Eastman Kodak Company (EK) is set to announce another weak quarter on October 28. For the third quarter of fiscal 2010, the Zacks Consensus Estimate is a loss per share of 31 cents, worse than the loss per share of 23 cents in the year-ago quarter.
Second Quarter Highlights
On July 28, Kodak reported disappointing results for the second quarter of fiscal 2010. During the quarter, loss per share (excluding one-time items) was $0.51, down from 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 widened to $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 economic condition was the primary reason for the downtrend.
For details please view: Kodak Misses Zacks Consensus
Agreement of Estimate Revisions
Management did not provide any guidance for the third quarter, but for fiscal 2010, Kodak expects sales 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. Net cash used in operating activities is expected in the range of $50 million to $150 million and cash & cash equivalents in the range of $1.8 billion to $2.0 billion.
Over the last 30 days, out of 4 analysts covering the stock, for the third quarter of fiscal 2010, none of them moved in either direction. Hence, the estimate remained the same. Further, for fiscal 2010 and fiscal 2011, analysts have preferred against revising estimates.
Magnitude of Revisions & Earnings Surprise
The third quarter loss per share estimate remains at 31 cents and for fiscal 2010, the EPS estimate is 23 cents. For fiscal 2011, the loss per share is 17 cents.
In terms of earnings surprises, Kodak has had a mixed record in the last four quarters. However, the average surprise is a positive of 100.02%, which means that the company surpassed the Zacks Estimate by that measure.
Our Recommendation: Neutral Lane
We are optimistic on the company’s numerous expansion programs as well as its continuous product launches at competitive price points. Besides, 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, disappointing results during the second quarter of 2010 and the expectations of weak results in the coming quarters, based on slower market recovery are discouraging. Moreover, a highly competitive market and Kodak’shuge exposure to volatile products pose immense risks.
We reiterate our Neutral recommendation on the stock in line with the stock’s short term Hold rating (Zacks #3 Rank).
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