Has Eastman Kodak Turned the Corner?

Eastman Kodak (EK) posted its first quarterly profit in 2 years this morning.  The company made $0.06 EPS on revenues of $3.821 Billion.  The actual numbers before items on EPS was $0.59 for the quarter, above the FirstCall estimate of $0.55; and revenue expectations were $3.95 Billion.  In the same quarter last year it posted -$0.16 on revenues of $4.197 Billion.  The reason for the sales drop is from margin improvement targets in higher end and digital models, although there is also they issue of the divestiture that could have played a part. 

This is supposedly the last year of a digital retreading and what has felt like a perpetual restructuring, and more than 23,000 of the proposed 27,000 jobs have been cut.  Overall digital sales were down almost 5% to $2.45 Billion; film, paper, and other traditional revenues were up 92% to $271 million.  Film and photofinishing revenues dropped 15% to $1.01 Billion; Graphic communications sales rose almost 3% to $974 million.

Let’s hope the digital sales drop as a sacrifice for higher margins is a strategy that will pay off, but this is something to watch since digital is the future.  Go ask the US-auto industry and the regional economies around their hubs how pleasant of a process it is by trying to shrink yourself to profitability. 

Antonio Perez, Kodak’s Chairman & CEO may have saved his neck, but the key word is MAY instead of SAVED.  The verdict is still out, but he was one of our top 10 CEO’s that need to go from December; two of the 10 have already been axed.  If he can keep the company profitable and grow its digital business then he’ll get to stay, if not he’s gotta go.  The company needs to finish its restructuring much faster than it has been doing, and it needs to still consider swiping their balance sheet over some of these online photo storage providers.  The rest of the strategy the company can hire us for with their money and we’ll show them how to become a growth engine, but based on us listing the CEO as needing to go we won’t wait by the phone.  Most of these "have to go" calls actually have a path for each CEO to save themselves and their companies, so it isn’t an absolute (except for Nardelli, Scott, and Pressler) and usually is a guide.

At almost 11:09 AM EK shares are up 1.45% at $25.89; and the 52-week trading range is $18.93 to $30.91; on DEC14 when we posted the CEO needing to go the shares closed at $26.32 on that day.

Jon C. Ogg
January 31, 2007