) first-quarter 2013 earnings beat the Zacks Consensus Estimate
by 4 cents, or 15.4%. Earnings have been adjusted for currency,
pension-related accounting adjustments and other items net of
Corning reported revenue of $1.81 billion, which was down
15.5% sequentially and 5.5% year over year.
Revenue by Segment
segment generated around 36% of total revenue. The segment was
down 18.8% sequentially and 7.8% year over year.
Samsung Precision ("SCP") LCD glass volumes were up slightly
from the year-ago quarter (as guided), as its Korean customer
maintained relatively steady utilization rates. Price continued
Volumes in the wholly-owned business were up strongly from
last year (as guided), mainly on account of growth in the Chinese
TV market. Glass price declines moderated as expected, helped by
(26% of revenue) dropped 13.0% sequentially and 7.5% from the
year-ago quarter. The sequential increase was much worse than
Corning's guidance of a sequentially flat quarter.
Weaker stimulus-driven spending in the U.S. and a delayed
pickup in fiber and cable sales in China drove the decline from
the year-ago quarter.
Management did not break down sales by category.
generated 14% of revenue, down 35.3% sequentially and 10.4% year
over year. Management was looking for a 30% sequential decline
based on seasonality, as Gorilla Glass (GG) remains a primary
revenue driver. The decline from last year was attributed to
softness in advanced optics that was in turn impacted by softness
in the semiconductor market.
segment generated 13% of revenue, up 4.1% sequentially and down
13.3% year over year. Strong auto sales in Europe and heavy-duty
truck sales in the U.S. in the year-ago quarter made for
difficult comparisons in the last quarter.
business accounted for over 11% of revenue. The business was up
11.9% sequentially and 33.5% from a year ago. Corning attributed
the increase to contributions from the Discovery Labware
acquisition, which closed on Oct 31.
The pro forma gross margin was 42.4%, up 18 bps from 42.3%
reported in the Dec 2012 quarter, down 47 bps from last year and
2 points better than guided. This was mainly because of
improvements in telecom and specialty materials margin that
offset the price declines in the glass business.
The operating expenses of $444 million were down 13.9%
sequentially and 3.9% year over year. Higher R&D (up 119 bps
sequentially) was offset by lower SG&A (down 105 bps) and the
slightly stronger gross margin resulted in the sequential
improvement. All expenses increased as a percentage of
sales from the year-ago quarter.
Corning's pro forma net income was $445 million or 24.5% of
sales compared to $630 million or 29.4% in the previous quarter
and $397 million or 20.7% of sales in the year-ago quarter. The
pro forma estimate reflects the core business as indicated by
management and 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 $494
million ($0.33 per share), compared to $155 million ($0.10 per
share) in the previous quarter and $474 million (0.31 per share)
in the year-ago quarter.
Inventories were up 11.4% during the quarter, with inventory
turns declining from at 4.7X to 3.6X. DSOs were up from 55 to 63.
The numbers are indicative of slowing sales and more difficult
Corning ended the quarter with $5.78 billion in cash and short
term investments, down $369 million 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
$291 million, up $109 million during the quarter.
Cash generated from operations was $623 million, of which $194
million was spent on capex, $498 million on the retirement of
long term debt and and $133 million on dividends.
Corning provided guidance for the second quarter. Management
did not mention the expected growth in the Display business but
stated that volumes in both the wholly-owned and SCP segments
would be consistent with the first quarter. Price declines are
expected to moderate further with declines dropping to 2-3%
sequentially. Customer agreements and a weaker yen (indirectly)
are expected to help prices.
Telecom segment sales are expected to be up 20% sequentially
remaining slightly above the year-ago level, driven by the NBN
Specialty Materials revenue is expected to be up 15-20% on a
sequential basis, or 5% year over year as touch-based notebooks
and smartphones drive particular strength in GG.
Environmental segment sales are to be up slightly on a
sequential basis, or flat to down from last year, with both the
light and heavy duty segments remaining softer than the year-ago
The Life Sciences business is expected to be up 35-40% year
over year on account of the acquisition completed last year.
Corning expects the gross margin to be flat sequentially.
SG&A is expected to be down as a percentage of sales with
R&D remaining consistent.
Equity earnings from Dow Corning are expected to be up 20%.
The tax rate for the core business is expected to be 16% and core
earnings down 15% year over year (roughly 23 cents, which is well
below the Zacks Consensus Estimate of 30 cents).
Corning's first-quarter results were better than expected.
Since Display remains the largest contributor to its revenue, the
steadier volumes and improving prices in this business are
encouraging. Additionally, GG should see continued strength as we
move through the year, as the company is well positioned at
several major players in the smartphone and mobile computing
With important product ramps in the telecom segment and
acquisition-driven growth in the life sciences segment, the
environmental drag may not be enough to hold down share prices.
Profitability should also improve as GG volumes pick up and the
devaluation in the yen will support stronger pricing.
Corning shares carry a Zacks Rank #3 (Hold). However, analog
component suppliers such as
Maxim Integrated Products
), all of which carry a Zacks Rank #2 are likely to be better
investments at the moment.
CORNING INC (GLW): Free Stock Analysis Report
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