Corning Inc. (NYSE:GLW) is enjoying a very good year. While its stock price is up nearly 30% year to date, nearly doubling the S&P 500's return, its impressive run looks to continue for some time yet, judging by its recently reported third-quarter results. While its core sales and core EPS growth were modest on the surface, at 6% and 2%, respectively, closer inspection reveals a lot for Corning shareholders to be excited about. The market seemed to like the quarter, too, as the company's stock price jumped more than 6% the day it reported.

We don't have to look far to see why investors were so impressed. Corning's optical communications division -- which manufactures optical fiber and provides connectivity solutions for some of the world's largest telecom networks and cable providers -- showed strong year-over-year core earnings growth of 13% and this division is Corning's second-largest income-earning division. ("Core" numbers are management's favored adjusted financial metrics that it believes best express how the company is performing. For instance, it excludes the impact that foreign exchange rates had on the quarter's numbers.) 

Better yet, management stated that the earnings for this division would have been even higher if it hadn't been reinvesting so much back into the business to increase manufacturing capacity.

While Corning's specialty materials division, the home of Gorilla Glass, saw even stronger sales and earnings growth, its optical communications business segment is where Corning might be building a nearly unbreachable moat against competitors.

A spool of optical fiber.

Corning is now the lowest-cost producer of optical fiber and offers a number of award-winning innovations in the market. Image source: Corning Inc.

A billion kilometers

In the company's recent quarterly press release, it announced that it had now produced 1 billion kilometers of optical fiber. That's a whole lot! In fact, according to the company, that's "one-third of the optical fiber ever produced in the history of the world."

This accomplishment comes on the heels of a major deal with Verizon Communications (NYSE:VZ) whereby the telecom carrier announced that it will buy more than $1.05 billion of optical fiber over the next three years from Corning. In the company's conference call, Corning CEO Wendell Weeks talked not only about why even better things are still ahead. According to the transcript from S&P Global Market Intelligence, he said:

Our dedicated employees have helped us become the world's largest manufacturer of optical fiber, the world's lowest-cost provider, and the home to some of the most precise manufacturing operations of any kind, anywhere in the world. ... We believe that the opportunities ahead of us are much greater than those that are behind us. To capture these opportunities, we're investing to expand capacity, to innovate and to increase our market access. ... These investments are paying off. We are growing at more than twice the rate of the telecommunications industry ... We're well on our way to more than 15% sales growth for 2017, which keeps us on track to achieve $5 billion in optical sales by 2020.

That Corning is the lowest-cost producer of optical fiber gives it an impressive economic moat against its competitors. Beyond that, the company also offers a variety of innovative solutions. For instance, the company's EDGE8 solution is a preterminated optical cabling system designed specifically for data centers. EDGE8 allows data center operators to maximize their assets without the need for conversion modules, leading to lower costs. It also provides a straightforward path for data centers to upgrade to 40G, 100G, or 400G ethernet. 

Corning showed strength in its optical communication division in its recently reported third quarter. 

Metrics 2017 Q3 2016 Q3 Change
Core sales $2.70 billion $2.55 billion 6%
Core earnings $433 million $466 million (7%)
Optical communication sales $917 million $795 million 15%
Optical communication core earnings $111 million $98 million 13%

Data source: Corning Inc. 2017 Q3 2017 earnings.

Corning's incredible transformation through diversification

Some might counter that while Corning's optical communications segment's results were impressive, the company still only managed to increase earnings by 2% companywide. However, this argument misses the larger point: Corning has transformed itself from a cyclical industrial company dependent on commodity pricing to an enterprise with incredible technical prowess and proprietary know-how in diverse areas.

The company's largest income-generating division, display technologies, accounted for 52% of the company's core earnings this quarter. This business segment largely manufactures specialized glass substrates used as a key component in liquid crystal displays for devices such as smartphones, computer monitors, and large-screen televisions. Earnings in this business segment are notoriously cyclical and are often based on glass prices, a factor far outside Corning's control.

This quarter, core earnings in this department fell 16% year over year. In years past, that would have tanked Corning's quarter. While display technologies still comprises slightly more than half of Corning's earnings, it's not nearly as big, percentage-wise, as it was previously. That core earnings in this division could have fallen by so much while the company still eked out a small core earnings gain shows just how far Corning has come in increasing its other streams of revenue.

For shareholders, there's a lot to like not only about Corning's latest quarter, but its incredible transformation as a company. Not the least of things to like is Corning's growing moat in optical fiber manufacturing. With innovative solutions and lowest-cost production capabilities, Corning expects to continue to grow this division at twice the rate of the telecommunications industry and is projecting at least $5 billion in sales in this segment by 2020. Optical communications had about $3 billion in net sales in 2016. Corning is setting itself up for long-term success.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.