Earnings Preview: Eastman Kodak (EK)

Eastman Kodak Company (EK) is scheduled to release its second-quarter 2010 results on July 28. The Zacks Consensus Estimates for sales and loss per share are $1,683 million and 31 cents, respectively. The sales estimate will be 5% below the second quarter of fiscal 2009, while second quarter 2009 loss per share was 71 cents. Hence, we expect a year-over-year recovery in the earnings during the quarter. However, compared with the previous quarter’s earnings per share (EPS) of 40 cents, Kodak is expected to report disappointing results.

For fiscal 2010, management expects sales within the range of $7.5 billion to $7.7 billion, flat from the previous year, and net earnings in a range of $350 million to $450 million. Hence, EPS is expected in the range of $1.20 to $1.50, which is far above the loss per share of 87 cents in fiscal 2009. This implies that Kodak will continue following a strict cost-control policy.

During the first quarter of fiscal 2010, selling, general and administrative expenses and research & development expenses slipped by 520 and 300 basis points, respectively.

Agreement of Analysts

The analysts lack confidence in the market and the company. Hence, they have held their estimates. They do not see any meaningful catalyst and are awaiting the second-quarter results for some definite direction.

Magnitude of Estimate Revisions

There were no changes in the magnitude as there were no movements in the analysts’ estimates. Second-quarter loss per share is expected to be 31 cents and for fiscal year 2010 and 2011, EPS is expected to be 55 cents and a negative of 5 cents, respectively.

Our Recommendation

As part of its business strategy, Kodak frequently engages in discussions with third parties regarding possible investments, acquisitions, strategic alliances, joint ventures, divestitures and outsourcing, which might turn profitable for Kodak. Moreover, a huge dependence on third party manufacturers and external suppliers eats into top-line and bottom-line results.

Further, Kodak operates in a highly competitive market and encounters aggressive price competition for all of its products and services from numerous companies globally. Kodak’s direct competitors include Canon Inc. (CAJ), Sony Corporation (SNE), FUJIFILM Holdings Corporation (FUJIY). Thus, our long-term recommendation on the stock remains Underperform.

However, for the short term we believe that Kodak might benefit from the gradual improvement in the economic behavior. Moreover, its cost-reduction program might enable it to grow even in a not-so-favorable environment. Hence, our short-term recommendation for the stock remains Hold, which is equivalent to a Zacks #3 Rank.

Eastman Kodak (EK): Free Stock Analysis Report
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