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AnonymousInactiveKodak’s picture not so rosy beneath the headlines
Eastman
Kodak was once the grand dame of the photo biz but in recent years
it’s more famously known as the anchor around Legg Mason Value Trust
manager Bill Miller’s fund, or maybe just as an exercise in perpetual
downward motion. It’s been about two years and $10 a share of further
declines since I first started complaining that Miller should dump his
giant Kodak position. He started buying in the $50s – today the shares
are slumping around $20. In November, with the shares slumping again,
Miller was still bullish though calling for a target price of around
$45 — less than he paid for the stock seven or eight years ago.Today,
Kodak has declared that its long night, the four-year restructuring
plan put in place by media-beloved CEO Antonio Perez, has come to an
end. After cutting over 27,000 jobs and spending $3.4 billion on
restructuing charges (originally, he was only going to spend up to $1.7
billion, but who’s counting?), Perez now declares Kodak revitalized.
And some early headlines reflected this seemingly great news, too.
“Kodak Earnings Surge As Four-Year Restructuring Ends,” Bloomberg
reports. “Kodak Picture Brightens,” Fortune says. “New Focus Boosts
Kodak Net As Digital Sales Increase 15%,” the Wall Street Journal
reports. Where did they get that? Well, Kodak says its net income
jumped to $215 million, or 71 cents a share, from $16 million, or 6
cents a share, a year ago. Great news, huh?But if you scroll down to
the very, very bottom of Kodak’s happy yet convoluted press release,
you’ll find a very different picture. Fourth quarter earnings before
taxes from operations the company still owns declined 2% to $109
million. Well, that includes restructuring charges and interest costs
and all kinds of other stuff, so what about just earnings from
operations still owned? Down 29% to $130 million.What’s going
on? A lot of the bottom line improvement came from units that Perez
sold last year, like the health care imaging operation. Units Perez
sold added $123 million of net income, or 40 cents a share, to the
reported profit in the fourth quarter. Check the math — units Perez
sold actually earned more than the units he kept. This Perez guy may
have a future as general manager of the Minnesota Twins! Furthermore,
the bottom line got a nice bump from a tremendous drop in the provision
for income taxes to $17 million from $126 million in the fourth quarter
of 2006.Ultimately, Kodak’s old film businesses will go to nothing and
its digital businesses, including the growing ink-jet printer effort,
will keep growing. But the old biz was highly profitable — it showed a
15% profit margin in the quarter for 2006 and 9% in 2007. The new biz
is much less cushy – with a fourth quarter margin of 4% the past two
years. Kodak’s commercial graphics business likewise shows a 3% margin
in the fourth quarter. And just stop and think about it for a minute:
Kodak is growing in markets that are ultra-competitive, require lots of
R&D spending to stay current and offer cut-throat margins.
Meantime, its near-monopoly market is shrinking away to nothing. Sounds
like the kind of revitalization investors can do without.
Kodak anticipates launch of products this year
(February
2008) — Eastman Kodak Co. jumped into the desktop printer market last
year with its All-in-One, promising to sell 500,000 by year’s end. The
company exceeded its goal, selling 520,000.Now, Kodak is promising to
roll out other products in coming months that represent new
technologies or business areas.The first such introduction is expected
this week, with Chief Executive Antonio M. Perez talking about a new
product based on “a series of breakthrough technologies.”Director of
Public Affairs John E. Richardson declined to elaborate Friday.But
Perez, in a conference call with the investment community earlier last
week, said the new product revolves around technology Kodak announced
about six months ago.That may mean the company is about to make
commercially available its digital camera image sensors that it says
will take vastly better pictures in low light than what consumers see
today.Kodak announced the new image sensors last June and said
then that it expected to roll out the technology in early
2008.Meanwhile, Perez also said last week that in the next six months,
cell phone giant Motorola Inc. will announce products that have a Kodak
contribution.The two companies are in a 10-year collaboration on
various projects involving imaging combined with mobile communications
technology, such as improving the quality and transmission of photos
taken by camera phones.Kodak also plans to unveil this spring its
long-promised commercial printing technology of continuous inkjet that
runs at high speed and high resolution. Perez said last week the
company will show off the continuous inkjet technology, called Stream,
in May at drupa 2008, the world’s largest commercial printing trade
show.Some of Kodak’s latest products will be on display Thursday in New
York City as the company holds its annual meeting with institutional
investors.Perez also is expected to lay out the company’s aims for 2008
and the next several years. -
AuthorFebruary 4, 2008 at 11:46 AM
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