UPDATE 4-Kodak posts bigger-than-expected loss, shares drop

* Q2 loss per share 51 cts vs Wall St loss view of 32 cts

* Rev fall 11 pct to $1.57 bln, missing estimates

* Film processing and movie business sales slump

* Shares fall 14 percent (Rewrites, adds company comment, updates stock activity)

By Franklin Paul

NEW YORK, July 28 (Reuters) - Decaying demand from traditional film businesses proved a second-quarter speed bump for Eastman Kodak Co's (EK.N) prolonged plan for profitability through digital businesses.

Shares of Kodak fell 14 percent on Wednesday after the company posted a loss that was much bigger than expected, hurt in part by weak demand for film used to make Hollywood movies and video advertisements, while its photo processing business suffered from the loss of a key customer.

Investors frowned on the stock as they continue to seek signs that its lengthy, expensive restructuring is on a path toward profitability.

"This quarter is definitely softer than it should have been," said analyst Ananda Baruah of Brean Murray, Carret & Co. "The digital businesses are growing, which is good, but you need to be able to convert that into profitability at some point."

Kodak's health has been difficult to peg as it winds down its film business, which still generates a lot of cash that it uses to invest in digital areas like digital photography and commercial printing. But in the second quarter, sales in those growth areas fell 6 percent, compounding a 21 percent decline in its film and photofinishing unit.

On a call with analysts, Chief Executive Antonio Perez said Kodak's entertainment imaging unit faced a drop in the number of Hollywood films being made and a rise in the creation of digital film in 3-D.

"Based on the current (rate of) decline, we now expect this year's entertainment imaging film volume decline to be higher ... than our previously forecasted single digit decline rate," he said, adding later that it would be "in the teens."

"We forecasted a modest recovery for entertainment imaging ... However, a sustained recovery has not yet occurred," he said."

Kodak's last annual profit was in 2004, the year it began an expensive four-year restructuring transforming it into a maker of digital photography products and printers. During the shift, it halved its workforce, and has since stopped its dividend.

For the second quarter, its net loss narrowed to $168 million, or 63 cents a share, from $189 million, or 70 cents a share, a year earlier.

Excluding special items, Thomson Reuters I/B/E/S calculated the loss at 51 cents a share, compared with analysts' average estimate of 32 cents.

Revenue declined 11 percent to $1.57 billion from $1.77 billion, missing the analysts' view of $1.67 billion.

"Kodak's business remains under pressure from the economy and increased competition," said Cross Research analyst Shannon Cross. "The company noted that the loss of a major photo kiosk contract -- WalMart (Stores Inc (WMT.N)) -- hurt the consumer business, while entertainment film declined ... driven by the economy and proliferation of 3-D digital cinema."

The company, which did not identify the lost account, said revenue from digital commercial printing grew in the second quarter.

Despite the weak results, Kodak kept its outlook for 2010 revenue at $7.5 billion to $7.7 billion, and stood by its forecast for a full-year loss of $50 million to $150 million from continuing operations.

Kodak said it now sees full-year digital revenue at the high end of its previous forecast, with traditional revenue slightly below the previous outlook.

Kodak shares fell 69 cents or 14 percent to $4.24 on the New York Stock Exchange, where it was the day's biggest percentage loser in late trading.

The stock has tumbled more than 43 percent in the past three months, but is still up about 19 percent for the year. (Reporting by Franklin Paul; Editing by Gerald E. McCormick and Lisa Von Ahn)