NEW YORK — Eastman Kodak took a major step to increase its share of the U.S. photo finishing market and preserve its color paper business by announcing Monday that it will combine photo finishing operations with Fuqua Industries.
The companies, the nation's two top photo finishers, said they will enter into a joint venture creating a separate photo finishing business with 94 laboratories.
"It is a good move for both companies," said Brenda Lee Landry, an analyst with Morgan Stanley. "Both will get 50% of the profits and both will ultimately become more profitable."
Landry said of Kodak, "This is a further step to ensure they'll keep their customers."
Landry estimated that the new company will have about 25% of the U.S. market. She said the two firms told analysts at a meeting Monday morning that they expect the new venture to have revenue of $600 million.
Atlanta-based Fuqua owns Colorcraft Corp., and Rochester, N.Y.-based Kodak owns the Kodak processing laboratories, Ektra Photofinishing, which was formerly Fox Photo, Qualis Photofinishing, American Photo Group and CX Corp.
Landry estimated that the companies will begin seeing improved profits in 1989.
"The prospects for this new, autonomous business and the domestic photo finishing industry appear excellent," Kodak Vice Chairman J. Phillip Samper said in a statement. "The agreement offers two important benefits: improved financial performance and enhanced service to customers."
Fuqua had been the nation's largest photo finisher until September, when Eastman Kodak bought Atlanta-based American Photo Group. Analysts said the purchase brought Eastman Kodak in line with Fuqua--with both companies each having about 12% to 13% of the $4.2-billion photo finishing market.
The new joint venture company will offer photo finishing services for a full range of films, including color negative, color reversal and black-and-white films. Poster prints, prepaid mailers and specialty products also will be offered.
Landry said that while Monday's announcement was a surprise to analysts, it is not the first time Kodak has entered into a joint venture. She said other such Kodak ventures have occurred in the biotechnical and medical areas. It is, however, the first joint venture the company has entered in the photo finishing area, she said.
Competition From Japan
Kodak has been taking steps to build market share in the photo finishing area while at the same time preserving its business in color paper and chemicals that photo finishers use, Landry said.
The company has been fighting growing competition in recent years from other suppliers including Fuji Photo Film of Japan.
Before buying American Photo this year, Kodak bought Fox in November, 1986. Fox, based in San Antonio, was the largest consumer of Kodak color photographic paper. Later, Kodak sold Fox's retail operations but retained its substantial wholesale business.
Last month, Kodak reported a 51% increase in third-quarter earnings and double-digit sales gains in most of its major products. Its net rose to $396.1 million on sales of $3.91 billion.
In addition to higher sales for film and paper products, Kodak benefited from a major cost-cutting program initiated last year that included staff cutbacks.
Kodak also makes graphic arts materials, copy products, medical films, clinical diagnostic analyzers, chemicals and polymers for packaging. It also has interests in biotechnology companies.