Eastman Koda CEO Discusses Q4 2010 Earnings Call Transcript

Eastman Koda (EK)

Q4 2010 Earnings Call

January 26, 2011 11:00 am ET

Executives

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

Analysts

Arun Seshadri - Credit Suisse

Chris Whitmore - Deutsche Bank AG

Ananda Baruah - Brean Murray, Carret & Co., LLC

Ulysses Yannas - Buckman & Reid

Mark Kaufman - Rafferty Capital Markets, LLC

Shannon Cross - Weeden & Co. Research

Presentation

Operator

Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Fourth Quarter 2010 Sales and Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Sandra Rowland, Director of Investor Relations. Please go ahead, ma'am.

Sandra Rowland

Good morning, and thank you for joining us for today for Kodak's fourth quarter 2010 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; cost of goods sold; savings from restructurings and rationalization; product pricing; gross margins, earnings; earnings growth; cash generation; emerging markets growth; demand for and performance of our products, consumables and services, including commercial inkjet, consumer inkjet, workflow software, prepress packaging printing solutions and products for thin film displays and special chemistry; commodity cost; potential revenue; cash and earnings from intellectual property licensing; liquidity; and debt.

These forward-looking statements are subject to a number of important risk factors and uncertainties, which are fully enumerated in our press release issued this morning. Listeners are advised to read these important cautionary statements in their entirety as any forward-looking statement need to be evaluated in light of these important factors and uncertainties.

Now, I will turn the conference call over to Antonio M. Perez.

Antonio Perez

Thank you, Sandy, and good morning, everyone. Our fourth quarter and full year results reflect a consistent and sustainable momentum that we are having with our core growth initiatives: Consumer inkjet, commercial inkjet, workflow software and services and packaging. We grew these products lines 23% in the fourth quarter and 18% for the full year, demonstrating that our unique value propositions continue to resonate with the consumers and our business customers.

In the fourth quarter, consumer inkjet had its largest revenue quarter since we launched the product line in 2007. We grew printers and ink revenue 40% in the fourth quarter when compared to the prior year. We built momentum each quarter during this year as we introduced new products, expanded our distribution channels, particularly in the Office Store segment and resolved supply constraints that we have in the first half of the year. We continue to expand our installed base as we grew our printer volumes by 45% during the year including 63% printer volume growth in the fourth quarter. This is remarkable growth when you consider that the industry grew less than 5% and is a testimony to consumers' acceptance of our value proposition because we maintained our price premium compared to the market.

In addition, we know that we are reaching the right consumers. Those who print the most as we grew our ink revenues 86% during the fourth quarter and 77% for the year. More importantly, because of our increase in scale, we doubled our gross profit dollars in 2010 and we expect to sustain this momentum heading into 2011. We are on track to become profitable during 2011 and to generate positive earnings for the total of 2012.

Our Commercial Inkjet business also had its largest revenue quarter of the year in the fourth quarter and achieved a number of key milestones. The transformation in the graphic industry to digital printing is happening now. Across the press is ready and we are prepared to lead our customers to this transition with our color and black-and-white across the presence. Our presses based on our breakthrough Stream Technology deliver offset class quality, offset asset classes flexibility and lower operating costs combined with the ability to perform variable data printing. Their productivity is superior to any digital press in the market.

We continue our growth of press installations in all regions of the world. In 2010, our growth was primarily fueled by sales of components as we quadrupled the number of printing systems that we sold. Our FLEXCEL NX revenue within Packaging Solutions tripled in the fourth quarter. Our FLEXCEL NX system is designed for a wide range of mainstream packaging applications and uses unique technology to deliver exceptional high-resolution print quality packaging combined with significantly reduced production cost. This leading edge solution helps our clients stand out in the market with packaging that really grabs customers' attention on the shelf and drive sales. We doubled our installed base in 2010 when we placed our 100 FLEXCEL system in the fourth quarter. As with our growth initiatives, our rapidly expanding installed base will drive higher margin annuities in future periods.

Finally, our Workflow Software and Service business which integrates all of our offerings picked up momentum in the back half of the year growing by 21% when compared to the second half of 2009. The growth was driven by strong demand for business across the services in the emerging markets. I am very pleased with the strong performance of this core growth businesses which are critical to our future.

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