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Corning (GLW) Beats on Q4 Earnings; FY17 View Positive

Corning Inc.GLW reported fourth-quarter 2016 adjusted earnings of 50 cents per share, beating the Zacks Consensus Estimate by 6 cents (13.6%). Earnings surged 47.1% on a year-over-year basis and 19% sequentially in the reported quarter.

The year-over-year growth was driven by improvement in revenues. Adjusted revenues increased 6.2% year over year to $2.55 billion, which comfortably surpassed the Zacks Consensus Estimate of $2.48 billion. Revenues remained flat on a sequential basis.

Corning reported adjusted earnings of $1.55 per share in full-year 2016, which reflects 10.7% increase over full-year 2015. However, revenues declined almost 1% on a year-over-year basis.

We note that Corning shares have outperformed the Zacks Communications Components industry in the past one year. While the industry gained 41.1%, Corning shares witnessed an increase of 47.8% over the same period.

Segment Details

The Display Technologies segment generated around 33.5% of total revenues. On an adjusted basis, revenues were almost flat from the year-ago quarter but declined 4.1% sequentially to $904 million.

Optical Communications generated almost 33.1% of total revenues. Reported segment revenues grew 11.3% year over year and 3% sequentially to $819 million on the back of strong demand for fiber-to-the-home market solutions in North America.

The Environmental Technologies segment generated around 9.9% of revenues. Reported segment revenues were down 3.5% year over year and 7.2% sequentially to $245 million. The strength in Corning's automotive light-duty substrates fully offset weakness in demand for heavy-duty diesel products.

Specialty Materials generated 13.6% of revenues. Reported segment revenues surged 22.2% year over year and 13.9% sequentially to $336 million driven by record Gorilla Glass volumes.

The Life Sciences business accounted for around 8.3% of revenues. Reported revenues were up 2% from the year-ago quarter but declined 3.7% sequentially.

Operating Details

Adjusted gross margin expanded 140 basis points (bps) from the year-ago quarter but contracted 20 bps from the previous quarter to 42.9%.

Adjusted selling, general & administrative expense (SG&A) as percentage of revenues decreased 170 bps from the year-ago quarter; however, it increased 80 bps on a sequential basis in the reported quarter.

Moreover, research & development expense (R&D) as percentage of revenues declined 230 bps year over year and 50 bps sequentially.

Reported operating income surged from $87 million in the year-ago quarter to $432 million in the fourth-quarter. Sequentially, operating income declined 19.3% due to higher expenses.

Corning Incorporated Price, Consensus and EPS Surprise

Corning Incorporated Price, Consensus and EPS Surprise | Corning Incorporated Quote

Guidance

Management provided the following outlook for first-quarter 2017:

Corning expects glass volume to increase by mid-teen percentage on a year-over-year basis and decline by mid-single digit percentage sequentially. Optical Communications sales are anticipated to increase at least 25% from the year-ago quarter.

Environmental Technologies sales are expected to be flat-to down slightly on a year-over-year basis, while Specialty Materials sales are anticipated to increase by a high-teen percentage range. The Life Sciences business will grow low-single digit percentage from the year-ago quarter.

For full-year 2017, Corning expects the rate of growth in both retail market and glass demand to be in the mid-single digit percentages. The company anticipates an overall favorable LCD glass price environment, with price declines more moderate than in 2016.

Optical Communications sales are expected to increase by a low-teens percentage over 2016. Environmental Technologies sales are expected to be flat-to up slightly on a year-over-year basis driven by continued strength in the automotive market.

Specialty Materials sales are anticipated to increase, while the Life Sciences business will grow low-single digit percentage from 2016.

Recommendation

Corning currently carries a Zacks Rank #2 (Buy). Better-ranked stocks in the broader technology sector are Applied Optoelectronics AAOI , Intersil Corporation ISIL and Inphi Corporation IPHI . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Intersil, Inphi and Applied Optoelectronics are expected to report earnings on Jan 30, Feb 2 and Feb 23, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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