Kodak refocuses to fend off bankruptcy

But a long-term plan may not be enough to ward off short-term risks.

By MSN Money Partner Jan 10, 2012 12:32PM
By Jeff Reeves

Eastman Kodak's (EK +28.69%) stock soared Monday -- well, relatively speaking -- on news that the company is restructuring to adapt to the digital age. The company is creating two distinct business units to separate commercial from consumer products and will streamline costs even more.

Many folks watching Kodak were expecting a much different announcement: that the once-dominant photography company was declaring bankruptcy and possibly disappearing forever.

So does the new move change anything or secure Kodak's future?

Not really. Like rearranging the deck chairs on the Titanic, the move ignores the core problem. Eastman Kodak is simply a company with way too much debt and not enough profits.

Granted, any news is good news for stockholders. Shares of EK stock were at 37 cents per a share last Friday and traded above 50 cents at various points Monday.

However, the restructuring could very well be too little too late. CEO Antonio Perez said Kodak will be organized to "increase productivity, reduce costs and accelerate its transformation into a digital company." But more telling is the fact that his words admit the all-important transformation has not happened yet. The company should have adapted long ago.

Kodak hasn't had a profitable year since fiscal 2008 and is forecast to lose money again in 2012. The company has a market value of around $150 million but carries a staggering $1.5 billion in total debt. That doesn't sound like a corporation that has a lot of time to figure things out. Investors are sharpening their knives after Kodak announced it was tapping its credit line last year, and the stock has dropped more than 80% in just six months.

Sure, revenue from the company's digital businesses is growing. Revenue from inkjet printers and cartridges continues to grow nicely. And Kodak has its all-important

digital imaging patents that it has licensed six ways to Sunday to bring in a trickle of cash. So maybe by "accelerating its transformation" into these growth areas, Kodak will be able to survive.

But a new org chart and a nice press release won't buy time. And the clock is ticking.

There are some observers who think Kodak will sell its suite of patents to generate enough cash to keep the lights on and allow this restructuring to yield returns. After all, even though Kodak was too shortsighted to get into digital photography decades ago, it actually invented some of the first digital photography gear. The patents are highly sought-after.

However, there are very real fears that nobody will want to buy them. Years of cutting licensing agreements to generate cash has made the portfolio very cumbersome. Why would someone buy a patent now if it already has rights to the technology based on a prior deal? And why would a company buy a patent if its competitor owns the rights to use it, too?

The bottom line for Kodak is still the bottom line. And while a restructuring inside the company could pay off in the long run, if the company can't pay its bills, the creditors aren't going to be very patient.

The company could always spin off other operations, and maybe that would be akin to the much-maligned Netflix (NFLX -3.59%) move in 2011 to separate DVD operations via Qwikster. Kodak did that before, spinning off Eastman chemicals -- a division that, ironically, is now turning a nice profit.

But again, it could be too little too late. America's "Kodak moment" might be over for good.

Jeff Reeves is the editor of InvestorPlace.com. Write him at editor@investorplace.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. Jeff Reeves holds a position in Alcoa, but no other publicly traded stocks.

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