Kodak's Insincere Smile

I thought GM (NYSE:GM) might win the award for this week's most bogusly upbeat earnings release, but upon further review of Eastman Kodak's (NYSE:EK) 23-page grin-a-thon, I think the prize must be passed.

On the surface of things, Kodak's $1 billion loss looks bad. But once Kodak starts spinning its excuses, things look downright cheerful. Until you look deeper. Kodak's sanguine phrases should be viewed with a wee bit of skepticism, if not be given the full-on hairy eyeball.

Revenues were up 5% in the third quarter? Pay no attention to the $3.58 loss per share, as it's mostly the result of a large non-cash charge?

Come on. Revenues were only "up" because Kodak has been on a buying spree, trying desperately to find businesses that can add something to its otherwise shrinking top line. And even after backing out this silly little non-cash charge, Kodak lost $0.45 per share. Last year, it was $1.60 in the black, or $0.04 positive, if you consider only continuing operations.

Cash flows are gruesome, too. So far this year, Kodak has used $60 million in continuing operations. Last year, it produced positive cash from operations of $444 million. What's the problem here?

In the old days, Kodak made money the same way Gillette did, by giving the masses a cheap razor (the camera) and scalping you for the blades (film, processing, etc.) That model is long gone. Replacing it is the printer model, and although sales are ramping up with some segments there, it's not the same thing. Nor is it enough to make up for the big drop in traditional products. For this quarter, the top line in that segment dropped 16%, while costs in the segment went up. And research and development spending dropped, too. So much for the great new hope.

Also keep in mind that in the consumer digital space, Kodak is competing against cutthroat competition like Hewlett-Packard (NYSE:HPQ), Canon (NYSE:CAJ), Sony (NYSE:SNE), Matsushita's (NYSE:MC) Panasonic, Nikon, and others, some of whom are larger, more efficient, and better able to absorb tough times. Outside the field, Kodak continues to emphasize technical innovations that no one really needs. Who cares if Kodak's got the highest resolution medium-format camera chips? We're talking about a world where barely anyone uses medium format anymore, and photographers who did already have more resolution than they can use from 35mm -sized chips from the likes of Canon. Small market, getting smaller. Not very impressive.

The bottom line is this: Despite the corporate spin, Kodak continues to fade. I don't think the much-hyped restructuring is going to help, and in the meantime, the company is funding its growth and operations with debt. The brand name might be worth something, but until you can pick this business up for the price of the copper wiring in the walls, I think you risk overpaying.

For related Foolishness:

• Is Kodak really snapping back?
• Kodak's in the dumpster, but is it worth fishing out?
• Shuttered film plants are yet more evidence that Kodak is fading.

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Seth Jayson can't remember the last time he bought Kodak film, though he hopes Tri-X never disappears. At the time of publication, he had no positions in any company here. View his stock holdings and Fool profile here. Fool rules are here.