And so it was that Corning's (NYSE: GLW) predictions came to naught, sucked into the black hole of a consumer-led recession.
For quarters on end, the (arguably) biggest name in glassware fought the rising tide of market pessimism. As recently as last summer, Corning was feeling good about its prospects in the LCD TV market, despite production cuts by AU Optronics (NYSE: AUO) and LG Display (NYSE: LPL), and bloated inventories at set manufacturers Sony (NYSE: SNE) and Philips (NYSE: PHG).
But all that has changed.
In September, Corning cut its guidance modestly in response to a growing rumble of bad news farther downstream in the LCD TV production chain. And yesterday, Corning pulled its guidance entirely. (Don't say you weren't warned.)
Corning CFO Jim Flaws announced Tuesday that glass "demand ... has dropped more precipitously than we expected just a few weeks ago." And so, referring to extreme uncertainty in the downstream supply chain, Flaws disowned his previous prediction of $1.1 billion-plus Q4 sales, and core earnings of $0.20 to $0.28 per share.
We're now told to expect numbers "below" this guidance range, although how much below remains a mystery.
Fumbling in the dark
We do know this: At $1.1 billion, Corning's Q4 sales would already be down 30% from last year's Q4. We also need to consider the impact of lower sales, such as future capacity reductions that could affect gross margins and possible future restructuring charges, as the company adjusts its capacity and fixed cost structure to reflect the lower demand. How much damage these two items will do is anyone's guess.
Investors are taking no chances, chopping around 7% off of Corning's market cap yesterday as they worry about just how bad things are going to get. As a result, Corning now carries the seemingly low valuation of around 2.4 P/E.
From where I sit, though, today's price seems entirely appropriate. Consider: Although Corning claims $5.7 billion in trailing earnings, its trailing free cash flow amounts to barely $930 million -- about 7% of the firm's current market cap.
Foolish takeaway
Down 60% over the past 12 months, Corning's price is only now starting to look attractive.
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