. These forward-looking statements are subject to a number of important risk factors and uncertainties, which are fully enumerated in our 10-Q, which we issued this morning. Listeners are advised to read these important cautionary statements in their entirety as any forward-looking statement needs to be evaluated in light of these important risk factors. Now, I will turn the call over to Antonio Perez.
Thank you, Sandy, and good morning, everyone. Before I share with you my observations on the second quarter, I would like to spend a few minutes giving you my perspective on the last Wednesday announcement about the fact that we are exploring strategic alternatives for our digital imaging patent portfolios, which consist of approximately 1,100 patents, which are approximately 10% of our total patent portfolio. This action does not change our intellectual property litigation strategy at the international rate commission or in the district courts. And we remain confident that the patents being litigated will be found to be valid and infringed.
One of the great strengths of this company has always been our intellectual property. We were one of the first companies to invest in digital imaging technologies, and in fact, we invented the digital camera in 1975. We continue to innovate and pioneer many of the major advances in digital imaging devices, systems and services. It is also important to recognize that we continue to invest and innovate in several other areas including material science, device physics and computational sciences. We expect to maintain significant patent portfolios in all of these areas, and therefore, our business in the Graphic Communications Group and in the Consumer Digital Group will continue to be well positioned from an intellectual-property perspective. We will build our intellectual property portfolio in a manner that will provide technology platforms for future growth. Examples of those will be functional materials, microfluidics and the intelligent management of digital assets.
We always have 3 fundamental objectives surrounding our intellectual property strategy, which are and have always been design freedom, gaining access to new markets and partnerships and generation of cash and earnings. The announcement on Wednesday falls within that strategy.
Given the heightened demand in the marketplace for premium intellectual property assets, we believe that the timing is right and that we have a great opportunity for these very valuable assets. While we cannot predict at this time the final structure of any transactions, we will work with our advisers to identify the right alternative for the company and for our shareholders. Again without committing to a specific timetable, we expect to run an efficient process. We have a very experienced intellectual property team, a proven record, licensing parts of our portfolio and complementary patents.
In summary, the announcement reinforces the strategy of the company. We are committed to completing our transformation to a digital profitable and sustainable company by 2012.
And now I would like to highlight the key elements of our second quarter performance. As you are aware, it's scaling our 4 digital growth businesses: Consumer and Commercial Inkjet, Workflow Software & Services and Packaging Solutions is a key priority for 2011. These businesses are all based on differentiated value propositions and target large markets in need of transformation. They will be the foundation for the digital profitable and sustainable product in 2012 and beyond.
This quarter, when compared to the prior-year quarter, they grew 22%. Way above the industry growth and more than doubling the 2010 year-over-year growth rate. Let me break it down for you. The momentum in the market that we saw in the first quarter for our Consumer Inkjet and Packaging Solutions continued in the second quarter. These businesses together grew 50% again this quarter, demonstrating that building an installed base of equipment will drive higher margin annuities that will grow in the future.