Earnings Scorecard: Eastman Kodak (EK)

Following the second quarter results on July 28, the analysts have turned pessimistic on Eastman Kodak Company (EK) based on the continuous decrease in the prices of its products on account of slower market recovery. For fiscal 2010, sales are expected 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. Kodak expects net cash used in operating activities to be in the range of $50 million to $150 million and cash & cash equivalents in the range of $1.8 billion to $2.0 billion.

Earnings Review

Kodak reported disappointing results for the second quarter of fiscal 2010. During the quarter, loss per share (excluding one-time items) was $0.51, worse than the loss per share of $0.43 in the year-ago quarter and missed the Zacks Consensus Estimate of a loss of $0.31 per share. Net loss came in at $136 million higher than the loss of $116 million in the second quarter of fiscal 2009.

The company reported sales of $1,569 million, a decrease of 11% year over year from $1,766 million in the same period of 2009. Reported sales were also below the Zacks Consensus Estimate of $1,683 million. The continued weakness in economic conditions was the primary reason for the downtrend.

Detailed discussion of the earnings release can be found at: Kodak Misses Zacks Consensus

Agreement of Analysts

Kodak reported unsatisfactory results for the second quarter of fiscal 2010 based on the decrease in the price for its products and simultaneously the increase in the cost of raw materials. Overall, the market has not recovered significantly; hence the company faces price competition, which is expected to continue in the short term.

Thus, for the immediate quarter, out of the 4 analysts covering the stock, 2 analysts have reduced their estimates while only one increased it in the last 7 days. For fiscal years 2010 and 2011, out of the 5 analysts and 4 analysts, 3 and 2 respectively, moved their estimates downward, with none moving up. Thus, the overall trend was negative.

Magnitude of Estimate Revisions

For the third quarter of fiscal 2010, loss per share went down to 29 cents from a loss of 23 cents. For fiscal years 2010 and 2011, estimates have been reduced to a positive of 29 cents and a loss of 16 cents per share from EPS of 44 cents and a loss of 5 cents, respectively.

With respect to earnings surprises, Kodak had a mixed track record in the preceding four quarters. In the last four quarters, it recorded three negative surprises and one positive surprise. However, the company produced an average positive earnings surprise of 100.02% over the last four quarters, meaning that Kodak has beaten the Zacks Consensus Estimate by that measure.

Our Recommendation

We believe price competition will continue in the near future based on slower market recovery. Moreover, a highly competitive market and Kodak’s huge exposure to volatile products will impose immense risks. Kodak also faces integration and other risks related to acquisitions, strategic alliances, joint ventures, divestitures and outsourcing of transactions. Moreover, a huge dependence on third party manufacturers and external suppliers negates both top-line and bottom-line results. Thus, we reiterate our Underperform rating on the stock with “Sell” as a short term rating, equivalent to the Zacks #4 Rank.

EASTMAN KODAK (EK): Free Stock Analysis Report

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