Smiles, everyone, smiles! Eastman Kodak (NYSE:EK) gave investors an excuse to say "cheese" today when it reported earnings that implied its shift into digital photography just might be working like a charm.

Kodak's first-quarter earnings came in at $28 million, or $0.10 per share, compared to $12 million, or $0.04 per share last year. If you remove the effects of onetime charges for cost-cutting and other items, the earnings were $74 million, or $0.26 per share. Get ready though, because operational earnings, which don't include a tax benefit among other items, were $0.18 per share. In a vote of confidence for the year to come, Kodak raised its 2004 estimates to the $2.15-to-$2.45 range from $2.05 to $2.35.

It's a nice change after some tough times. After all, Kodak is so well-known for those golden boxes containing those once-ubiquitous film canisters that littered your vacation luggage. Digital photography is the new revolution, where you have the ability to ditch dog shots (not to be confused with shots of cute dogs) and store, even email, the good memories (with any luck, chosen carefully so nobody looks fat) to friends and family.

And that's where today's earnings shine. Sales increased 11% to $2.92 billion. Traditional sales sank a mere 2% -- not so precipitous, considering the sea of change to digital -- while digital revenues jumped 44%. One might wonder how Kodak might fare in the short term, now that the graduation, prom, and wedding seasons are upon us, and more and more people are going digital. In the long term, though, the challenge will be to monetize the digital age (check out Foolish colleague Rick Munarriz's recent theory here). After all, Kodak's traditional business, heavy on film, fits the adage that the real sweet spot is in selling the blades, not the razors.

Though the numbers gave reason for some optimism, Kodak still faces its share of difficulties. It's still cutting costs and hacking at areas with slow growth. It's embroiled in patent litigation with No. 1 rival Sony (NYSE:SNE), and faces a variety of rivals in the digital camera space, including Canon (NYSE:CAJ).

Trading at about 11 times forward earnings, it may be worth taking a closer look at Kodak, given hints that it's not going to hang on the wrong side of the digital divide after all. But there are still obvious risks built in to its transition to the future.

Are you a photography buff? Have you made the switch to digital or are you still relying on film and development? Talk to other Fools on the Photography discussion board.

Alyce Lomax does not own shares of any companies mentioned. She thinks digital cameras are super-cool, but had a bad run-in with one last summer ("I don't really look like that, do I???'').