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Thursday, September 21, 2006

The Ten Worst Managed Companies In America: Kodak, H&R Block

From 24/7 Wall St.

We set out to pick the ten worst managed companies in America for the year that began June 2005 and ended June 2007. At this point virtually all companies have reported their June financials and filed their 10-Qs.

We looked only at companies with market capitalizations of over $1 billion. Most of the companies on the list are much larger. We looked at several financial measurements: return on invested, return on asset, return on equity, gross margins, sales growth over one, three and five years and operating income growth over the same period. To be fair, we made the comparisons within industries so we would not be comparing airlines with banks.

The other important aspect to our evaluation, and the most difficult, is picking companies where management was responsible for decisions that went wrong. In an industry where all companies are doing very poorly, management may not be the single most important key to financial and stock market performance. Even in strong industries bad management may cripple a company. We looked for a combination of poor long-term strategic decisions and tactical mistakes in areas like marketing, operations, or manufacturing.

The companies are not presented in any particularly order. The first company on the list is not considered more poorly managed than the company presented in the sixth or seventh place. We will cover two companies each day for the week so that by Friday the full list of ten will have been posted.

7. Eastman Kodak (EK) In 1997, Kodak's stock traded at close t0 $100. In January 2003, the stock was at $40. It now trades at $22. It is as good as an example of a great company as investors can find. After dominating the photography business for decades, Kodak nearly missed the digital revolution. It now restructures, asks for more time, and offers excuses almost every quarter. The company had had only minor revenue growth the last three years, and went from an operating profit of $371 million in 2003 to an operating loss of $599 million last year.

While the company's traditional photo business declines, it has attempted to move its business online and into the digital arena, but smaller competitors like PhotoBucket have driven huge audiences to photo websites, leaving Kodak behind again. The digital camera landscape is crowded and Kodak is unlikely to have a large enough share there to turn the company around.

With debt at ove 60% of capital, Kodak is in deep touble.

8. H&R Block (HRB) The CEO of H&R Block has vowed to turn the company around. It's about time, and probably too late. For the quarter ending July 31, revenue fell from $615 million in the quarter a year ago to $541 million this year. The operating loss was $213 million this year compared to $46 million last year. Poor performance in the company's mortgage unit hurt the overall performance badly. But, revenue at the compay's consumer financial business dropped sharply as well.

Over the last three fiscal years, revenue has moved up modestly (April 30 fiscal), but operating profit has dropped each year. The company is in litigation in California and under scrutiny in New York State. H&R Block was also forced to restate financials for 2004 and 2005. The stock traded near $30 in mid-2005. It now stands at less than $22.

Earlier companies listed.

1. Ford

2. Affymetrix

3. Bristol-Myers Squibb

4. Amazon

5. Ciena

6. Avon

Douglas A. McIntyre can be reached at He does not own shares in companies that he writes about.

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