Eastman Kodak Co. (EK) reported results for the second quarter of fiscal 2010. During the quarter, loss per share (excluding one-time items) was 51 cents, worse than the loss per share of 43 cents in the year-ago quarter and missed the Zacks Consensus Estimate of a loss per share of 31 cents. Net loss came in at $136 million from a 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 the economic conditions was the primary reason behind the downtrend.
Revenue from Consumer Digital Imagine Group businesses totaled $447 million, down from $503 million in the prior-year quarter, resulting from the loss of various contracts. Revenue from the Graphic Communication Group declined to $656 million from $670 million in the second quarter of fiscal 2009. Film, Photofinishing and Entertainment Group’s revenue dropped 21% year-over-year to $466 million driven by reduced demand as well as increased cost of raw materials.
Gross margin grew by 80 basis points based on reduction in cost of goods sold attributable to economies of scale. However, SG&A expenses, as a percentage of revenue, grew by 160 basis points to 19.9%. R&D expense, as a percentage of revenue, also moved up by 40 basis points.
At the end of the second quarter, net cash used in operating activities increased to $173 million from $161 million, while cash & cash equivalents increased by $200 million to $1.3 billion. For fiscal 2010, Kodak expects net cash used in operating activities to be in the range of $50 million-$150 million and cash & cash equivalents in the range of $1.8 billion- $2.0 billion.
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 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). 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 economic conditions. Our short-term rating for the stock remains a Zacks #3 Rank (Hold).
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