Eastman Kodak Company (EK) reported improved results for the third quarter of fiscal 2010 with a loss per share (excluding one-time items) of 2 cents from a loss per share of 23 cents in the year-ago quarter. Reported loss per share was much better than the Zacks Consensus Estimate of a loss of 31 cents per share. Net loss came in at $5.0 million from a loss of $63 million in the third quarter of fiscal 2009.
Kodak reported sales of $1,758 million, representing a decrease of 1% year over year due to the negative foreign exchange impact of 2%. However, reported sales beat the Zacks Consensus Estimate of $1,614 million.The marginal improvement in the third quarter results was attributable to the gradual market recovery.
Revenue from Consumer Digital Imagine Group businesses totaled $670 million, up from $535 million in the prior-year quarter, resulting from higher volume. Revenue from the Graphic Communication Group declined to $657 million from $674 million in the third quarter of fiscal 2009 based on the foreign exchange loss.
Film, Photofinishing and Entertainment Group’s revenue dropped 25% year over year to $431 million, driven by reduction in the prices of final products as well as increases in the cost of raw materials.
Gross margin grew by 680 basis points based on a reduction in cost of goods sold attributable to economies of scale. However, SG&A expenses, as a percentage of revenue, remained at 17.9%. R&D expense, as a percentage of revenue, moved up marginally by 10 basis points to 4.7%.EBIT (earnings before interest, and income taxes) reached $58 million, from a loss of $81 million in the corresponding quarter of fiscal 2009.
At the end of the third quarter, net cash provided by operating activities stood at $140 million from net cash used in operating activities of $173 million at the end of the previous quarter, and $16 million at the end of the year-ago quarter. Cash & cash equivalents increased to $1.4 billion from $1.3 billion at the end of the previous quarter and $1.1 billion at the end of the third quarter of fiscal 2009.
Outlook
Management has reiterated its sales guidance for fiscal 2010 and expects it in the range of $7.5 billion to $7.7 billion, flat from the previous year. Kodak expects losses from continuing operations in the range of $50 – $150 million, including $102 million in net charges for early extinguishment of debt in the first quarter of 2010.
Segment earnings from operations are expected in the range of $350 – $450 million and EBIT is expected within $275 – $375 million.
For fiscal 2010, Kodak expects net cash used in operating activities in the range of $50 – $150 million and cash & cash equivalents in the range of $1.8 – $2.0 billion.
We are optimistic about the company’s numerous expansion programs as well as its continuous product launches at competitive price points. Also, Kodak’s strategy to maintain a decent liquidity position with the expectation of $1.8 – $2.0 billion of cash and cash equivalents in fiscal 2010 boosts our expectations.
However, a highly competitive market and Kodak’s huge exposure to volatile products pose immense risks. Moreover, the Zacks Consensus Earnings Estimate for fiscal year 2010 remains at 23 cents without any revisions from the analysts following the stock. Thus, we reiterate our Neutral recommendation on the stock in line with its short term Hold rating (Zacks #3 Rank).
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