Despite matching its own tamped-down expectations this morning, Corning
Just the facts, ma'am
Though Corning bested analyst's revenue estimates, its profitability took a hit over the past year, to say nothing of the past quarter. Over the past few quarters, revenue and profit have begun to diverge.
Source: Morningstar and Corning earnings release.
While the company has had sequential declines before, the longer-term trend has not been good. Corning still boasts an enviable net margin, but at 26%, it's at its lowest level in over two years. Here's what's causing the changes:
- Corning's display glass segment saw "significant" price drops take a bite out of profits, despite a 4% increase in year-over-year revenue.
- LCD glass demand is projected to increase 12.5% to 3.6 billion square feet this year, and Gorilla Glass is expected to have "slightly" stronger sales in the upcoming quarter.
- The company's telecommunications and life sciences divisions are both given high-end growth estimates of 10% for the next quarter.
- Earnings are projected to decline between 5% and 20%, largely on the back of weak performances in display glass and in Corning's wide-ranging silicon partnership with Dow Chemical
. (NYSE: DOW)
- Sales of Gorilla Glass nearly tripled over the past year, no doubt driven by strong global demand for more mobile devices. Apple alone saw its mobile sales double from the prior year.
A few bright spots
Corning CFO James B. Flaws foresees the company's profit slide bottoming out in the near future as the two underperforming segments mentioned above transition towards more successful strategies. In order to improve its profitability, though, Corning is going to have to tamp down its production capacity by 25% to cope with oversupply problems. Lowered guidance isn't a new trend either, as fellow Fool John Grgurich mentions in the previously linked article. However, Anand Chokkavelu notes that Corning's long-term picture looks bright, with $7 billion in free cash flow expected by 2014.
By most measures, Corning's stock is still quite cheap, but booming demand for Gorilla-Glassed iStuff hasn't yet boosted the bottom line. If profitability continues to slide, investors might want to start wondering if Corning's still a deep-value play, or if Admiral Ackbar's immortal words are closer to the truth: "It's a [value] trap!"
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Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter for more news and insights. The Motley Fool owns shares of Apple and Corning. Motley Fool newsletter services have recommended buying shares of Apple and Corning; and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.