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Will Kodak's Strategy Work?

11/5/2014

5 Comments

 
With the web offset press market continuing its downward slide towards irrelevance in the sub $500 million range and sheetfed being flat to negative (orders in China are apparently less plentiful these days...), I was hoping to find some more upbeat news in the digital printing arena. With digital equipment makers reportedly being the most visible exhibitors at this year's Graph Expo, there is clearly interest in the technology and one would expect to see continued growth driven by new technology, such as Kodak's Stream technology.  

Kodak emerged from bankruptcy in September 2013, so I took a look at how the company is doing one year into its new lease on life. With over $2 billion in annual sales, Kodak remains one of the big players with a true focus on commercial printing.

To keep things simple, I'd paraphrase the strategy as "milk the shrinking  Graphics, Entertainment and Commercial Films business (GECF) while growing the Digital Printing & Enterprise business (DP&E). (A presentation with the graphs below can be found at Kodak's investor site.)
Picture
A year into the plan, it appears that GCEF so far has shrunk somewhat faster than planned but the strong third quarter demonstrated the importance the segment has for the overall business.

Somewhat more concerning is the lack of growth in the Digital Printing & Enterprise segment and with 9-months sales of just under $500 million with quarterly sales being flat at just below $170 million.  It looks more and more likely that the segment will not even reach the 2013 levels.

The company reaffirmed full year sales between $2.1 and $2.3 billion, however this will be short of the $2.6 billion laid out in the original plan.

At $744 million, cash is about $100 million below the original plan.  Cash flow from operations is negative ($136 million),  but has been close to neutral for the third quarter, possibly signalling the needed turn-around. 

Kodak is betting on growth in its DP&E segment and it is too early to say if the strategy will work or not.  The next couple of quarters will show if the company can turn the promise of its strong digital printing technologies into sales and earnings or if it will need to rely further on its shrinking plate and commercial film business.

While the stock price development was not pretty during 2014, there seems to be some recent optimism again.
Picture
Hopefully, this is an early indication that the 4th quarter will yield results supporting the company's strategy.  For the record, I do not own any shares in the company, nor do I plan to buy any in the near term.  And of course, I am not providing any investment recommendations.
5 Comments
David Stamp link
11/8/2014 12:04:34 am

Very useful analysis Jochen...

Kodak emerging from Chapter 11 bankruptcy - sounds familiar and somewhat similar to Goss International way back in 2002.

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1/25/2019 01:39:45 am

I am sure of the fact that everyone is familiar with Kodak. It has been part of our childhood because of our photos. That's why when I heard that a once a popular company is currently in the state of bankruptcy, I felt sad because this is an indication that they weren't able to cope up with the innovation of technology. Though they are still on the process of resolving the issue, I am praying that the company will be able to solve their money problems and once again regain their fame and hierarchy.

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