Corning Announces Third-Quarter Results
Record sales of Corning® Gorilla® Glass
New agreements with LCD customers
CORNING, N.Y., October 24, 2012 – Corning Incorporated (NYSE:GLW) today announced its results for the third quarter of 2012.
Sales were $2.04 billion, up 7% from quarter two and down 2% year over year.
Earnings per share were $0.35. Excluding special items, earnings per share were $0.34,* up 10% sequentially, and down 29% year over year.
Display Technologies total glass volume, from Corning's wholly owned business and Samsung Corning Precision Materials Co., Ltd., was up by a low-double digit percentage, as expected. Price declines remained moderate.
Specialty Materials sales were up 23% sequentially and 21% year over year, driven by strong growth in Corning® Gorilla® Glass volumes, and much higher than expected.
Telecommunications sales decreased 6% sequentially and 7% year over year, and were lower than expectations.
Quarter Three Financial Comparisons
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*These are non-GAAP financial measures. The reconciliation between GAAP and non-GAAP measures is provided in the tables following this news release, as well as on the company's investor relations website.
Reflecting on the company's third-quarter performance, Wendell P. Weeks, chairman, chief executive officer, and president, said, "We were pleased with Corning's overall performance this past quarter as we grew sales and earnings sequentially, and exceeded our expectations for the period.
"We are making progress on our goal to improve Corning's overall profitability. We had our strongest quarterly sales to date for Corning Gorilla Glass. Our Display Technologies segment continued to stabilize its earnings with another quarter of moderate LCD glass price declines. However, weakening global economic conditions worked against our sales results in Telecommunications and Environmental Technologies."
Weeks referenced Corning's entry into new supply agreements with industry-leading LCD display manufacturers this past quarter. "These new customer agreements will assist us in maintaining Corning's market position at specified levels and contain mechanisms that establish a relationship between Corning's glass price and the market's glass price. We believe these new agreements will allow us to manage our capacity more efficiently and enable us to continue improving our cost position," he said.
Third-Quarter Segment Results
Sales in the Display Technologies segment were $763 million, a 19% sequential increase and 6% year-over-year decline. Glass price declines for LCD were moderate, as expected.
Telecommunications segment sales were $523 million, declining 6% sequentially and 7% year over year. The decline was driven by lower sales in North America and Europe, partially offset by growth in China. North American sales were impacted by certain project delays and a winding down of U.S. stimulus spending on optical cable in support of telecommunications infrastructure projects. European sales were impacted by a softening in market demand.
Specialty Materials segment sales were $363 million, a 23% sequential and 21% year-over-year increase driven by Gorilla Glass sales in the handheld and information technology device markets. Sales of semiconductor products were down sequentially and year over year.
Environmental Technologies segment sales were $233 million, a 6% sequential and year-over-year decline. Following the summer's seasonal manufacturing shutdowns, higher light-duty diesel product sales were offset by lower sales of heavy-duty diesel filters and substrates. Orders for heavy-duty emissions products declined substantially as truck demand slowed significantly in the third quarter and manufacturers began to manage inventory.
Life Sciences segment sales were $155 million, down 4% sequentially and up 1% year over year. The company expects its acquisition of the majority of the BD Discovery Labware unit to be completed this year, pending regulatory approvals. When complete, the acquisition will be integrated into Corning's Life Sciences business segment, providing a much broader portfolio of high-quality laboratory research products and expanded global market reach.
Dow Corning Corporation's equity earnings were $48 million, down 21% sequentially, driven primarily by the absence of two non-recurring gains in the second quarter, and a higher tax rate. Dow Corning's equity earnings were down 46% on a year-over-year basis, driven by severe weakness in the solar polysilicon market.
Corning's gross margin for the quarter was 43%, up slightly over the previous quarter. The company ended the second quarter with $6.4 billion in cash and short-term investments. Corning continued to purchase outstanding common stock throughout the quarter, and expects to complete its stock repurchase program in the fourth quarter.
"In quarter four, we will build on the great strides we have made toward achieving positive momentum in our LCD glass business," James B. Flaws, vice chairman and chief financial officer said. "It was nearly one year ago that our LCD business experienced an upset that significantly reduced our profitability. Since then, we brought our glass capacity in line with demand, made significant progress in moderating LCD glass price declines, and established new supply agreements with key customers."
The company has the following fourth-quarter expectations:
In Corning's wholly owned display business and Samsung Corning Precision, total glass volume is expected to be consistent to down low-single digit percentage sequentially, depending on the level of normal seasonal inventory correction expected from panel manufacturers. Corning anticipates price declines for the fourth quarter will be slightly higher than the previous two quarters.
Telecommunications segment sales are anticipated to be consistent with third-quarter performance. Normal seasonal declines are expected to be offset by continued demand for optical fiber and cable products in China.
Specialty Materials segment sales are anticipated to be consistent with the record performance of the third quarter. Gorilla Glass sales are expected to remain strong in the fourth quarter.
Environmental Technologies segment sales are expected to be even to down slightly from the previous quarter.
In the Life Sciences segment, Corning forecasts sales to be down about 5% sequentially, driven by normal seasonality.
Corning's tax rate is anticipated to be approximately 19% in the fourth quarter, and for the year in total.
"The weakening economy is affecting sales in many of our businesses, with several not achieving the growth expectations we set for the year. We believe these economic headwinds will persist next year. In order to deliver on our plan to grow earnings, we are likely to implement selected cost reductions in the areas of project spending, capital expenditures, and fixed costs, which may include modest headcount reductions," Flaws said. "Once the restructuring plan is determined, we anticipate taking a pretax charge of up to $50 million in the fourth quarter to cover the cost of that restructuring."
"We are executing our strategy to improve profits and deliver new growth opportunities, despite these challenges," Flaws said. "Gorilla Glass, now available on more than one billion consumer electronics devices around the world, has been a resounding success for Corning, and we continue to bring other new technologies to market. We are excited about the development of Corning® Willow™ Glass, an ultra-slim flexible glass that we believe could revolutionize the shape and form of next-generation consumer electronics technologies, and we are experiencing success introducing new high-speed wireless connectivity solutions that greatly expand bandwidth capabilities in large venues such as stadiums and arenas. Moreover, we continue to supplement our organic growth with strategic acquisitions that expand our product offerings and increase our market access," he said.
Flaws added, "These positive prospects, combined with Corning's continuing strong operating cash flow and declining capital spending, gave the board of directors confidence to increase the company's dividend payout by 20% earlier this quarter.
"Corning is executing the strategy we laid out to investors at the beginning of the year, and we believe our future is very bright."