Interview with Eastman Kodak (EK) President and CEO Daniel Carp
June 15, 2000
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Eastman Kodak (EK) President and CEO Daniel Carp on the photo company's future outlook - 06/14/00
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CNBC- SQUAWK BOX<BR> EASTMAN KODAK (EK) PRESIDENT AND CEO DANIEL CARP ON THE PHOTO COMPANY'S FUTURE OUTLOOK<BR> JUNE 14, 2000<BR>
SUMMARY: Carp discusses the company's transition to the digital space. Carp explains the company's earnings projections and plans to buy back its stock. Carp comments on the growth in the company's film business.
Mark: Eastman Kodak is communicating with Wall Street today. The photo giant is hosting an analyst meeting in New York City. One of the topics on the agenda is Kodak's recent strategy to unite film and digital imaging. Shares of Eastman Kodak are trading in the lower end of the 52-week range around the $59 mark. It has a 52-week low of 53 and a high of 78.Let's find out what else is developing at Kodak. Joining us from the New York stock exchange is CEO, president and COO, Daniel Carp. Thank you for joining us. Good morning.
Good morning.
Mark: How do you accomplish this transition? You really have to straddle both worlds because while digital is certainly taking market share away from film, it still doesn't have the quality many people who use film want, will the co-exist continue or is digital ultimately the winner?
Well, eventually digital is the winner but what is happening right now in all our businesses is both the traditional business is growing and the traditional business is growing. That is why today we will be talking to the analysts that we see a way that Kodak will be about a $24 billion company by 2005 versus the $14 billion company last year.
Mark: What sort of growth are you seeing in film?
Actually right now in the U.S. we are having another very good year of film growth, exposures are up about 8%, if it stays at this rate, there will be 1.6 billion more pictures taken in the United States this year than last year. That is really very heartening, even though digital cameras are exploding and our market share in digital cameras have moved up to 25%. We are a strong number two in the space.
Mark: Who is number one?
Sony is in the U.S., but we are closing in on them.
Mark: That is a problem. When you think you are photography you think of Kodak/ but when you think digital you think of one of the Japanese names first.
We found with consumers pictures are special, it is your family, your children, your wedding and when they think pictures they think Kodak and they don't expect anything other than the best technology, traditional or digital. So, it is a unique space and we have a unique position.
Liam Dalton: What are the enhancements above and beyond what Wall Street analysts are calling for right now as far as cash flow and earnings given what you are saying now on the growth rate of revenues?
What we are saying is we can commit and recommit to 10% of the earnings per share growth on an average over the interval and have enough money to invest in what is an emerging digital business. Some people were worried we couldn't stay with that 10% earnings per share growth and combat the fight for the digital space, which we are doing very well. In addition to that given the current stock price, which we feel is very under valued, we will be buying back between 1 and $1.2 billion worth of shares between now and end of the year. I think the reason we can do that is we see strong cash flow in the future so we are not damaging our ability to make acquisitions or invest in the future. So that is what we will be talking about.
Mark: David Faber.
David: Sir, I am curious, I know your CFO has said either way, a slow transition to digital or fast transition we will be okay, which do you expect it will be, though?
Our base case calls for a fairly significant transition, but we can still grow the traditional business, particularly in emerging markets. Remember, we are the leader in China and that is our second largest world film market. If it should go faster that enables a lower cost model. If it goes slower, we will have good cash flow off of it and be able to generate the earnings that way too. We will change as we go along, but we have a pretty aggressive change in place.
David: If it goes faster it enables a lower cost business model, what are you talking about?
To make film is a big capital investment and paper is a big capital investment and SGA costs. In the digital world a lot is done online. We are building a very strong online space with Kodak.com and we are selling some of the digital products online. If it goes faster you don't have as much structural costs. On the other hand as long as the traditional business grows, we want to fuel that so the model will change slightly as we go forward.
David: You are not concerned about the barriers to entry being lower as well.
The world is one where innovation occurs and you have to move fast. Three years ago, I don't think anybody would have predicted we would have been number two in camera share and 2.8 billion in digital sales. I think we can move in the digital world there is work to be done. I don't want to minimize the challenges.
Mark: Not much time left. I am curious about the cost of digital that you mentioned because I am looking at the numbers projecting by 2005, 45% of revenue but only 27% of earnings expected to be generated by digital. I would have thought the margins would turn those numbers around.
Well, actually if you break it apart part in the commercial businesses it is profitable in digital today. The consumer space with digital cameras and the online services is a bit of a food fight right now. We see over the next three years it will continue that way, but we will be able to make money on the commercial digital like we are today and fuel the 10% earnings per share growth and still stay competitive in the consumer digital.
Mark: Mr. Carp, thank you.
Thank you.
Mark: Daniel Carp, president, CEO and COO of Eastman Kodak. |
