UPDATE 3-Kodak posts disappointing Q2 loss, stock drops

* Q2 oper loss $0.43/shr misses Wall St view loss $0.36/shr

* Q2 revs down 29 pct to $1.77 bln vs view $1.83 bln

* Shares fall 12 percent

* Expects "improved" second half of 2009 (Adds analyst comment, stock activity)

By Franklin Paul

NEW YORK, July 30 (Reuters) - Eastman Kodak Co (EK.N) posted disappointing second-quarter results on Thursday as weak demand hurt its film and digital photography businesses, sending its shares down 12 percent.

Kodak said sales fell sharply as a global recession limited consumer spending on travel and other activities that spur the usage of cameras and snapshot printers.

Also, tight credit markets have muted plans by other companies to invest in Kodak's commercial printing systems and services.

Kodak's traditional film business continued to shrink, with sales falling 30 percent in the quarter, hurt in part by uncertainty over Hollywood labor talks, which have since been resolved.

Kodak posted a second-quarter loss of $189 million, or 70 cents a share, compared with a profit of $495 million, or $1.72, a year earlier.

Excluding special items, the loss was 43 cents a share. Analysts, on average, expected a loss of 36 cents share, according to Reuters Estimates.

Kodak said its gross profit margin fell to 18.5 percent from 23.6 percent as sales declined and intellectual property licensing royalties decreased.

Revenue fell 29 percent to $1.77 billion from $2.49 billion. Analysts expected $1.83 billion, according to Reuters Estimates.

Analysts shared shareholders' lack of enthusiasm over the results, with several calling attention to Kodak's ability to generate cash. Kodak had negative cash flow of about $158 million in the quarter.

"We remain concerned over Kodak's use of cash in 2009 and 2010 and the company's ability to pay off the (debt) in October 2010," said analyst Shannon Cross of Cross Research.

Kodak ended the latest quarter with $1.1 billion in cash and $1.3 billion in debt, versus cash of $2.3 billion and debt of $1.3 billion in the year-ago period.