NEWS AND COMMENTARY
September 26, 2000 
Kodak 3rd-Qtr Profit to Miss Forecasts; Shares Fall
By Courtney Schlisserman, Bloomberg
Earnings Warnings and Falling Euro Nip Recovery in the Bud ... Weiss comments
ROCHESTER, NEW YORK - Eastman Kodak Co., the world's biggest photography company, said third-quarter earnings will be below previous forecasts because of lower-than-expected sales of film and digital products in September.
Profit will be 20 cents to 25 cents a share lower than Kodak's $1.56 to $1.66 a share forecast. The average estimate of analysts polled by First Call/Thomson Financial was $1.60. Fourth-quarter estimates may have to be revised lower if the current sales trend continues. Kodak's shares fell as much as 17%.
Kodak was counting on strong September sales to offset the effects of unfavorable exchange rates, higher raw material costs and increased investment in digital photography. Kodak is seeking to increase sales of digital photography products as rival Fuji Photo Film Co. gains market share in the film business.
"It's generally a broad-based weakness," Chief Financial Officer Bob Brust said on a conference call. "We're in a big derailment here and we're trying to figure out what it is."
Shares of Rochester, New York-based Kodak fell 10 to 49 in early trading after dropping as low as 48.88. They had dropped 11% this year, while the Standard & Poor's 500 Index declined 2%.
Digital photography, which doesn't use film, is expected to become the main way for taking pictures as the technology improves and costs drop. Film sales accounted for about two-thirds of Kodak's $14.1 billion in sales last year.
Competition
Some analysts have been concerned that Fuji might lower film prices in response to Kodak becoming the exclusive distributor at Wal-Mart Stores Inc.'s Sam's Club wholesaler stores in May.
Kodak's second-quarter earnings rose 4.5% on cost cutting and higher film sales even though Kodak's U.S. market share fell by 1%. The company has said it is working to recoup the drop in market share. It is also moving into the business of online photo finishing and will concentrate on expanding its network of major retailers.
Kodak said in May that a further decline in the euro against the dollar could cut reported sales. A falling euro means that Kodak earns less when sales in Europe are converted into dollars. The euro has dropped about 13% against the dollar this year.
The company will release third-quarter results on Oct. 18.
Kodak is expected to earn $1.44 a share in the fourth quarter, according to First Call estimates.
Despite an international economic rescue attempt -- three central banks teaming up to prop up the euro, the U.S. government releasing oil reserves to dampen the price of crude and a major PR campaign to ease investor concern -- it took just one day for the stock market to resume its descent. Now, a host of disappointing earnings appears in the cards, as several additional companies released warnings late in the trading day yesterday and again this morning.
Clearly, the tide is turning on the market. Investors are ready to punish companies who lower earnings expectations for the third quarter. And in the fourth quarter, the earnings outlook will just get worse. As the casualties pile up, the market will continue to head south.
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