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Monday December 11, 3:34 pm Eastern Time
Analysts see no rosy picture for Kodak
By Jennifer Laidlaw
NEW YORK, Dec 11 (Reuters) - It won't be all smiles Tuesday when photography powerhouse Eastman Kodak Co. (NYSE:EK - news) presents Wall Street a snapshot of its financial outlook for next year.
Analysts said they expect Kodak to be cautious with its estimates, amid weaker demand for film across the photographic industry.
The Rochester, N.Y.-based photography giant recently reported lower third-quarter net profits and has warned of a poor fourth quarter on slowing demand and the need to pare inventories. And analysts are expecting more or less the same picture next year.
``I would expect that the first half of 2001 would be a little shaky as the company gets a hold on what is causing all this slowdown,'' said Marjorie Saint Aime, an analyst at Pittsburg Institutional.
Slower film sales and rising inventories will continue to affect earnings in early 2001 as consumers hold back on buying new cameras and photo equipment, she said. ``It is the entire economy that is causing consumers to be cautious.''
And the economic slowdown comes at a challenging time for the company. Kodak has been struggling to redefine itself in a digital age with major investments in digital and online photography and has been vying for market share with competitors like Japan's Fuji Photo Film Co. Ltd. (NasdaqSC:FUJIY - news).
But investors have yet to be convinced that the company is on winning strategy. Its shares have languished close to their year lows of $35-5/16 in recent months. On Monday afternoon, they were up $1 at $40, well off their 52-week high of $67-13/16.
Just last week, Credit Suisse First Boston lowered its 2001 earnings expectations for Kodak to $5.10 a share from $5.40 a share because of the softening economy.
At Tuesday's meeting, analysts say they will be watching for more details of the company's plans to boost revenues and profits. Kodak has said it would cut costs and reduce inventories in the fourth quarter. And in October it said to streamline operations it would consolidate its seven business units into two groups: consumer business and commercial business.
They will also be watching out for any news on the pace of film sales in the United States, which will be a key indicator of the company's future performance.
Kodak has previously said that it expects its U.S. film sales to grow by just 4 percent in the fourth quarter, much slower than the 11 percent growth in the second quarter.
Looking ahead to the second half of 2001, analysts said they expect the company to paint a rosier picture as the company's cost cutting measures take effect.
Another light at the end of the tunnel might be the recent rebound in the euro, which would lessen the impact of currency translation on the company.
``If the euro manages to hold at current levels, the transactions penalty will be...a lot lower,'' said Ulysees Yannas, analyst at Buckman, Buckman, & Reid.
He also said the company's 2001 results might be better than expected because of the company's extensive share buy back program, which has reduced its number of shares outstanding. He estimates that the buy back could add on five percent to the company's earnings per share.
Yannas is at the high end of analysts' earnings expectations for the company in 2001, predicting earnings of $5.90 a share. Analysts polled by First Call/Thomson Financial are expecting the company to post earnings of $5.30 a share next year, up from an expected $5.07 a share this year.
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