Originally Posted by Photo Engineer
As I have said on several threads "The Street" wants Kodak out of the film business and will keep pushing for it to happen. The analysts covering the Company are young, tech-savvy, Blackberry toting financial professionals. They consider film to be a dead technology and they have enormous influence on Kodak's share price.
Until and unless the film division is sold (whether to outside investors or via a MBO) it will be viewed as an albatross around Kodak's neck by the financial community. The analysts are only interested in financial performance and have no "sentimental interest" in the Company preserving what is perceived to be a dead business line.
The only equation anyone analyzing the Company cares about is whether the discounted present value of the remaining cash flow of the film business is greater than a likely sale price. Perez is arguing that this is still the case and so the film division should be kept in order to finance the Company's switch to digital.
When the time comes that the PV of the DCF is only about equal to a sale price (actually will still have to be somewhat higher to make it attractive) will the film division be spun off.
I'm not so sure.
The analysts also pay attention to cash flow. Right now, Kodak's traditional operations do wonders for its cash flow picture - if for no other reason than these traditional operations result in a great deal of depreciation which is added on to the cash flow.
Cash flow is the main determinant in the cost of acquiring and servicing debt. When you restructure (which Kodak has been doing non-stop for years) - you tend to acquire lots of debt.
Kodak just let a big piece of recurring cash flow go in the form of their Health operation - and much of that is being used to reduce their debt. However, they will probably want to be reasonably sure that they will not need access to low-cost debt in the short-term if they surrender their film operations. Because this will have a pretty negative impact on cash flow and raise their borrowing costs.
On the other hand, you balance all that against what you are likely to fetch for the film operations. Right now, the only estimates I've seen peg its value 0.5 X its annual revenue given that the film market is moribund (at best) but profitable. So we are talking about $1.5 - 2.0 billion (thereabouts) and that number will only go down with time.
So the decision, I think, is pretty complicated. If Kodak's inkjets prove to be runaway hits and digital margins start to look much better - then maybe there's no need to acquire new debt and film's margins will start to look like a drag.
But that's all speculative on my part.
Last edited by aldevo; 02-09-2007 at 12:38 PM. Click to view previous post history.
I have no speculation to offer. If you drill down into this article from today's NY Times biz section:
Originally Posted by aldevo
You will find that five of the eight Street analysts who cover Kodak have a "Sell" recommendation. The other three are at a "Hold" position. None have a "Buy" recommendation.
What this means is that large institutional portfolio managers will be very wary of adding Kodak shares to their holdings. While it is true that you make big money on the Street by going against the herd - few lose their jobs while running with it.
I think it is tough to put much value behind the words of financial writers. Obviously, for someone to sell shares in EK, there has to be buyers for those shares. It should not be surprising that analysts don't make it to CEO positions at major corporations.
Kodak was one of the major sponsors of the Print Week trade show I attended this week. This is were the current emphasis and in-depth analysis are currently focuing, Kodak's Graphic Communications Group. This division is also resposible for a great deals of charges and expenses, since Kodak purchased many smaller companies to now become the giant in this industry. This is also the division primarily responsible for the digital company comments, though this division also sells film:
Consumer products, especially a new inkjet business idea based upon price, are unproven. It would be rare for any financial analyst nor reporters to consider this a good idea. Maybe it will work out for Kodak, but it could be the failure that kills profits. Risk taking is something more common to NASDAQ listed technology stocks, not NYSE listed companies.
Overall revenues are important, profits are important, and earnings per share are important. Investors pay more attention to companies that show growth potential, than those that show stability, which affects share prices. However, this still goes back to perception, something that Kodak is working hard to change.
A G Studio
Originally Posted by HerrBremerhaven
I am not talking about financial writers - I am talking about the analysts at Wall Street firms that cover Kodak. Perhaps you are unfamiliar with the analyst's role in the stockmarket? These are industry specialists working at the major underwriting and trading firms. Their analyses and resulting Buy/Sell/Hold recommendations are key advisories to their firm's own tradiing positions as well as to those firms institutional clients.
If you think these people are just pundits you are very mistaken. They move huge sums of money in the market - and you can bet the farm that public companies are very responsive to their questions and analyses.
BTW: Top level Street analysts often command eight figure incomes; well above the salaries of many of the CEOs of the companies they cover. These are not low-level, green eyeshade number crunchers.
And yes, because many of them advise "specialist" firms which are "buyers of last resort" in making a market in certain stocks in the NYSE - they are very tuned-in to the performance of the companies they cover.
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I agree with the both of you.
After years of endless restructuring analysts are going to be gun shy and they will want to see results. And by the way - you may also have noted that EK managed a $17 million profit only after "mysteriously" lowering R&D costs $42 million. I think they REALLY felt compelled to show that profit this quarter...
Restructuring has consumed lots of money - in the end what else could Kodak have really done with what was left over? By my reckoning they will still have about $1.1 billion in debt (and not necessarily long-term at that) after the Health unit sale is compplete.
There's a part of me that believes that EK's foray into the ink jet printer market may well have more to do with the fact that entry into the market could be accomplished for a "mere" $400 million. Well, that and Perez having come from an outfit that is a leader in the market - which might impart some short-term credibility to the effort. And there are some industry analysts who, frankly, doubt that photo inkjets are much of a growth business. You need more than a $250 ink jet printer to produce the same quality output you can get at Wal-mart for $0.19 a print. And consumers are realizing that.
Minimally, I think the inkjet market is going to be rough sledding. The two words that come to mind are "price war" and EK's competitors have much deeper pockets with which to wage one.
Where the film operations are concerned - any time you try to sell something for which there would be relatively few perspective buyers - there's a lot of uncertainty about the price. I think you can make a case where both extreme scenarios (i.e. inkjet printers are a runaway hit or a failure) hasten a sale of the film operations. Both for different reasons.
Last edited by aldevo; 02-09-2007 at 04:11 PM. Click to view previous post history.
Our youngest daughter works at Xerox on advanced printing for the publishing industry. She cannot talk about her work, but has said some of the things they have are truly amazing.
I have seen one of their advanced machines as a member of the Science and Technology group for the local school system. I would have to agree that Xerox has a lot of stuff. I wonder how they will do head to head.
Originally Posted by copake_ham
A close friend of mine is an analyst at a very large firm. Perhaps it is better to point out past occurances. At one point not long ago, some analysts suggested breaking up Apple, switching everything to Windows, or halting hardware manufacture to become only a software company. That was a time period when Dell was held up as the model of how a computer company should function. So now here we are a few years later, and market capitalization of Apple is greater than Dell . . . funny how that works out.
Now that is not to say that whatever EK does that might be contrary to analysts suggestions will be the best course, yet it is harder to find companied that swayed to analysts wishes. As much as we badmouth Perez, if he simply did whatever the majority of analysts suggested, I truly believe EK would be gone as a company in only a few quarters.
The reporters are a different matter, and many of them are pundits. It would be the rare reporter that could perform the job of an analyst, or that of a CEO.
The cycle is often buy as many competitors as possible to make your company as close to being a monopoly as governments will allow. Then when the company is too big to function efficiently, sell of the divisions to others, until the company is again small, and can then merge with another company. This starts the cycle over again, though perhaps another name or another company. During all this change, lots of institutional investors are making money on the volatility of the market. Stability is the anti-thesis of potential financial gains.
Analysts are quite good at what they do, but they are not equiped to run manufacturing companies. That should be the point of what I posted. People whose emphasis is financial aspects can make good CFOs, or maybe CEOs of financial institutions. Let financial people call too many shots, then you end up with many of the problems that major auto makers have experienced (or are currently experiencing). Sustainability means more than crunching numbers.
Film generates good profits, and enjoys good profit margins at EK. Obviously at whatever point that was no longer true, then they should close or dump that division. Until that time comes, they need to emphasize the other businesses they now own; Kodak could easily be known as the giant in printing, but they need to change that public perception of being a film company.
A G Studio
Originally Posted by Photo Engineer
I just attended the printing industry trade show Print Week. Definitely for on-demand, low volume, and variable data printing, Xerox, HP, and Kodak GCG are the main players. All have slightly different technologies to accomplish similar aims. I have samples and technical information from all of them, and from several smaller companies. I also have many overviews and recommendations from paper companies about the various printing choices from these companies.
Since I am working on a portfolio, I am looking into who is running which machine from which company. I was amazed at the latest Kodak NexPress solution, especially since I have considered the Xerox iGen to be the best choice. Both companies are slightly ahead of HP, which Antonio Perez probably enjoys.
It is that perception that Kodak is primarily a film company that somewhat works against there other technology. Xerox is known as a company that sells to businesses, something that Kodak would do better to establish as their primary perception.
In some ways I see film at Kodak more like motorcycles at BMW. In the case of BMW, their motorcycle division has barely been profitable, and has always had somewhat low (though stable) sales volume. The automotive division makes possible the traditional motorcycles sales, so maintaining that heritage; yet BMW has the perception of being a car company, even to the point that many in public never heard of BMW motorcycles.
I am also reminded of a question that pops up on occaission from my friends. They ask is Kodak will stop making film soon. To which I usually reply that Kodak are still bringing in over $3 billion (revenues) a year from film. So far none of my friends has doubted why Kodak still make film when it brings in such a large amount of revenue.
A G Studio
Perez also said that the restructuring stops this year. He said that 2007 marks the last year of restructuring at Kodak. I hope that is true.
If you saw the Xerox equipment demonstration CD, it was our youngest daughter's hands in the video doing the demo. She cut that CD nearly a year ago. The POD equipment is truly amazing. I have seen a demo of it at the Xerox Woodcliff division.