Corning's
(
GLW
) fourth quarter 2012 earnings beat the Zacks Consensus Estimate
by 2 cents, or 5.1%.
Revenue
Corning reported revenue of $2.15 billion, which was up 5.3%
sequentially and 13.7% year over year.
Revenue by Segment
The
Display Technologies
segment generated around 37% of total revenue. The segment was up
4.8% sequentially and 2.6% year over year, much better than the
guided low-to-mid-single digit decline and despite a $27 million
negative currency impact.
Samsung Precision ("SCP") LCD glass volumes were up slightly
sequentially (better than the guidance of flat to slightly down).
Price declines were moderate according to management.
Volumes in the wholly-owned business were up sequentially in
the mid-teens percentage range (better than expectations of its
being flat to down), as customers increased utilization rates and
new agreements. Glass price declines were in the mid-single-digit
range, but are expected to moderate in the next few quarters
(according to new agreements).
Telecommunications
(25% of revenue) grew 3.3% sequentially and 10.2% from the
year-ago quarter. The sequential increase was better than
Corning's guidance of a flattish quarter for the segment.
FTTH spending, particularly in Australia's broadband project
and Sandy-driven spending were the drivers of the sequential
increase. The project in Australia and increased optical fiber
sales in China drove the increase from last year.
Overall, fiber & cable and hardware & equipment
products were up 5.5% and 7.1% sequentially. They were also up
2.3% and 19.3%, respectively from the year-ago quarter.
Specialty Materials
generated 19% of revenue, up 9.9% sequentially and 67.6% year
over year, significantly better than the guidance of a flattish
quarter. Corning saw significantly higher demand for Gorilla
Glass, as Corning's IT and handheld customers ramped production
of new products. GG remains the primary factor determining
Corning's performance in the specialty materials segment.
The
Environmental Technologies
segment generated 10% of revenue, down 6.0% sequentially and 6.4%
year over year. Management's guidance was a little vague (flat to
down slightly). Both the automotive and diesel product
lines saw revenue declining sequentially while growing on a
year-over-year basis.
The weakness in light duty diesel products was worse than
expected, mainly on account of Europe and the fact that year-end
supply chain shut-downs were far more than expected also did not
help. Weakness in heavy-duty diesel products was as expected.
The
Life Sciences
business accounted for nearly 9% of revenue. The business was up
19.4% sequentially and 29.4% from a year ago, much better than
guided. Corning attributed the increase to contributions from the
Discovery Labware acquisition, which closed on Oct 31.
Margins
The pro forma gross margin was 42.3%, down 87 bps from 43.1%
reported in the Sep 2012 quarter and down 151 bps from last year.
The significant decline in LCD glass prices was the main
reason.
The operating expenses of $520 million were up 7.7%
sequentially. Higher cost of sales (up 87 bps sequentially) and
higher SG&A (up 90 bps) sequentially were the main reason for
the 140 bp sequential decline in the operating margin to 18.0%.
The 46 bp decline in R&D (as a percentage of sales) was an
offsetting factor.
Net Income
Corning's pro forma net income was $498 million or 23.2% of
sales compared to $514 million or 25.2% in the previous quarter
and $513 million or 27.2% of sales in the year-ago quarter. Our
pro forma estimate excludes intangibles amortization, asbestos
litigation and other charges on a tax-adjusted basis in the last
quarter.
Including these special items, the GAAP net income was $283
million ($0.19 per share), compared to $521 million ($0.35 per
share) in the previous quarter and $491 million (0.31 per share)
in the year-ago quarter.
Balance Sheet
Inventories were up 5.2% during the quarter, with inventory
turns flat at 4.4X. DSOs were up from 55 to 58.
Corning ended the quarter with $6.14 billion in cash and short
term investments, up slightly during the quarter. However, the
company has a huge debt balance. Including long-term liabilities
and short term debt, the net cash position was just $182 million,
down $674 million during the quarter.
Cash generated from operations was $1.2 billion, of which $526
million was spent on capex, $411 million on acquisitions, $140
million on share repurchases and $133 million on dividends.
Guidance
Corning provided guidance for the first quarter. Management
did not mention the expected growth in the Display business but
stated that volumes would be up year over year in both the
wholly-owned and SCP segments while declining sequentially. Price
declines are expected to moderate sequentially for the
wholly-owned business while remaining similar to the fourth
quarter for the SCP business.
Telecom segment sales are expected to be flat sequentially and
down 15% year over year, with both the light and heavy duty
businesses contributing.
Specialty Materials are expected to decline 30% sequentially
due to seasonality-driven inventory adjustments in the
channel.
Corning expects the gross margin to shrink two percentage
points, driven by lower volumes. SG&A and R&D will be
consistent as a percentage of sales on a sequential basis.
Equity earnings excluding special items, will be down 35%
sequentially, with equity earnings from Dow Corning declining
significantly. The tax rate for the year is expected to be
19%.
Our Take
Corning's fourth quarter results were better than expected.
Additionally, glass volumes are expected to increase from last
year with price declines moderating. This seems to indicate
improvement in Corning's largest and most important segment.
While Gorilla Glass will see some negative seasonality,
Corning has seen great success here. The success in this segment
is encouraging and should help absorb costs at the new Chinese
facility.
At the same time, we also think that there will be more
investment in the business (new technologies, China, India),
which will drive up costs. The higher costs will negatively
impact the bottom line.
Corning shares carry a Zacks Rank #5 (Strong Sell), so
investors are encouraged to avoid investing in the shares.
However, here are a few companies with telecom infrastructure
exposure that are likely to be good investments:
Exfo Inc
(
EXFO
) with a Zacks Rank #2,
Comverse Technology Inc
(
CMVT
) with a Zacks Rank #2 and
KVH Industries Inc
(
KVHI
) with a Zacks Rank #1.
COMVERSE TECH (CMVT): Free Stock Analysis
Report
EXFO INC (EXFO): Free Stock Analysis Report
CORNING INC (GLW): Free Stock Analysis Report
KVH INDUSTRIES (KVHI): Free Stock Analysis
Report
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