Kodak's Scary Picture

It's a tale of two articles on the company's earnings.
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This morning after Halloween, The Business Press Maven wants to give out his "Best Costume" award to

Eastman Kodak

(EK)

, which disguised itself to the stock market and the ugly half of the business media as a recovering company.

The frightening back-story of Eastman Kodak is almost more than I can bear while working off this gruesome Kit-Kat hangover. Suffice to say: Outside of those in the horse-and-buggy industry around the time the motor car came about, few companies have ever been more squarely on the wrong side of a technological development as Kodak, which had a telescoped focus on film long after it was clear that digital photography was more than an advancement. It was a replacement. Then, too little too late, the company started to go digital.

It reported earnings Tuesday. The earnings included narrowed losses and better-than-expected earnings, two things that cloud the perceptions of the business media. Now let's slow down here, so The Business Press Maven can make a strikingly perceptive point:

When a company reports narrowed losses and better-than-expected earnings, I obviously have no trouble with short-term stock traders bidding the stock up slightly. It's normally the right thing to do; the company is worth slightly more than thought. And Kodak, following this small-scale bit of logic, was up 65 cents Tuesday, close to 3%.

But the business media, easily amused, too often read any surpassing of expectations as validation of larger, long-term strategies. And that's what happened with Kodak.

The Business Press Maven was barely astir this morning when he spit out his coffee at this

Forbes

headline: "

Update --Kodak Snaps to Attention

."

The misguided lead: "Eastman Kodak's transition to digital to film is slowly coming into focus. On Tuesday, the company reported a third-quarter loss of $37 million, a vast improvement..." It took until the fourth sentence to get to that old bugbear, the thing that leads more business journalists further from long-term truths than anything else: immediate market reaction.

"Investors seemed to like the number,"

Forbes

intoned about an -- uh, 65-cent price jump, soon adding that the stock has been strong since August. Is it just my overheated imagination, or has the whole stock market been strong since then? No matter.

Forbes

is then off to the races, talking about digital kiosks in

Wal-Marts

(WMT) - Get Report

and overall digital print numbers. The writer speeds over the essential fact that Kodak's year-over-year digital revenue was down.

Compare this gullible little effort with one this morning in

The New York Times

and you'll see why The Business Press Maven always tells you to read more than one article on an earnings report (unless it's his own; then the absolute truth will be found in the one).

Remember that

Forbes

headlines, which swallowed Kodak management's claims hook, line and sinker? Here's the one from the

Times

this morning: "

Kodak Posts Another Loss On Its Way to Going Digital

." The lead: "The Eastman Kodak Company, still struggling with the accelerating demise of its mainstay film business ..." followed by an overview of the carnage and then management's repeated claim (repeated repeatedly Tuesday) that it will be a profitable digital company by 2008.

Rather than looking at a 65-cent price increase in intraday trading as validation, the

Times

says: "Investors will take a lot of convincing." And instead of that 65 cents being attributed to excited investors bursting with confidence, the

Times

mentions a bit of short-covering. The

Times

also points out a key item: Some of the revenue drop came from cutting off promotion of the lower-priced digital line. Not long ago, this line was a big hope for the future. Now? Not so much.

Kodak, the

Times

reports but

Forbes

does not, started this year saying that digital sales will grow 16% to 17%. They ain't saying that no more.

The

Times

is not all negative, and shouldn't be. Kodak, to be fair, was a great company, and though it has lagged, it should be given every chance to recover. But as an investor, beware. One article is already heralding a recovery, while the other is wise to certain problems and absurdities, even mentioning one analyst's overly positive stance that the steep revenue decline in traditional products is bullish, because it means that at least the company is not chasing that business.

The Business Press Maven would like to interject that if Kodak had a viable replacement, it would be positive. But having abandoned a digital growth estimate and an emphasis on lower-priced cameras, it's not certain that the

General Motors

(GM) - Get Report

of the camera world does have a replacement.

In trying to win friends and influence political people, Wal-Mart has, as a side benefit, successfully changed the business media's take on its troubles. Wal-Mart, for those of you who have been on Mars, has started selling lower-price prescription drugs just as the political season has hit its stride. The retail giant also is becoming more active politically, and as

Business Week

writes in "

Wal-Mart: 'A Reputation Crisis

,' "the giant retailer has been trying hard to improve its image and reignite sales."

But while improving its image will help a little around the edges, The Business Press Maven does not want Wal-Mart's public relations counterattack to confuse investors. Wal-Mart's overriding problem, it must be remembered, is merchandising and marketing. These days,

Target

(TGT) - Get Report

and

Kohl's

(KSS) - Get Report

simply do a better job. Put that in your Reputation Crisis and smoke it.

A journalist with a background on Wall Street, Marek Fuchs has written the County Lines column for The New York Times for the past five years. He also contributes regular breaking news and feature stories to many of the paper's other sections, including Metro, National and Sports. Fuchs was the editor-in-chief of Fertilemind.net, a financial Web site twice named "Best of the Web" by Forbes Magazine. He was also a stockbroker with Shearson Lehman Brothers in Manhattan and a money manager. He is currently writing a chapter for a book coming out in early 2007 on a really embarrassing subject. He lives in a loud house with three children.