"Those were the days, my friend,
We thought they'd never end."
-- "Those Were the Days," Mary Hopkins, from the 1969 album Post Card
In today's fourth-quarter press release, Eastman Kodak (NYSE: EK ) , is finally saying words that make sense. For example: "We are now more than halfway through our transformation, and we have proven our ability to drive sales in digital markets and to generate the cash necessary to fund our growth." Imagine. Making the money needed to grow. What a concept, and Kodak embraces it!
Kodak is also reporting that digital sales were 54% of total revenue. That's the first time that digital sales in any quarter were the majority. But the net loss, largely the result of restructuring charges, helps keep results in perspective. The sober fact is that Kodak's film-based businesses are the cement shoes that keep its stock weighed down.
As the son of a professional portrait photographer, I heard a lot about Eastman Kodak as a child. I inherited my father's Kodak stock but sold it after, having written hopeful takes like this, reading one disappointing quarterly report after another.
Don't get me wrong. Today's earnings report is littered with the same words shareholders have gotten accustomed to reading. Sales for the year were up 6% -- hardly impressive in my view. And then there's the one that always hurts: "the decline in the traditional businesses." In fact, that quote lacks two very critical words: "high margin." It seems those days are past.
So what is Kodak saying that's hopeful? "Kodak is now a thriving digital company." And for that matter, "The fourth quarter marked the first time that we managed the company as it will be run in 2006, and the digital earnings performance was exceptional." But in true Kodak fashion, any optimism is smacked down with this statement on the outlook for 2006: "Kodak expects 2006 digital revenue growth between 16% and 22%, with total revenue growth between negative 2% and positive 4%."
Let's put Kodak's 2006 guidance in context. The company expects to report $800 million to $1 billion in net cash that will be provided by the operating activities of continuing businesses. That's down from the $1.18 billion reported in 2005 and below the $1.15 billion reported in 2004. That's not a pretty picture!
Also hardly photogenic is the stock's performance over the last, say, 40 years. Ah, a road to nowhere.
If Kodak earns the $1.75 that analysts are projecting for 2006, the stock will be trading at 14.7 times forward earnings. That sounds like a bargain, until you realize that analysts expect the company to grow earnings at 5% a year for the next five years. That's hardly heady growth, and the 1.9% dividend doesn't add much to it.
For now, this observer sees nothing to get excited about at Kodak.