) fourth-quarter 2013 earnings beat the Zacks Consensus Estimate
by a couple of cents, or 7.4%. Earnings have been adjusted for
asbestos litigation charges, currency, pension-related accounting
adjustments and other items net of tax.
Corning reported revenue of $2.00 billion, which was down 3.0%
sequentially, 6.6% year over year but better than we
segment generated around 32% of total revenue. The segment was
down 4.9% sequentially and down 23.0% year over year. Overall
volumes were up 2% sequentially and 5% year over year. Corning
stated that LCD demand remained strong and LCD prices mostly
stable (as guided).
(31% of revenue) declined 6.9% sequentially and grew 12.0% from
the year-ago quarter, much better than Corning's guidance of a
low single-digit decline from the year-ago quarter. The
year-over-year surprise was due to carrier sales growth in North
America. Pricing was weak.
generated 15% of revenue, down 12.6% sequentially and down 28.6%
year over year. Management was looking for flattish revenue on a
sequential basis. Segment results were hugely disappointing
because Gorilla Glass (GG) volumes were 10% below
While inventories continued to be burned down in the last
quarter, GG demand was also hit by weaker demand for touch-based
notebooks. Strength in advanced optics was an offsetting
segment generated around 12% of revenue, up 5.8% sequentially and
8.7% year over year. A stronger U.S. heavy-duty trucking market
and slight bump-up in European light-duty diesel sales drove the
increase from last year.
business accounted for around 11% of revenue. The business was
down 2.3% sequentially and up 13.5% from a year ago. The increase
was due to the Discovery Labware acquisition, which closed on Oct
The gross margin was 39.6%, down 399 bps sequentially and 43
bps from last year. Volume pressures in the GG segment and
pricing pressures in the Display segment were negatives for the
gross margin in the last quarter.
The operating expenses of $488 million were up 9.2%
sequentially and 2.7% year over year. The increase was largely
driven by SG&A, which increased 269 bps sequentially and 209
bps year over year (as a percentage of sales). R&D was
flattish sequentially but down nicely from last year.
Corning's pro forma net income was $410 million or 20.4% of
sales compared to $487 million or 23.6% in the previous quarter
and $413 million or 19.2% of sales in the year-ago quarter. The
pro forma estimate excludes acquisition-related charges, asbestos
litigation and other charges on a tax-adjusted basis in the last
Including these special items, the GAAP net income was $421
million ($0.30 per share), compared to $408 million ($0.28 per
share) in the previous quarter and $155 million (0.10 per share)
in the year-ago quarter.
Inventories were down 0.4% during the quarter, with inventory
turns increasing from 3.7X to 3.8X. DSOs were down from 61 to 57.
Corning ended the quarter with $5.24 billion in cash and
short-term investments, down $211 million during the quarter.
However, the company has a huge debt balance. Including long term
liabilities and short term debt, the net debt position was $307
million at the end of the quarter, down from a net cash balance
of $85 million at the beginning of the quarter.
Cash generated from operations was $1.28 billion, of which
$337 million was spent on capex, $1.08 billion on share
repurchases and $140 million on dividends.
Corning has bought Samsung Corning Precession (SCP), which
will now be included in its Display business raising Display
sales by roughly $2 billion for the year. Following the
consolidation, there will be significant synergies on the COGS
and SG&A lines although overall opex will of course increase.
The tax rate will also move up from around 17% to around 22%.
Optical Communications are expected to be up at mid-teen
percentage rates (compared to the year-ago quarter) Environment
sales are expected to be up mid single-digits, Specialty
Materials to be flat and Life Sciences also consistent.
Equity earnings are expected to be down in the next quarter
due to unfavorable comps. The gross margin will be 45% and opex
lower than the year-ago quarter (as a percentage of sales). The
tax rate for the year is expected to be 22%.
Corning's fourth-quarter results were not too bad, barring the
GG business, which was impacted by weaker-than-expected demand
for touch-screen computing devices. Also, since Display remains
the largest contributor to its revenue, any weakness in either
volumes or prices here also has a significant impact on Corning's
revenues. In this respect, the acquisition of SCP should generate
synergies that work in Corning's favour.
Corning shares carry a Zacks Rank #2 (Buy), similar to peer
), which has a Zacks Rank #2. Other technology companies that
look attractive right now include
), with a Zacks Rank #1 and
) with a Zacks Rank #2.
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