)second-quarter 2013 earnings beat the Zacks Consensus Estimate
by a penny, or 3.2%%. Earnings have been adjusted for
currency, pension-related accounting adjustments and other items
net of tax.
Corning reported revenue of $1.98 billion, which was up 9.3%
sequentially and 3.9% year over year, roughly in line with our
Revenue by Segment
segment generated around 32% of total revenue. The segment was
down 2.9% sequentially and 1.6% year over year.
Samsung Precision ("SCP") LCD glass volumes were up low
single-digits sequentially and flat with the year-ago quarter
(better than guided). Volumes in the wholly-owned business were
up mid-to-high single digits sequentially, but up 40% from the
year-ago quarter (better than guided) Glass price declines
continues to moderate as expected.
However, inventory in the channel and at retailers is on the
rise, as the TV industry moves to larger screen sizes and moves
to build initial stock levels.
(30% of revenue) grew 27.9% sequentially and 7.5% from the
year-ago quarter. The sequential increase was much better than
Corning's guidance of a 20% increase.
As expected, the NBN project ramp is Australia was the most
significant driver of year-over-year growth, which was helped by
growth in wireless, fiber & cable and data center projects in
China and offset by softness in Europe. The sequential increase
was fairly broad-based (FTTH in North America, fiber & cable
in China and an acquisition in Brazil).
Management did not break down sales by category.
generated 15% of revenue, up 16.7% sequentially and 15.2% year
over year. Management was looking for a 15-20% sequential
increase due to strength in touch-based notebooks and
smartphones, so results were within the guided range. Gorilla
Glass (GG) remains a primary revenue driver.
segment generated 12% of revenue, flat sequentially and down 8.4%
year over year. Revenue missed expectations of a slight
sequential increase, with the heavy duty segment (trucks) pulling
down segment performance. The light vehicle segment was up
slightly, in line with expectations.
business accounted for 11% of revenue. The business was up 5.8%
sequentially and 35.2% from a year ago. Corning attributed the
increase to contributions from the Discovery Labware acquisition,
which closed on Oct 31.
The gross margin was 44.6%, up 210 bps from 42.4% reported in
the previous quarter, up 220 bps from last year and 2 points
better than guided. Management stated that gross margins continue
to improve across all except the all-important Display business,
which remains slightly impacted by price declines. However, the
increasing demand, improved efficiencies especially in GG
production and move to thinner glass remain positives for overall
gross margin improvement.
The operating expenses of $486 million were up 9.5%
sequentially and 2.3% year over year. But all expenses declined
as a percentage of sales from both the previous and year-ago
quarters. R&D declined 78 bps and 66 bps from the two
periods, respectively, while SG&A declined 86 bps and 157
Corning's pro forma net income was $469 million or 23.7% of
sales compared to $445 million or 24.5% in the previous quarter
and $388 million or 20.3% 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 $638
million ($0.43 per share), compared to $494 million ($0.33 per
share) in the previous quarter and $474 million (0.31 per share)
in the year-ago quarter.
Inventories were up 5.9% during the quarter, with inventory
turns declining from 3.6X to 3.5X. DSOs were up from 55 to 63.
Corning ended the quarter with $5.47 billion in cash and short
term investments, down $304 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
$61 million at the end of the quarter, down $230 million during
Cash generated from operations was $395 million, of which $244
million was spent on capex, $106 million on acquisitions net of
cash, $232 million on share repurchases and $147 million on
Management stated that the third quarter would mark Corning's
fourth straight quarter of year-over-year earnings growth.
Moderating LCD price declines will help the Display business,
while the other three segments will grow.
Management did not mention the expected growth in the Display
business but stated that volumes in the wholly-owned and SCP
businesses together would be flat to slightly up sequentially.
Price declines are expected to be similar to the second
Telecom segment sales are expected to be up 20% year over year
driven by FTTH demand in North America, Australia and Europe. The
U.S. and China are expected to be up on an increased number of
data center projects and Brazil is expected to be driven by the
Specialty Materials revenue is expected to be up 10% on a
sequential basis, driven by continued strength in GG. The new
products, particularly GG NBT, which is being used by
) in their new product line, will help revenues.
Environmental segment sales are to be up slightly over the
prior-year level, as a stronger heavy-duty diesel business in
North America is supported by tighter regulations in Europe and
The Life Sciences business is expected to be up 40-45% year
over year on account of the acquisition completed last year.
Corning expects the core gross margin to be up 1%
sequentially. SG&A and R&D are expected to be up year
over year as a percentage of sales.
Equity earnings from Dow Corning were lowered, with the
company now expecting a sequential decline of 50% and
year-over-year decline of 20% in its silicon business (both in
Europe and China) due to competitive pressures. The tax rate for
the core business is expected to be 16% and core earnings down
25% year over year (roughly 22 cents, which is well below the
Zacks Consensus Estimate of 34 cents).
Corning's second-quarter results were slightly 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 segments and has some new products ramping in the back
half of the year. With important product ramps in the telecom
segment, recovery in the environmental markets and
acquisition-driven growth in the life sciences segment, things
look positive for Corning. However, Dow Corning will continue to
weigh on the shares.
Corning shares carry a Zacks Rank #3 (Hold). However,
companies with better prospects in the segment include
), with a Zacks Rank #1 (Strong Buy) and
), with a Zacks Rank #2 (Buy).
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