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Bury Kodak, Don't Praise It

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Maybe we shouldn't celebrate the return of Lazarus just yet. Eastman Kodak's (NYSE: EK  ) corpse is still rather gamey.

I nominated Eastman Kodak and it won the Worst Stock of 2010 contest, so the company rewarded me by posting fourth-quarter earnings that seemed to show a remarkable resilience: revenues up year over year, profits where once there were losses, and a stock price that went up 25% higher on the news. My Foolish colleague Anders Bylund tweaked me by suggesting rumors of Kodak's death had been greatly exaggerated. 

A snapshot in time
Yet let's go through what Kodak really said in its earnings release. Its biggest revenue component -- consumer digital products including cameras, printers, picture frames, and intellectual property royalties -- grew 26.5% from last year. "Our momentum is returning," said CEO Antonio Perez, "our strategy is paying off."

Um, what strategy would that be? The one where one-time cash infusions keep the company going? The $254 million gain in revenues was driven by increases in non-recurring intellectual property royalty revenues and favorable foreign-exchange rates. Volumes for what the company is actually selling were down.

This intellectual property revenue had a large impact on the segment's gross profit last quarter. Not exactly a sustainable business model that can effectively compete against Hewlett-Packard (NYSE: HPQ  ) , even if printers and ink cartridges got a boost. Take out the one-time items, and segment earnings were about 85% less.

Nothing under development
Kodak's legacy film business continues to dwindle as well, with revenues falling 10% even as earnings improved, though the gains had more to do with cost-cutting and more of those currency-exchange contributions. Traditional photofinishing sales fell 13% and film capture dropped 17% for the fourth quarter, while volumes fell because Kodak closed its Qualex labs. Also, the graphic communications division experienced a 5% decline in sales.

LEDing down the rat hole
Incredibly, the one thing the company had going for it is now gone. Kodak was able to complete the last-minute sale of its OLED business to South Korea's LG, getting the revenues in just before the end of the quarter. It was the one hope it had of actually resurrecting itself.

The company created the first viable OLED materials back in the 1970s, but never did much with it beyond some pretty cool picture frames. Kodak certainly seemed a lot more committed to the technology when it was awarded a $1.7 million Department of Energy contract last year. While Kodak noted it still has access to the technology, it seems to be getting out of OLED just as the technology is taking off.

Smartphones from Google (Nasdaq: GOOG  ) and Nokia (NYSE: NOK  ) are coming to market with OLED displays, Microsoft's (Nasdaq: MSFT  ) Zune HD recently hit the street featuring an OLED screen, and the new Walkman from Sony (NYSE: SNE  ) will use the technology, too. Maybe Kodak just wasn't sure if it could compete against Universal Display (Nasdaq: PANL  ) in providing the necessary goods.

Whatever the reason, Kodak remains a picture of a company in contraction, not expansion. Where will the future growth come from? Recent quarterly results notwithstanding, the filmmaker is a sepia-toned reflection of a once-glorious past that one-time revenue gains can't overcome. With the big jump in the share price, investors should get the picture that it's time to bury this stock for good.

Microsoft and Nokia are Motley Fool Inside Value selections. Google and Universal Display are Rule Breakers recommendations. Motley Fool Options has recommended a diagonal call position on Microsoft. 

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.

Read/Post Comments (42) | Recommend This Article (23)

Comments from our Foolish Readers

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  • Report this Comment On February 02, 2010, at 2:16 PM, Smars52 wrote:

    Are you sure your numbers are accurate. I went through their Q4 and added up segment profits minus one times gains and I got 150 million your number would be 67.5 please show me how you got that 85% number

    "even if printers and ink cartridges got a boost. Take out the one-time items, and segment earnings were about 85% less."

  • Report this Comment On February 02, 2010, at 3:02 PM, Smars52 wrote:


  • Report this Comment On February 02, 2010, at 3:18 PM, JAVEROA wrote:

    That's the FOOL for you! They love to twist the numbers.

    These people cannot acept they are mistaken.

    They love HPQ despite the fact that it has no organic growth and the reason for it stating a profit was due to heavy cuts. They praise Mike Hurd who only knows how to cut costs.

    Give credit where credit is deserved.

    Basically it comes down to onw thing: PR - if you like a manager, you hype the stock.

    Turning around a company like EK is an achievement, inheriting a cash rich company and buying up profitable companies + cutting costs can only go so far.

  • Report this Comment On February 02, 2010, at 3:24 PM, TMFEditorsDesk wrote:

    Hi Smars52,

    Here's the basis for Rich Duprey's 85% less comment:

    For CDI "Excluding the impact of non-recurring intellectual property royalties, segment earnings improved by more than $100 million. "

    Segment operating earnings were $380m vs. $41m loss last year. EK says remove one-time items, and earnings improved by $100m.

    100-41 =59/380 = 15.5%

  • Report this Comment On February 02, 2010, at 3:29 PM, Smars52 wrote:

    I think you made a mistake you only looked at one segment and divided it by the entire earnings.

  • Report this Comment On February 02, 2010, at 3:30 PM, Smars52 wrote:

    I did that exact same calculation yesterday but then I added the other segments profits too minus one times gains you only looked at one segment.

  • Report this Comment On February 02, 2010, at 3:38 PM, Smars52 wrote:

    Ya Here is the breakdown

    430 million earnings

    Segment Earnings

    Consumer Digital Imaging 59 M of the 380

    Graphic Communicationg Group 46 M of 430

    Film Photofinishing and Entertainment 53 million of 430

    So segment earnings is 158 million

  • Report this Comment On February 02, 2010, at 4:46 PM, brodoch wrote:

    cross-licensing agreement with LG will be royalty bearing to Kodak.

  • Report this Comment On February 02, 2010, at 4:46 PM, langco1 wrote:

    kodak one of the thousands of name bankruptcys for 2010.a few more...GM,chrysler,aig,aolhertz,sirius,rite aid,etrade,ual,harley,moodys,blockbuster, and mgm just a few! food for the growing depression in the US

  • Report this Comment On February 02, 2010, at 5:03 PM, TMFCop wrote:


    I think you're reading the results wrong. The $100 million improvement Kodak is referring to only applies to the Consumer Digital Imaging Group, not to all three segments. Thus when you take out the one-time numbers, segment profits -- CDG segment profits -- would have been 85% lower, and that's what I was referring to in the article.


  • Report this Comment On February 02, 2010, at 5:08 PM, TMFCop wrote:


    I think you misread the release.

    The $100 million improvement Kodak says it realized only applied to the Consumer Digital Imaging Group segment, not to all three segments. Thus, when you do the math, the profits would be 85% lower when you subtract the one-time gains.

    Yes, total earnings are higher, but that's when you add all three segments together. Kodak was only discussing the one segment in that particular part of the release, and that's what I was referring to as well.


  • Report this Comment On February 02, 2010, at 5:25 PM, Smars52 wrote:

    I understand now, I was aware of this information before I read the article but I was taken aback when you said.

    ". Take out the one-time items, and segment earnings were about 85% less."

    I think you should have been more clear that CDI segment earnings are reduced by 85% without the one time games. You simply said segment earnings which despite mentioning CDI in the paragraph above to me it was no clear that you referring just to CDI in this number.


  • Report this Comment On February 02, 2010, at 5:27 PM, Smars52 wrote:

    Ya, I understand now. I felt your article could have been a little more clear that you were only referring to one segment.

    Don't you think its a bit of a shortcoming of your article to only mention one segment and ignore the profitability in the other segments?

  • Report this Comment On February 02, 2010, at 5:28 PM, Smars52 wrote:


  • Report this Comment On February 02, 2010, at 7:18 PM, TMFCop wrote:


    "Don't you think its a bit of a shortcoming of your article to only mention one segment and ignore the profitability in the other segments?"

    Not really, because CDG accounted for nearly 50% of EK's revenues in the quarter, which management highlighted as being one of the company's vehicles for rebounding. My point was that things aren't necessarily as rosy as they were portraying them to be.


  • Report this Comment On February 02, 2010, at 7:44 PM, Smars52 wrote:

    I will let you do that if you answer this question if CDG made 300 million (without one time gains) and the other 2 segments lost 400 million would you be saying buy Kodak?

    Personally as an investor I focused on all 3 divisions, I don't see how you can ignore 50% of their business because they don't seem to prove your argument.

    Personally I thought EK was going to go bankrupt like you 4 months ago but I changed my view. I have been caught before not changing my view. Granted it did not involve money. It involved the Philadelphia Flyers in 2006-2007 NHL season. I predicted them to finish near the top of the conference and despite them being the worst team in the league for the first 40 games I was too stubborn to change my view point. I just hope your view point reflects the new information and it is not based on stubbornness of perhaps being wrong.

    Best regards


  • Report this Comment On February 02, 2010, at 8:15 PM, TMFCop wrote:


    Thanks very much. I have no problem admitting when I'm wrong and have pointed out as much in the past with companies I thought would would lag and they didn't, or vice versa.

    I've also been known to even harshly criticize stocks I own when I think management is trying to pull the wool over the eyes of investors. Feel free to search for articles I've written about aesthetic laser maker Candela for examples of that.

    With Kodak, my stance is based on what I think will be a subpar performance in the future. As I said, where is the growth going to come from? Whether or not it goes bankrupt is another matter (I'd suspect an acquisition would be more likely before that happened), but if EK ultimately proves me wrong, I'll be back saying as much.

    Thanks again for your commentary.


    P.S. Condolences on the Flyers. I feel your pain -- after all I'm an Islanders fan.

  • Report this Comment On February 02, 2010, at 8:32 PM, Smars52 wrote:

    I think you are focusing too much on revenue growth what should be focused on improved conditions.

    I think the company was valued as if it would have made a big quarterly loss in Q4 and was heading to bankruptcy in 1-2 years or less. I think Q4 proves this not to be the case. Perhaps the small growth in real revenue does not suggest this will be the Eastman Kodak of the 20th century, yet I think it warrants the stock moving off of bankruptcy levels. The stock is being currently valued at not even 1/8 times Revenue I don't know any company in the world valued at such a low amount for revenue. Even Sprint which is even more rapidly declining and can't show a profit so far is valued at 1/3 Revenue.

    So I think the stock still has a lot of value even if they can only show modest growth in the future just because the stock is priced in for great future decline when the tide appears to be turning.


  • Report this Comment On February 02, 2010, at 10:18 PM, CajunRon50 wrote:

    I know there is no room for emotion in finances but it is with saddness that I read about the struggles of Eastman Kodak. I was hired out of college by the company during it's "hay" day. It was a great upstanding caring paternal employer. If you went to work for Kodak, they would take care of you for life. It is truely sad that it has succumbed to the world of technological advancement. I hope that in it's decline, it's past greatness is not forgotten.

  • Report this Comment On February 02, 2010, at 10:31 PM, topsecret10 wrote:

    Pitch by: topsecret09 5/01/09 12:36 AM

    I've seen this before. If Bill Gates is buying,so am I. He's acquired over 5% through Cascade Investments,and he obviously sees something that average Investors do not. I suspect all of the bad news Is priced In,and maybe we can get a quick 3 bagger or so.....

  • Report this Comment On February 02, 2010, at 10:46 PM, topsecret10 wrote:

    Kodak has over 1400 job openings.... They are hiring, and they are executing well now. Kodak was my 1st pick on CAPS and even though I closed It,I still believe that they will be around for years to come. I have said this same thing for months on countless blogs. Kind of like Motorola.... Everybody was singing their demise too,and I of course disagree... I am accumulating MOT under 7 bucks while everbody bashes the company.... TS

  • Report this Comment On February 02, 2010, at 11:00 PM, topsecret10 wrote:

    On February 02, 2010, at 10:18 PM, CajunRon50 wrote: I know there is no room for emotion in finances but it is with saddness that I read about the struggles of Eastman Kodak

    Don't give up on them just yet CajunRon.... If Abercrombie & Fitch can trade at $32.00 even as the company Implodes before our eyes,Kodak definitely has a chance to make It... LOL !!! TS

  • Report this Comment On February 02, 2010, at 11:17 PM, topsecret10 wrote:
  • Report this Comment On February 03, 2010, at 7:18 AM, duncanreynaldo wrote:

    Fugures lie and liars figure.

    Kodak has been announcing it's new relevance for the last 5 years, as the company slides beneath the water much like the Titanic.

    If you choose to play it like a penny stock, fine.

    One day soon you will awaken to the bankruptcy notice and some mumbling statement blaming the recession for it's demise.(see last 5 years' excuses)

    This pig is done. Everyone move along. It's all over here. Nothing to see.

  • Report this Comment On February 03, 2010, at 9:27 AM, clarkinbrazil wrote:

    There was only one way Kodak stock could have gone and that was up! A little research showed that the short interest on Kodak was around 28% and that was created by all the negativity by the so called professionals. With Kodak becoming a leaner company which includes the demolition of old, vacant buildings in Rochester, N.Y., Kodak is lowering their government tax burden and becoming more productive. Don't count Kodak out, just yet; the short sellers found that out the hard way when they panicked when the earnings came out positive.

  • Report this Comment On February 03, 2010, at 9:41 AM, clarkinbrazil wrote:

    Remember this fact when bashing Kodak; this non-union company wasn't bailed out by the the tax payer unlike GM and AIG!

  • Report this Comment On February 03, 2010, at 12:22 PM, duncanreynaldo wrote:

    The government could have given Kodak all the money it wanted and it would still be down the drain.

    Kodak has slept for too many years while others have passed them by. They have nothing left to offer.

  • Report this Comment On February 03, 2010, at 1:56 PM, solodio wrote:

    Right here is an example of all the hogwash that comes out of folks who write on companies.

    My advice to Rich Duprey is to attend Kodaks Investor conference happening in NY beginning tomorrow.

    This guys has no idea how businesses make money. Koday has about 24,000 employees. Are we to believe that these 24,000 folks are just sitting around on their asses? Infact Kodak specifically made it a point to clarify that they would have been profitable even without the royalties. By the way, the royalties are not one-time payments. You should learn to read SEC filings.

    This is the second time this guy has written inaccurate analysis on Kodak. The FOOL needs to nix him......

  • Report this Comment On February 03, 2010, at 2:01 PM, solodio wrote:


    Weren't you the same guy who blabbed about Dollar Thrifty (DTG) going bankrupt when it traded around $1.50 last fall?

    Well, DTG is trading around $25.00 now......

    You need to get a job in operations or strategy in one of these operating businesses to get some insight into what drives companies into bankruptcy.

  • Report this Comment On February 03, 2010, at 2:11 PM, Smars52 wrote:

    I think the articles writer’s big problem in the article is ignoring the two profitable segments despite making up 50% of the business and not mentioning that he is ignoring it. When I read the article I had no idea he ignored it but I wondered why his numbers were off.

    I don't mind someone being negative on a stock he is entitled to his opinion but I think he can at least try to present the facts as clearly and thus as accurately as possible.

    To me the fact he ignored information really hurts his case in trying to prove his argument. And not mentioning that he was ignoring it really diminishes his credibility in my eyes. I think therefore he is biasing his information to fit that reality. I have no problem with a negative article but objectivity has to be the key.

  • Report this Comment On February 03, 2010, at 2:44 PM, duncanreynaldo wrote:


    You obviously have confused me with someone else.

    I never had an opinion on Dollar Thrifty.

    On Kodak, one does not need to become a strategist in order to see why Kodak will end up in bankruptcy.

    Expenses = X Income = Y

    New Products = nil

    End of message

  • Report this Comment On February 03, 2010, at 3:21 PM, Smars52 wrote:


  • Report this Comment On February 03, 2010, at 3:24 PM, Smars52 wrote:

    lol how far did you get in your algebra class I have never seen such a pathetic equation in my life. You don't even state what X and Y equals. I think you should seriously stop pretending your educated. That is the worse looking equation and definition of variables I have ever seen.

    You could have at least said Expenses = X Income = Y


    Then done Y= 2.5 B X =2.1 B

    Z=.4 B

    At least do something.

  • Report this Comment On February 03, 2010, at 5:36 PM, Carioca58 wrote:

    I never realized that reading these comments could be so much fun! Almost like reality tv. There is intrigue, jealousy, romance, even fake algebra! LOL.

  • Report this Comment On February 04, 2010, at 6:53 AM, duncanreynaldo wrote:


    You must be a strategist for Kodak

    How are those $60 stock options working out for you?

  • Report this Comment On February 04, 2010, at 9:32 AM, solodio wrote:

    @ duncanreynaldo

    I'll fly you to NY to attend Kodak's investor conference....below is guidance Kodak just gave....

    Eastman Kodak Company announced that for fiscal 2010, it expects segment earnings from operations of $350-$450 million on total company revenue of between $7.5-$7.7 billion. This equates to GAAP earnings from continuing operations before interest expense, other income (charges), net and income taxes of $275-$375 million. GAAP earnings from continuing operations for fiscal 2010 to be in the range of negative $50 million to positive $50 million. According to Reuters Estimates, analysts were expecting the Company to report revenue of $7.6 billion, EBIT of $410 million for the same period.

    If you got your shorts on fire, please pull your pants:) Let's make some money.....

  • Report this Comment On February 04, 2010, at 10:11 AM, duncanreynaldo wrote:


    I hope you're not betting the family farm on Eastman Kodak forecasts.

    You might review the forecasts for the last 4 years and see how many they have hit.

    History has a way of repeating itself with this company.

    They ran out of new excuses 5 years ago.

  • Report this Comment On February 04, 2010, at 12:16 PM, Smars52 wrote:

    I guess the author was right I managed to Sell Kodak at the open today. I read their report and it was not what I thought it would be considering their Q4 report of a 150 million segment profit. I expected a 2010 segment profit of atleast 150 M not -50 to 50. Considering the possible negative number and the profit only coming from the sale of assets it appears Kodak is back on track to bankruptcy.

  • Report this Comment On February 04, 2010, at 12:16 PM, Smars52 wrote:

    btw sold at 6.79 bought at 5.53

  • Report this Comment On February 04, 2010, at 12:17 PM, Smars52 wrote:


  • Report this Comment On February 06, 2010, at 8:00 PM, WahiawaFool wrote:

    I think Kodak still has the potential to surprise a few folks. I'm going to pick up a few shares while the herd writes the orbit.

  • Report this Comment On February 08, 2010, at 6:28 AM, Flishiz wrote:

    I attend college at RIT, and driving around Rochester this weekend, I saw the relics of the once-strong Kodak buildings. As much of a giant EK was to this town to the level Carnegie was to Pittsburgh, it missed its chance to hop onto the digital revolution, and it has to pay the price. Companies all the time seem to miss the "key point" at which change needs to happen. Google would not have survived if it was released five years before, and would have been swallowed up by competition five years after. So it goes for Eastman Kodak, which does not have the infrastructure to be competitive in a world where going to the pharmacy to develop photos is a joke labeled in the same category as laserdiscs.

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Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


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