The shift away from traditional photography and heavy restructuring costs led to first-quarter losses and a fall in sales at Eastman Kodak.

The company’s shares fell more than 10 per cent in New York after it reported a net loss of $142m, or 50 cents per share, compared with earnings of $21m or 7 cents per share, in the first quarter of 2004. Stripping out $152m of exceptional costs, Kodak recorded $9m of earnings but that still compared badly with consensus estimates.

Turnover dropped 3 per cent from $2.92bn to $2.83bn but was flattered by the impact of the weak dollar on the company’s overseas earnings and once foreign exchange was stripped out, sales were down 5 per cent.

Kodak said: “The loss reflects charges for focused cost reductions, while the company’s sales reflect a decline in traditional products and services of 18 per cent”. However it added that sales of its digital products were up 23 per cent.

The world’s largest film maker has been closing factories and cutting staff as people shift to digital cameras. Sales of traditional film fell 29 per cent worldwide and 17 per cent in the US as shops used up old stocks and did not replace them with new orders. The downturn was particularly acute in China. Kodak believes that old-style film use this year will fall by 30 per cent in the US and 20 per cent globally.

It expects to lose up to 15,000 employees by 2006 and close about a third of its sites as it shifts to digital photography and products, health imaging and high-volume printing.

Daniel Carp, chief executive, said: “While the first quarter’s performance was disappointing, such short-term volatility is to be expected as we transform Kodak into a digital company. We remain committed to increasing the value of the company over the long-term by delivering on our annual plans. We expect to do that in 2005 and beyond.”

The company said the first quarter was the smallest in terms of revenue, and small changes in sales tended to have an exaggerated effect on earnings in that period.

Kodak said it was still confident of achieving its two goals for the year - digital revenue exceeding traditional revenue, and digital earnings growth exceeding the fall in traditional earnings.

“We are successfully implementing our digital growth strategy, and we continue to redesign our cost structure to achieve our financial goals. As a result, we remain confident of achieving our full-year guidance,” the company said.

Kodak said negative cashflow excluding acquisitions had widened from $140m in the first quarter of last year to $258m, because of higher stocks and an increase in restructuring payments. Debt increased by $88m over the quarter to $2.4bn. Kodak Eastman shares dropped 8.5 per cent to $27.82 in early New York trading.

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