Kodak Revives, Stumbles to Meet Est. - Analyst Blog

Eastman Kodak Company (EK) reported improved results for the fiscal 2010. However, lower intellectual property licensing revenue negatively affected operating results in the fourth quarter.

Quarterly Highlights

During the quarter, Kodak reported loss per share of 37 cents compared with an EPS of $1.08 in the year-ago quarter. The Zacks estimate however was reflective of a zero income state. Net loss came in at $99 million from $349 million in the fourth quarter of fiscal 2009.

Kodak reported sales of $1,927 million, representing a decrease of 25% year over year from $2,582 million during the same period of previous year. Reported sales also missed the Zacks Consensus Estimate of $2,131 million.

Revenue from Consumer Digital Imagine Group businesses totaled $731 million, 40% down from $1,212 million in the prior-year quarter. Revenue from the Graphic Communication Group declined marginally to $757 million from $779 million in the fourth quarter of fiscal 2009.

Film, Photofinishing and Entertainment Group's revenue dropped 25% year over year to $439 million, driven by reduction in the prices of final products as well as increases in the cost of raw materials.

Gross margin decreased by 1500 basis points based on lower revenues and SG&A expenses as a percentage of revenue grew by 500 basis points to 18%. R&D expense, as a percentage of revenue, moved up marginally by 100 basis points to 4%. Loss before interest, and income taxes reached $64 million from an income of $508 million in the corresponding quarter of fiscal 2009 due to lower revenue and higher operating costs.

Annual Highlights

During fiscal 2010, Kodak reported loss per share of 26 cents compared with loss of 78 cents per share in the previous year. However, reported loss per share was much below the Zacks Consensus Estimate of 38 cents. Net loss came in at $70 million from $209 million in fiscal 2009.

Kodak reported sales of $7,187 million, 5.5% down from $7,606 million in the previous year. However, it excelled the Zacks Consensus Estimate of $7,378 million. Revenue from Consumer Digital Imagine Group businesses totaled $2,739 million, 5% up from $2,619 million in the prior-year. Revenue from the Graphic Communication Group declined marginally to $2,681 million from $2,726 million in fiscal 2009 and Film, Photofinishing and Entertainment Group's revenue dropped 22% to $1,767 million.

Gross margin grew by 390 basis points and SG&A expenses, as a percentage of revenue also grew by 70 basis points to 17.8%. R&D expense, as a percentage of revenue, went down by 20 basis points to 4.5%.  EBIT (earnings before interest, and income taxes) reached $283 million from a loss of $28 million in the corresponding year.

At the end of fiscal 2010, net cash used by operating activities was $219 million compared with the use of $136 million at the end of the previous year. Cash & cash equivalents decreased to $1.6 billion from $2.0 billion at the end of fiscal 2009.

Outlook

Kodak carries out numerous expansion programs and continuously launches new products at competitive prices; which are expected to push growth in the current improving economy.

However, 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 Corp. (SNE) and FUJIFILM Holdings Corp. (FUJIY). We are reiterating our Neutral recommendation on Kodak. The stock currently retains a Zacks #4 Rank (short-term Sell rating) based on the recent loss of the lawsuit.

The patent infringement action, which was filed by Kodak against Apple Inc. (AAPL) and Research In Motion Limited (RIMM), has been invalidated by the Administrative Law Judge in the U.S. International Trade Commission upon initial determination. However, the final decision is pending and is expected by May 23.