Shares of Corning (NYSE:GLW) initially dipped after the company's third quarter earnings report release on Oct. 23, but subsequently rebounded and finished the day with a 2% gain. The specialty materials maker's revenue rose 15% annually to $3.01 billion, beating estimates by $20 million and marking the company's second straight quarter of double-digit growth. Its core revenue -- which excludes currency impacts, acquisitions, divestments, and other charges -- rose 16%.

On the bottom line, Corning's net income rose 60% annually to $625 million, and its EPS jumped 72% to $0.67. On a core basis, its earnings rose 28% annually to $0.51 per share, topping expectations by three cents.

A spool of Corning's optical cables.

Image source: Corning.

For the full year, Corning expects its revenue to rise 7% to $11.3 billion, which is slightly higher than the consensus estimate of $11.27 billion. Analysts expect its core EPS, which was weighed down by weaker growth during the first half of 2018, to rise 2% for the full year.

But next year analysts expect Corning's revenue and earnings to rise 7% and 18%, respectively. Based on that forecast, Corning trades at just 15 times forward earnings while paying a forward dividend yield of 2.3%, making it seem like a cheap income play for a volatile market. But before jumping in, investors should review the key takeaways from its latest earnings report.

Solid sales growth

In the first half of the year, Corning struggled with soft sales of its Display Technologies products, which were throttled by cyclically weak demand for LCD screens. A lack of major smartphone launches also reduced demand for the unit's chemically hardened Gorilla Glass, which supported its Specialty Materials unit.

However, Corning offset some of that weakness with strong sales of Optical Communications products, which were buoyed by its purchase of 3M's (NYSE:MMM) optical unit, as well as robust sales of particulate filters at its Environmental Technologies unit and Valor Glass labware at its Life Sciences unit.

During the second quarter, Corning stated that the headwinds facing its Display and Specialty Materials units would fade during the second half of 2018. The company's third quarter numbers indicate that Corning is fulfilling that promise:


Q3 2018 Revenue

QoQ growth

YoY growth

Optical Communications

$1.12 billion



Display Technologies

$852 million



Specialty Materials

$459 million



Environmental Technologies

$331 million



Life Sciences

$231 million



Source: Corning Q3 report.

Corning attributed the positive growth of its Display Technologies business to display glass price declines bottoming out and improving during the quarter. It expects that trend to continue throughout the fourth quarter and next year. It also expects the market's volume to rise during that period as suppliers try to meet the rising market demand for larger TV screens.

A sheet of Corning glass.

Image source: Corning.

It attributed the turnaround at Specialty Materials to a "strong pull for glass innovations," which was supported by the arrival of major new smartphones during the quarter. Apple (NASDAQ:AAPL), one of Corning's top Gorilla Glass customers, notably introduced three new versions of the iPhone -- the iPhone XR, XS, and XS Max -- in September. Strong sales of those iPhones, along with an upgraded version of Gorilla Glass and new versions for wearables and cars, should support the unit's continued growth.

The only soft spot was the Life Sciences unit, which faced a slight deceleration from previous quarters. However, Corning stated that the smaller unit continued to "outpace overall market growth."

Looking ahead, Corning expects the Display and Optical businesses to post low single-digit sequential growth during the fourth quarter. It expects its Specialty Materials growth to remain "consistent" with the prior year quarter, which saw the unit's strongest growth in 2017, and for its Environmental and Life Sciences unit to generate high single-digit sequential growth.

Expanding margins and rising earnings

All of Corning's core businesses reported year-over-year growth in net income, and all the units -- with the exception of Life Sciences -- reported quarter-over-quarter growth as well. Corning's core gross margin of 42% also represented a significant improvement from the first half of 2018 and all of 2017. Its GAAP gross margin came in at 41%.

Those figures indicate that Corning isn't facing much competition or pricing pressure in its core markets, despite earlier concerns that softer demand for optical equipment or competition from other makers of hardened glass would hurt its margins. Its GAAP operating margin of 17.4% also marked a 40 basis point improvement from a year earlier.

Corning stated that it doesn't expect a "material impact" from tariffs, and already factored "conservative estimates" for the Chinese market into its forward guidance.

Clear skies ahead

Corning's growth looked shaky at the beginning of 2018, but the company is firing on all engines again with plenty of irons in the fire. Therefore, I believe that Corning remains a solid supply chain play on multiple markets, and its low valuation makes it a compelling buy at these prices.

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.