Please ensure Javascript is enabled for purposes of website accessibility

Corning Incorporated Won't Crack Under (Economic) Pressure

By Steve Symington - Jan 27, 2016 at 8:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The high-tech glass maker continues to successfully weather today's tough market. Here's what investors need to know.

If Corning Incorporated (GLW 1.08%) was destined to suffer the full wrath of today's global economic weakness, it might seem the glass technologist didn't get the memo. But upon closer inspection -- and with the help of its new $20 billion long-term capital allocation plan put into place last quarter -- Corning continued to demonstrate its ability to position itself for success no matter what challenges the industry throws its way.

Shares of Corning rose nearly 6% Tuesday after the company's fourth-quarter 2015 earnings exceeded expectations. But before we delve deeper, let's tackle Corning's headline numbers:

Corning results: The raw numbers

 Metric

Q4 2015 Actuals

Q4 2014 Actuals

Growth (YOY)

Core revenue

 $2.402 billion

 $2.534 billion

(5.2%)

Core net income

 $429 million

 $587 million

(26.9%)

Core EPS (diluted)

 $0.34

 $0.42

(19%)

DATA SOURCE: Corning Incorporated.

What happened with Corning this quarter?

  • Generated adjusted operating cash flow of more than $1 billion, bringing full-year adjusted operating cash flow to $3.2 billion.
  • Generated free cash flow of $628 million, bringing full-year free cash flow to $1.5 billion.
  • Spent $1.3 billion to repurchase shares in Q4, bringing full-year repurchases to $3.2 billion to retire 151 million shares.
  • Ended the year with $4.6 billion in cash, roughly $1 billion of which is in the U.S.
  • Saw continued moderation of LCD glass price declines (Q4 marked the lowest sequential declines of 2015).
  • Announced "realignment" of interest in Dow Corning, unlocking value from a silicones business that falls outside Corning's core competencies:
    • Transaction should be tax free and accretive to earnings per share.
    • Newly formed entity will be wholly owned by Corning, and hold 40% ownership in Hemlock Semiconductor and $4.8 billion in cash.
  • Announced that Ford's GT supercar is using Corning Gorilla Glass for Automotive in its windshield and in two other windows.
  • Established long-term supply agreement with "low-cash investment" in a gen-10.5 glass manufacturing facility with Chinese display leader BOE, while extending existing long-term agreements for gen-8.5 and smaller panels through 2025.
  • Display Technologies segment core sales fell 14.4% to $903 million, inline with guidance as LCD glass volume fell slightly from last quarter as expected. Display core earnings fell 34.3% to $234 million.
  • Optical Communications segment sales rose 8.9% to $736 million, better than expected and driven by stronger carrier network sales. Optical core earnings fell slightly to $47 million, mostly because of lower-margin product mix from Corning's acquisition of Samsung Electronics' fiber optic business early last year.
  • Environmental Technologies sales rose slightly to $254 million, also better than anticipated because China's stimulus for car sales drove demand for light-duty products. Environmental core earnings fell 19.4% to $29 million, mostly because of lower heavy-duty product volume and the weaker euro.
  • Specialty Materials sales fell 13.8% to $275 million, driven by lower Gorilla Glass volume following a strong Q4 last year. However, specialty core earnings increased 46.7% to $44 million, thanks to higher Gorilla Glass 4 margins, improved cost management, and lack of a one-time unfavorable customer write-off in last year's fourth quarter.
  • Life Sciences sales fell 6% to $202 million, and core earnings declined 33.3% to $12 million, primarily because of foreign exchange. Both metrics would have climbed on a year-over-year basis excluding currencies.
  • Dow Corning Corporation core equity earnings fell 29.7% to $78 million, as expected, including a $39 million contribution from Hemlock.

What management had to say
During the subsequent conference call, Corning CEO Wendell Weeks added:

Well, no surprise; the global economy is impacting our company. Nonetheless, we continue to make solid progress on many critical fronts. Despite the worst display industry environment in five years, glass price declines are the smallest they've been in five years. This provides us a good foundation for stabilizing returns in this business. We're generating excellent operating cash flow and we are returning cash to our shareholders. We are beating the competition and we have a great opportunity set ahead of us, as exemplified by our recent progress on attacking the automotive glazing market with Gorilla Glass. Now we look forward to sharing many more details of our strategy and capital allocation framework at our annual investor meeting next week.

Looking forward
For the first quarter of 2016, Corning now expects revenue to increase in the low-single-digit range from last year, while gross margin should decline sequentially by roughly one percentage point to 41%, primarily because of lower Display Technologies and Gorilla Glass volume.

That said, gross margin is also expected to improve along with volumes as the year progresses, starting in the second quarter. And for the full 2016, Corning expects its own revenue growth to outpace the broader market's anticipated low-single-digit percentage gains. By contrast, going into the call, Wall Street's consensus estimates predicted that Corning's full-year revenue would fall slightly on a year-over-year basis.

In the end, Corning's latest quarter wasn't punctuated by the eye-popping growth many tech investors have grown accustomed to seeing elsewhere. But in the absence of that growth, Corning continues to deliver on its stated intention to not only reward shareholders through capital returns, but also to continue to innovate and solidify its market leadership.

Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Corning and Ford. 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Corning Incorporated Stock Quote
Corning Incorporated
GLW
$37.54 (1.08%) $0.40
Ford Motor Company Stock Quote
Ford Motor Company
F
$16.18 (2.21%) $0.35
BlackRock Enhanced Global Dividend Trust Stock Quote
BlackRock Enhanced Global Dividend Trust
BOE
$10.54 (0.79%) $0.08

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
400%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/15/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.