Finally, A Good Kodak Moment
For months, investors have been fretting that Eastman Kodak Co. CEO George M.C. Fisher might be too much of a "Mr. Nice Guy" to revitalize the fading film giant. But Kodak's July 15 announcement that its second-quarter earnings soared 35%, to $495 million, or $1.51 a share, may have allayed those fears.
The profit results--which far exceeded Wall Street's expectations--stemmed almost entirely from Fisher's brutal attack on the company's bloated cost structure. So far this year, Fisher has slashed 7,600 jobs and reduced costs by $350 million, boosting Kodak's operating profit margin to 18.5% of sales, from 14.3%. Those numbers "pretty well blew the entire bear camp out of the water," says Alex Henderson, an analyst at Prudential Securities Inc. Indeed, as a result of the news, Kodak's stock surged nearly 12%, to a 52-week-high of 82 1/2.
Still, it's too soon to conclude that Fisher will bring about the turnaround he promised when he arrived in Rochester in 1993, fresh from his widely heralded reign at now-reeling Motorola Inc. Fisher's goal is to make Kodak a growth company once again. But for all the good news on earnings, Kodak's sales dropped 8%. Even factoring out the effect of the strong dollar on foreign sales, overall sales were off 1%.
Perhaps most troubling for Fisher's strategy, sales were also disappointing in markets he's counting on for growth: emerging economies and digital imaging. Thanks to the continuing Asian financial crisis, sales in emerging markets plunged 14%. And the red ink just keeps flowing in the digital business, where sales declined 5%, and Kodak lost another $64 million. "Nobody has declared victory," concedes chief financial officer Harry L. Kavetas. "We still have a long ways to go."
Near term, Kodak's earnings should continue to improve: Fisher promises to cut 12,300 more jobs by 2000 and boost annual savings to $1 billion. That will help Kodak "withstand aggressive pricing challenges" from Fuji Photo Film Co., predicts Peter Enderlin, an analyst at FAC/Equities. Indeed, Kodak appeared to check its market-share loss to Fuji in the second quarter. But until Fisher produces sales growth, his turnaround won't be in the can.
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