Kodak Calls for Notes Redemption - Analyst Blog

Eastman Kodak Company (EK) intends to redeem its entire outstanding 3.375% convertible senior notes due 2033 aggregating $11.2 million. The redemption date for the notes is October 15, 2010.

 

The notes will be redeemed for cash at a price equal to the principal amount of the notes plus accrued interest. The inflow would increase cash and cash equivalents in Kodak's balance sheet. This proves that the company remains focused on its goal of achieving positive cash generation.

 

Kodak ended the second quarter of fiscal 2010 with $1.3 billion in cash and cash equivalents versus $1.1 billion at the end of year-ago quarter. For fiscal 2010, Kodak expects cash & cash equivalents in the range of $1.8 billion to $2.0 billion, after taking into account all cash actions, including modest debt payments.

 

However, the Zacks Estimates for both fiscal years 2010 and 2011 are lower at earnings of 23 cents and a loss of 17 cents, respectively, based on unsatisfactory results of Kodak for the second quarter of fiscal 2010. During the quarter, loss per share (excluding one-time items) was 51 cents, worse than the loss per share of 43 cents in the year-ago quarter and missed the Zacks Consensus Estimate of a loss of 31 cents per share. Net loss came in at $136 million from a loss of $116 million in the second quarter of fiscal 2009.

 

Kodak reported sales of $1,569 million, a decrease of 11% year over year from $1,766 million in the same period of 2009. Reported sales were also below the Zacks Consensus Estimate of $1,683 million.

 

The disappointing result was attributable to the decrease in the price of its products and simultaneously the increase in the cost of raw materials, thereby squeezing margin.

 

Moreover, a highly competitive market and Kodak's huge exposure to price volatility of products, like silver, aluminum, petroleum-based or other commodity-based raw materials, pose immense risks, as we continue to see weakness in economic conditions in the short term.

 

Further, a huge dependence on third party manufacturers and external suppliers negates both top-line and bottom-line results. Thus, we reiterate our long term Underperform rating on the stock. The stock also currently maintains its short term Sell rating, equivalent to a Zacks #4 Rank.