Lights and Shadows

For one of Wall Street's alltime favorite glamour issues, Polaroid Corp. stock has been looking remarkably bedraggled lately. In May 1972 the price hit 149 1/2, as optimism spread about the supersophisticated SX-70 self-developing color camera that Chairman Edwin H. Land had dramatically demonstrated to shareholders a month earlier at the annual meeting. The stock then rode a roller coaster (see chart) as great expectations about the camera alternated with apprehension about sales and technical difficulties. But in the past year or so, the lows have been getting steadily lower. Two weeks ago, negative brokerage-house reports knocked almost 20 points off the price in two days, pushing it to a low of 36 1/8 By last week it had struggled back to 41--still less than half its high for the year.

Actually, the sales picture on the SX-70 is at worst a mixture of lights and shadows. The camera certainly cannot be called a flop; since it belatedly went into nationwide distribution last fall, more than 700,000 have been sold, an exceptionally big number for a high-priced new camera. The catch is that almost all sales are being made at discounts, some as deep as $65 below the list price of $180. Since stores buy the camera for $120 (less an $8 rebate for each one they sell), the SX-70 generates a slim retail profit at best. Many stores are selling it to draw customers and build a market for film sales, on which both the stores and Polaroid expect to make their real profits.

Polaroid officials admit that film sales are below their high original expectations, but they will not say how much below. They blame a lackluster economy that makes users less inclined to stock up on film, despite discounts of up to $1.40 off the film's list price of $6.90 for a ten-picture pack. Stock analysts relate reports of dead batteries in some early film packs, while camera experts say picture quality has sometimes suffered from poor chemical distribution inside the film pack. The company has been eliminating the bugs.

Polaroid is not yet making much profit from the new camera. Indeed, between 1969 and 1973, the company's sales rose from $522 million to $701 million, but profits dropped from $71 million to $52 million, largely because of the heavy costs of SX-70 development.

Now the company says it has passed the break-even point on SX-70 manufacturing costs and that the brisk retail pace of the SX-70 lately accounted for much of a first-quarter sales rise of 8% to $147 million. Still, earnings on SX-70 sales were not great enough to offset a sales decline in Polaroid's older and profitable Colorpack line; first-quarter earnings dipped to $10 million from $11 million a year earlier.

Revised Predictions. The problems have had an explosive impact on Wall Street, which had been entertaining itself with sky-high earnings forecasts. About two years ago, for example, Analyst Ralph Kaplan of Oppenheimer & Co. was predicting that Polaroid profits would rise to $8.35 a share by 1976, v. a record $2.19 in 1969--an expectation that even Polaroid executives thought absurd. Recently Kaplan revised his prediction of 1976 earnings to a far more conservative $4.35 a share--still more than 2 1/2 times the $1.58 a share that the company actually earned in 1973. The stock has been hypersensitive to such concessions to reality because, as recently as last summer, it sold for a dizzying 90 times earnings. By last week, the price-earnings ratio had come down to a more modest--and realistic--25.

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