When Corning Inc (NYSE:GLW) reported its 2018 third-quarter earnings late last month, investors certainly had reason to cheer. In the quarter, the specialty glass manufacturer saw core sales (revenue-adjusted for things such as foreign currency fluctuations) rise to $3.05 billion, a 16% increase year over year, and core earnings per share (EPS) grow to $0.51, a 28% increase year over year. Driving the growth was an increase in revenue and earnings across all five of its divisions: Display Technologies, Optical Communications, Environmental Sciences, Specialty Materials, and Life Sciences.
Yet when going through the company's conference call transcript, three of the company's products, in particular, make me especially bullish on Corning shares: Gorilla Glass, optical fiber, and Valor Glass. All three are showing strong demand from customers that should continue for years, if not decades. Let's take a closer look at these products and why they might give investors in Corning stock market-beating returns in the years ahead.
Sales as strong as a gorilla
Gorilla glass is the strong, scratch-resistant, and flexible glass covering Corning makes that covers nearly all major smartphone brands and models. Corning released the sixth generation of Gorilla Glass this quarter, with each generation being stronger and more flexible than the last. The specialty glass can be obtained from Corning, and it has now been installed in more than six billion devices since its original release. Sales for Gorilla Glass are accounted for in Corning's Specialty Materials division, which saw net sales and net income rise 23% and 35%, respectively, year over year this quarter.
While worldwide smartphone saturation is nearly complete, Corning's management believes there is still plenty of room for growth for Gorilla Glass. For starters, in July, Corning launched Gorilla Glass DX and DX+ for use in wearables, and it has already been used in two major smartwatch releases, Samsung's Galaxy Watch and Fitbit's Charge 3. The company was also pleased that Gorilla Glass 6 was "increasingly being adopted for glass backs" on smartphones as, obviously, the more glass being used on smartphones, the higher the sales.
The most significant developing opportunity for Gorilla Glass, though, might be from the automotive industry. During the conference call, CEO Wendell Weeks said the company had hundreds of millions of dollars in its auto glass pipeline for use on entertainment systems, and he shared feedback the company had gotten from early automotive customers. Harley-Davidson said the company liked the treatment of Gorilla Glass because it gave riders "exceptional visibility in bright sunlight." Porsche stated that Gorilla Glass had "ideal visual characteristics, low weight, and very high strength."
The world's high fiber diet
Corning is also the world's largest producer of optical fiber solutions, the material that acts as the infrastructure backbone for the data we consume across telecom, cable, and wireless networks. Weeks reiterated that the company surpassed the 1 billion-kilometer mark of optical fiber last year, and its pre-connecting fiber-to-home solution was now being used in 45 million households worldwide. In Q3, Corning's Optical Communications division saw net sales and income increase 22% and 27%, respectively, over last year's third-quarter results. Beyond its massive scale in this area, aided by investments to increase capacity earlier this year, Corning is also securing deals due to its innovative approach to end-to-end solutions. Weeks said:
[R]ecognition of the value created by our solutions and our unique co-innovation approach continues to grow. We continue to secure contracts with industry leaders in the carrier and data center segments that will add significant sales in 2019 and beyond. These multi-year commitments, support additional manufacturing capacity and drive profitable growth ... Stepping back, we positioned our Optical Communications market access platform to deliver advantaged optical fiber, cable and connectivity solutions for access networks, cloud data centers, and the network densification necessary for 5G. This year we've ramped fiber and cable capacity in North Carolina and during the quarter, we announced the opening of a manufacturing facility in Strykow, Poland. Our investments in innovation and capacity are clearly paying off in the second half of the year.
The better part of valor
The final large opportunity awaiting Corning is its new line of pharmaceutical glass packaging it has named Valor Glass. Valor Glass, if Corning's scientists are to be believed, "substantially reduces particle contamination, breaks and cracks, while significantly increasing throughput" of prescription drugs in glass packaging.
Several large pharmaceutical companies have already publicly endorsed the product, including Merck and Pfizer. In September, Corning hosted a pharmaceutical packaging convention attended by representatives from 40 entities across the pharmaceutical industry. Corning tripled its Valor Glass shipments to pharmaceutical companies versus this time last year to assist pharmaceutical companies in receiving certification from the FDA for its specific uses of the material.
Eventually, Valor Glass will probably be accounted for in Corning's Life Sciences department, the smallest of Corning's divisions. This quarter, Life Sciences contributed just $231 million and $30 million to Corning's top and bottom lines, respectively. Yet Corning is clearly expecting big things from this new product line, and there is evident demand from industrial customers. Corning is building a new factory in North Carolina to increase its manufacturing capacity for Valor and to experiment with new products for its use. When Corning introduced Valor Glass, management stated its total addressable market for it could be as much as $4 billion.
A glass half full
Corning is a company with numerous opportunities as it sees growing demand from customers across a number of different industries. Gorilla Glass is the preferred glass covering for smartphones worldwide, and as Corning explores different opportunities for its products, including autos and wearables, its sales should only continue to grow. Optical fiber demand is not going away, either -- especially as network densification is needed for the ramp-up to 5G. Finally, Valor Glass is an opportunity that just might transform Corning's Life Sciences division from its smallest contributor to its largest. Taken individually, each of these product lines would help drive Corning's sales in the years to come. Taken together, though, these opportunities give Corning a real chance to reward investors with outsized returns for years to come.