Eastman Kodak Company — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. Amounts are in millions of dollars except per-share data. Kodak manufactures commercial print and advanced materials and chemicals products.
Key financial results
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $249 | $278 |
| Gross profit; gross margin | $49; 19.7% | $50; 18.0% |
| Earnings from operations before interest, pension income, other income and taxes | $7 | $5 |
| Net earnings | $32 | $33 |
| Diluted EPS | $0.30 | $0.30 |
| Operating cash flow | $17 | $14 |
- Revenue fell $29, or 10%; currency had no impact. Print revenue declined $27 (13%) to $182, while Advanced Materials and Chemicals revenue declined $2 to $59. Brand and All Other revenue were each $4.
- Gross profit decreased $1, but gross margin improved to 19.7% from 18.0%, reflecting lower revenue and costs alongside changes in pricing, product mix and costs.
- Net earnings were nearly unchanged despite lower pretax earnings of $35 versus $41. The lower tax provision ($3 versus $8) partly offset increased interest expense ($15 versus $11) and lower other income. Pension income excluding service cost was $41, compared with $40.
- Operating cash flow was $17, versus $14. Investing activities provided $7, including $17 of asset-sale proceeds, while financing used $18, including a $17 term-loan prepayment. Capital expenditures were $10. Cash, cash equivalents and restricted cash ended at $380; unrestricted cash was $262.
- At March 31, total debt was approximately $448, comprising $1 current and $447 long-term, versus $458 at year-end. Current assets were $677 and current liabilities $274 (working capital $403; current ratio about 2.5). Restricted cash of $118 is not generally available for ordinary use.
Changes, outlook and notable items
- Segment performance: Print Operational EBITDA fell to break-even from $6, on weaker volumes, pricing/mix and higher costs. Advanced Materials and Chemicals Operational EBITDA improved to $1 from break-even; Brand remained $3.
- Unusual items: Kodak recorded a $17 gain on the sale of U.S. assets. Q1 2023 included $10 of insurance reimbursement for legal costs and $9 of interest income related to a governmental refund, affecting year-over-year comparisons.
- Restructuring: Q1 charges were $5, with approximately $2 in cash payments. Actions are expected to produce about $9 of annual cash savings, with most expected to be in effect by the end of Q2 2024.
- Management outlook: Kodak expects 2024 capital expenditures of $40–$55 and about $12 of remaining 2024 pension and postretirement contributions/benefit payments. It says liquidity is adequate for operating and investing needs, while identifying sustained positive operating cash flow and debt and preferred-stock obligations as dependencies. No specific revenue or earnings guidance is provided in the supplied filing text.
- Operating conditions and risks: Management cites weaker plate demand, pricing pressure, higher labor/material/distribution costs and supply constraints. Film demand is increasing, but equipment limits and labor shortages constrain supply. Provisional U.S. duties on certain imported printing plates were announced; final determinations were expected later in 2024, and Kodak cautions relief is not assured. Other stated risks include macroeconomic and geopolitical volatility, competition, foreign exchange, financing and covenant requirements, and supply-chain disruption.
- Liquidity considerations: Some overseas cash may be difficult or costly to transfer. Kodak is evaluating options for remaining installments on a $73 intercompany loan involving its Chinese and Hong Kong subsidiaries; repayment could reduce U.S. liquidity. The company also depends on the ability to convert, redeem or extend Series B and C preferred stock, generally due for redemption in 2026.
- Contingencies: Brazilian operations had about $4 accrued for claims aggregating approximately $93; an additional approximately $5 of claims had at least a reasonable possibility of loss. A federal derivative lawsuit related to the 2020 DFC loan announcement was dismissed with prejudice, but plaintiffs appealed. Kodak reports other litigation and investigations and says it does not currently expect them, individually or collectively, to materially adversely affect financial condition or results.
Important facts for investors to verify
- Whether Print demand, sales volumes and segment profitability stabilize, and whether pricing and cost actions offset ongoing pressures.
- Whether the $17 asset-sale gain and $40 brand-licensing cash receipt are distinguished from recurring operating performance and cash generation.
- Progress toward the projected $9 annual restructuring savings and the $40–$55 full-year capital expenditure plan.
- Availability and transferability of cash by jurisdiction, resolution of the intercompany-loan installments, and ongoing collateral requirements.
- Debt-service capacity and plans for the Series B and C preferred stock, including redemption or conversion terms and timing.
- Final outcomes of the printing-plate duty proceedings and material legal, environmental, Brazilian tax and other contingencies.