[Pixalo]

After wading through a river of red ink for two years, Eastman Kodak Co. finally hauled in a modest profit in the fourth quarter. For the first time, it also generated more earnings from digital photography and commercial printing than from its storied film business.

The world's top maker of photographic film earned $16 million, or 6 cents a share, in the October-December period. That compared to a year-ago loss of $46 million, or 16 cents a share, when Kodak took hefty charges linked to its mammoth, four-year digital overhaul, which it aims to wrap up this year.

Sales fell 9 percent to $3.821 billion from $4.197 billion largely because of its emphasis on improving digital profit margins, such as focusing more on the higher-end camera market.

Excluding one-time items, Kodak beat Wall Street expectations by earning $169 million, or 59 cents a share, in the quarter. Analysts surveyed by Thomson Financial had forecast earnings of 55 cents a share, but they also anticipated higher sales of $3.94 billion.

The company's shares rose 46 cents, or 1.8 percent, to $25.98 in afternoon trading on the New York Stock Exchange. They have traded in a 52-week range of $18.93 to $30.91.

Kodak had run up eight quarterly losses in a row since last posting a profit of $458 million in the third quarter of 2004. It has accumulated $2.7 billion in restructuring charges and $2 billion in net losses. And it plans to eliminate up to 27,000 jobs, with 23,300 already axed through 2006.

Its overall digital sales in the fourth quarter fell 5 percent to $2.45 billion, while revenue from film, paper and other chemical-based businesses dropped 15 percent to $1.36 billion.

While it made more money from traditional businesses last year — $423 million vs. digital's $343 million — profit from the digital arena shot up 92 percent in the fourth quarter to $271 million. Profit from the older businesses totaled $98 million.

"I think it's a very clear sign they've turned the corner," said Ulysses Yannas, a broker with Buckman, Buckman & Reid in New York. "You have declines in overall sales but an increase in earnings, which means their cost-cutting efforts are staying ahead of the curve."

While film sales have been shrinking by 20 percent to 30 percent in recent years, Yannas added, the 15 percent contraction in the fourth quarter suggests Kodak is benefiting from the demise of film operations at Japan's Konica Minolta and Belgium's Agfa-Gevaert NV.

Three weeks ago, Kodak said it was selling its health-imaging business, created after the discovery of X-rays in 1895, to Canadian investment firm Onex Corp. for up to $2.55 billion.

Aside from paying down about $1.15 billion in debt, the sale could help fund Kodak's long-awaited entry next week into the home inkjet-printer market dominated by Hewlett-Packard Co.

"I'm very excited with the new product introductions that we'll talk about" at a meeting with investors in New York next Thursday, Chief Executive Antonio Perez said in a conference call with analysts.

"I feel more excited than ever with the possibilities of this company," added Perez, who helped develop Hewlett-Packard's lucrative inkjet-printer business before being hired by Kodak in 2003.

Kodak has already sunk more than $400 million into its inkjet project, analysts estimated.

"Inkjet represents an intriguing profit opportunity. If you look at the existing players, the profits run deep and wide," said Matthew Troy, an analyst with Citigroup in New York.

"If Kodak can prove it can offer a product in a capital-efficient manner, in the abstract it certainly makes sense. But I think to a large degree, their timing is about two years behind hitting the sweet spot of the market."

For all of 2006, Kodak's net losses totaled $601 million, or $2.09 a share, compared with a loss of $1.26 billion, or $4.38 a share, in 2005. Sales fell 7 percent last year to $13.27 billion from $14.27 billion in 2005.

Even before shedding its health unit, which employs 8,100 people, its work force has dipped to 40,900 — a level not seen since at least the Depression-era 1930s — from a peak of 145,300 in 1988.