Monster Media 1994 #1/monster.zip/monster/MAGAZINE/DJ123193.ZIP/EK.TXT

Text File | 1994-01-01 | 4KB | 63 lines

                           EASTMAN KODAK COMPANY

                                12/17/93

             12/16/93 52-Wk-Rng FY/Q  EPS93  EPS94 PE94 NxtQtr LyQtr
Eastman Kodak   54.25   65-39   12/3   2.55   2.70 20.1  **.** **.**

Kodak's investor relations staff held a meeting with analysts in New York
yesterday.  There were no new reasons given to explain the disappointing
1994 earnings forecast released on Wednesday.  However, analysts continue to
believe the bulk of the earnings shortfall stems from a failure on the part
of Kodak's management to deliver cost reductions discussed with the
investment community earlier this year.  Obviously, the shortfall is
unrelated to Mr. Fisher, Kodak's new Chairman, who joined the company on
December 1.  If analysts' assumptions on the reason for the shortfall is
correct, however, it would suggest those top-level managers responsible for
achieving these cost cuts could be under pressure from the Board.  Based on
recent 1994 earnings revision from $3.50 to $2.70 per share, the pretax
shortfall approximated $460 million.

On an unrelated note, it was disclosed Mr. Fisher had purchased 107,000
shares at $63 1/8 and was granted 750,000 options at a $58 strike price.

In a press release, Fisher indicated 1993 earnings would be in-line with
'Street' expectations, but that 1994 estimates were too optimistic.  The
company's expectation for 1994 is for an earnings gain 'in the mid-single digit
range unless there is considerably more growth than now anticipated.'  Mr.
Fisher's comments concerned the 'new' Kodak which excludes Eastman Chemical
Company which is to be spun-off after December 31.  Analysts' 1993 estimate for
the 'new' Kodak is $2.55 per share versus $3.35 estimate for the entire
company.  In 1994, analysts are estimating $2.70 for the 'new' Kodak--up 5%
from 1993.  Analysts' initial 1994 estimate for the 'new' Kodak had been $3.50.
Based on a $2.70 estimate for 1994, the stock is selling at a 16.7X multiple
and yields 3.5%.  While analysts continue to believe Kodak has significant
earnings potential and that Mr. Fisher has the ability to bring it to the
bottom line, it appears the turnaround has been shifted more into 1995 than
1994.  For this reason, it is likely the stock will only perform in-line with
the market until Mr. Fisher articulates his vision for the company in terms of
lowering costs and generating growth.  Since he only joined the company on
December 1, the completion of his plan could take several months.

Analysts believe the stock's market reaction--off 7 1/4 points--to Mr. Fisher's
statement reflects two factors.  The first involves the lowering of earnings
expectations for the 'new' Kodak from the $3.25 to $3.50 range to the $2.70 to
$2.80 range.  Clearly, this is a major revision and would have triggered a
downtick in the stock.  However, a possible second reason for the sharp decline
was the lack of detail (at least in the official press release) given for the
lowering of expectations.  Obviously, investors never react well to negative
surprises, and greater details providing some detail for the expected
shortfalls would have cushioned the impact.

Although the press release did not detail specific reasons for the modest
1994 earnings increases, a follow-up conversation with management did
result in three possible reasons for Kodak's expected 1994 performance.
The three reasons cited include higher pension expense, a higher tax rate
(42-43%), and higher overall corporate expense.  While analysts recognize these
factors are negatives for 1994 versus 1993, they don't see how these factors
can nearly offset the two previously announced headcount reductions in 1993 and
the other cost-cutting steps taken this year.  In short, the numbers don't seem
to add up.  If that conclusion is shared by other investors, it could partially
explain the stock's recent price decline.