Corningware
Corning hasn't made its most recognizable product in 25 years. Source: Corningware.com

Corning (NYSE:GLW) is one of the most innovative companies out there, no matter how mundane and down-right boring its business may seem. With the most recognizable product associated with the Corning name being your grandmother's favorite casserole dish, it's easy to understand why many people may not realize it. However, the company has survived and thrived for more than a century through innovation, and that pace of innovation has made it one of the most important companies in technology today. 

With earnings set to be released tomorrow, here are the three things that I'm paying the most attention to. 

1. Continued recovery of big-display business; integration paying off 

Corning Display

A return to growth in demand for large displays could be a boon. Source: Corning

Last quarter, Corning's Display Technologies unit -- the company's largest -- saw sales increase a whopping 62%. This massive growth is a little misleading without proper context, as it was driven in a large way by the completion of the acquisition of Samsung's stake in Samsung Corning Precision Materials, making the former joint venture a wholly owned Corning business. However, there was still a strong growth in the core business itself, as management reported that it was seeing better-than-expected results in orders for displays larger than 30 inches. 

Whether the bump in sales is just seasonal -- the soccer World Cup took place during the quarter, and is easily the most popular sporting event in the world -- or will be sustained is up in the air. However, what is clear, is that the integration of Corning Precision Materials into the business is helping reduce operations expense. As fellow Fool Steve Symington pointed out in his recent article, management is expecting that integrations like this will save the company almost $500 million over the next three years. 


2. Increased global focus on emissions, infrastructure

Corning Duratrap
Sales of particulate filters for diesel engines are a bigger source of growth than tablets or smartphones right now. Source: Corning

While most people think of cookware -- which the company hasn't actually made in years, after selling the rights to World Kitchen in 1998 -- when they think of Corning, Gorilla Glass is probably the second on the list. However, the company's Optical Communications and Environmental Technologies segments produced $971 million in sales last quarter, nearly three-times the Specialty Materials unit, where Gorilla Glass resides. 

Furthermore, these two business units grew by 14% and 25% last quarter, the former on increased demand for "Fiber-in-the-home" products as more consumers move to high-speed Internet in the U.S. and Europe. Environmental Technologies saw increased demand for the company's emissions control products for diesel engines, and as emerging markets in Asia and South America continue to industrialize, increased focus on emissions could be a real boon for Corning, and in a business most people don't even connect to the company. Corning is guiding for another 20%-plus growth in this business next quarter. 

3. Sapphire maybe not the challenger so many expected 

Apple Lineup
Corning's Gorilla Glass is still featured in the full iPhone lineup. Source: Apple

Last quarter, the Specialty Materials business unit was essentially flat versus the year prior, largely due to the slowing in demand for tablets. Additionally, there has been fear that sapphire would begin to displace Gorilla Glass, starting primarily with Apple, however, Apple went with -- or so it appears -- Gorilla Glass in the iPhone 6, a decision that may have been the nail in the coffin of GT Advanced Technologies, which had hitched its wagon to Apple in a big way, and is now in bankruptcy following the release of the iPhone 6 sans-sapphire. 

However -- again referencing my Foolish colleague Steve Symington -- Apple products in total are only about 3% of Corning's sales, so Apple's decision to stay with Gorilla Glass isn't a big boon, as much as it's not bad news. If Apple were to switch to sapphire in a meaningful way, it would probably have been a leading indicator that other manufacturers would be following suit. 

It will be interesting to learn what -- if any -- Apple's explosive sales of the iPhone 6 have meant so far for Corning. However, tablets are a more important source of sales, and so far that business remains relatively flat. Eventually the tablet market's upgrade cycle will become more regular, and Corning will benefit from that. Next quarter's results are expected to increase 10% versus the second quarter. That number might be higher on iPhone 6 demand. 

4. Bonus: Excellent capital management
Since 2011, Corning management has executed on a pretty aggressive buyback program, repurchasing and retiring nearly 18% of shares outstanding. At the end of last quarter, there was still $400 million approved for further buybacks before year-end, and management is almost guaranteed to spend it. With the company holding almost $1.5 billion in cash net of debt, its capital position is in excellent shape, and even if the stock isn't exactly "cheap" with a trailing price-to-earnings above 21, share buybacks that reduce shares outstanding this substantially certainly returns value to investors. 

Furthermore, reducing the share count will reduce the percentage of earnings that the company pays out in dividends. This should -- over time -- lead to increased dividends, which are likely to be a substantial portion of shareholder returns over the next few decades. 

Looking forward 
Corning has a lot of things going for it, but it all starts with a solid management team that's doing an excellent job. For investors, the fact that the company is involved in -- and the leader in -- so many categories, ranging from TV and smartphone displays, to IT infrastructure through its fiber business, to the trend for reduced emissions in developing and industrialized nations, probably doesn't get enough attention. 

Instead of looking too closely at the company's performance in just one or two categories, remember that Corning is actually quite diversified. Remember the big picture -- and that this company has been innovating for more than a century -- before making any decisions on just one or two quarter's results. 

 

 

Jason Hall owns shares of Apple, GT Advanced Technologies, and Corning. The Motley Fool recommends Apple and Corning. The Motley Fool owns shares of Apple and Corning. 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.