Stock Market Reactions to Earnings Announcements: Eastman Kodak and Intel (Medium) For its September quarter of 1998, Eastman Kodak, the imaging products manufacturer, reported a net profit of $398 million, up 72 percent from one year earlier and in line with analysts' expectations. However, when it was also re ealed that its sales had fallen 10 percent to $3.4 billion, its stock price dropped 13 percent. For the same quarter, Intel, the world's biggest computer chip manufacturer, reported that its net income of$1.6 billion was much the same as a year earlier, but sales rose 9 percent to $6.7 billion. Its stock price increased by 8 percent after the announcement.
a. Calculate the changes in the net profit margins in the September 1999 quarter over the quarter for the year earlier for both firms. Why would the price reaction be so different to the two earnings announcements?
b. Below is the cash flow from the operations section of Eastman Kodak's cash flow statements for the first three quarters of 1998 and 1997. Sales were $9.843 billion for the first three quarters of 1998 and $10.759 billion for the corresponding period for 1997. Do these statements provide any information about earnings quality?
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