Kodak's Altered Image

Eastman Kodak (NYSE: EK) has had a tough decade.

Since peaking in 1996 at $16.2 billion, the company's sales have dropped by more than 17%. Caught flat-footed by consumers moving to digital photography and bombarded by Japanese competitors like Fuji Photo Film (Nasdaq: FUJIY), Eastman Kodak has seen its traditional businesses wither and its Wall Street support fade like a poorly developed photo. The indignity culminated in April of 2004, when Eastman Kodak was booted from the Dow Jones Industrial Average.

Virtually left for dead, Kodak has been working hard since then to remake itself. In late 2003, Kodak CEO Daniel Carp launched a new strategy. Believing that the company had to focus on increasing its presence in the digital arena, he has led Kodak to buttress its business in the commercial, consumer, and medical imaging markets.

Proving that when the going gets tough, the tough go shopping, Kodak has gone on a spree. Spending more than $3 billion, it has aggressively bought up companies in the medical imaging and commercial printing markets. On Monday morning, Kodak announced the latest addition to its menagerie -- a $980 million purchase of Canadian Creo (Nasdaq: CREO), a Canadian software maker for the commercial printing industry.

Thus far, the market has liked what it's seen. Fools who purchased EK shares on news of the Dow Jones dumping have seen their stock go up more than 30%, and those who bought into the ugliness of late 2003 have seen more than 50% in appreciation.

The recovery is in its early stages, but Kodak did announce that full-year revenues for 2004 were up 5% over 2003. This is perhaps a modest figure, although it does represent back-to-back years of revenue growth -- and that hasn't happened since 1996.

Still, Kodak's future is not crystal clear. All of these acquisitions might raise legitimate concerns about whether Kodak has spread itself too thin and gotten into too many dissimilar businesses. What's more, debt is on the way up as the company intends to pay for its Creo acquisition with another $900 million in additional borrowings.

There's no question, then, that the company has bet its future -- or at least its solvency -- on blending these acquisitions together into a solid growth business. It will take time to see whether the moves will work, but in any case, this is certainly not your parents' Eastman Kodak.

Fool contributor Stephen Simpson, CFA, has no ownership interest in any stocks mentioned.