Eastman Kodak Company (EK)

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Engaged in developing, manufacturing, and marketing digital and traditional imaging products, services and solutions to consumers, businesses, the graphic communications market, the entertainment industry, professionals and healthcare providers.

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Avatar NetscribeManufac (92.37) Submitted: 12/22/06 9:28 AM : Start Price: $24.91 EK Score: 32.68

Eastman Kodak, the world’s foremost imaging innovator, provides leading products and services to the photographic, graphic communications and healthcare markets. Once an iconic US player, Kodak is now struggling to fill the empty spaces led by its rapidly diminishing traditional film franchise, thereby forcing it to initiate restructuring moves.

As we move towards a technology driven generation, the digital technology has created more excitement in photography than any other product in recent memory. Endorsing the same, the market has become more competitive, as companies have positioned themselves for the emergence of this newer technology. As a result, a more volatile pricing environment has materialised, that makes the profitability goal a bit more challenging. Adding to the indecision is the ongoing decline in demand for traditional photography products, which historically have provided higher margins to the players.

Kodak’s outlook envisages week growth prospects, going forward. Aided by recent acquisitions and digital initiatives, sales growth should climb but not before 2008. Likewise, as the company increases its dependence on low-margin products, equally supported by its high research and development costs, profitability is set to soften. Adding to the woes, financial health is a worry as evidenced by slumped debt ratings, with operating losses makes interest coverage a concern. Conversely to the above, is the Kodak’s decision of shopping its health-care business, which could provide much-needed cash.

Kodak’s business performance is not too impressive, offering up only low-teens returns on a drastically reduced invested capital base. Likewise its high postretirement obligations, mutually aggravated by a high debt component make it vulnerable scrip to trade.

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Avatar NetscribeManufac (92.37) Submitted: 4/16/07 7:11 AM

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Eastman Kodak Company (EKC) has entered into an agreement to sell its Health Group to Onex Healthcare Holdings. EKC will sell its Health Group to Onex for up to $2.55 billion out of which $2.35 billion in cash at closing and up to $200 million in additional future payments if Onex achieves certain returns with respect to its investment. With this amount EKC is expected to give some relief to its high debt equity ratio.

In fiscal 2006 also company recorded net loss and witnessed 7% downfall in revenues. Though its net loss reduced to $600 million compared to $1362 million in previous year. Declining revenues reflects a decrease in worldwide sales volumes with unfavorable price mix and lower traditional strategic products group revenue.

EKC has entered into inkjet printer market with a strategy of selling premium-priced hardware and value-priced ink consumables to appeal to high-volume printers. There are few risks attached to this strategy as normally customers do not to focus much on the cost of replacing cartridges at the time of purchasing hardware. Thus in order to witness success in it’s strategy EKC will have to take care of educating consumers on the savings available over the life of a printer purchase, which will lead to further increase in cost of EKC. If this strategy proves to be successful than there is scope that big competitors like HP, Canon and Lexmark may also reduce price of their cartridges.

The company’s earnings are under pressure due to costs associated with the inkjet ramp, ongoing price pressure in digicams and the continued decline of the high margin film businesses. EKC is steadily launching single use cameras (SUC) with Maximum Versatility single-use camera with Kodak's Ektanar lens and 800-speed film being latest. In spite of its new products in SUC division is witnessing decline. It’s facing tough competition from innovative cell phones with camera.

Currently company is having high debt equity ratio of around 2:1. Moreover over the period of five years, company’s free cash flow has declined to $577 million. From the perspective of one year span company will likely not perform well. In further years to come company’s growth largely depends on success of ink jet printer strategy and restructuring which is expected to complete by end of fiscal 2007.

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Eastman Kodak Company (EK)

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