Corning Surpasses Q4 Earnings, Revenue Estimates

Corning Inc. GLW delivered fourth-quarter 2017 adjusted earnings of 49 cents per share, beating the Zacks Consensus Estimate by a couple of cents. However, earnings decreased 2%, year over year but increased 14% sequentially.

Growth was driven by improvement in revenues. Core revenues increased 7% year over year to $2.739 billion, which comfortably surpassed the Zacks Consensus Estimate of $2.633 billion. Revenues increased 1% on a sequential basis.

The results reflect strength in the company's Optical Communications, Environmental Technologies and Specialty Materials business lines.

Corning recently announced that it has agreed to take over 3M Company's MMM Communication Markets Division completely in an all-cash deal for approximately $900 million. This strategic move is in line with the company's plan to invest $1-$3 billion in acquisitions. Moreover, the company anticipates the deal to add 7-9 cents to 2019 earnings.

The acquisition will result in adding around 500 3M's employees to Corning. This acquisition will strengthen Corning's Optical Communications worldwide market access.

Additionally, strong Gorilla Glass shipment drove Specialty Materials sales. The glass demand is improving consistently due to increasing adoption by smartphone makers like Apple Inc. AAPL.

Corning's shares have returned 32.1% year over year, outperforming the industry's 29.3% rally.

Segment Details

The Display Technologies segment generated around 30.9% of total revenues. On an adjusted basis, revenues decreased 6% from the year-ago quarter and 2% sequentially to $847 million. The LCD glass market and Corning's volumes were up slightly better than expected.

Optical Communications generated 33.9% of total revenues. Reported segment revenues increased 13% year over year and 1% on a sequential basis to $928 million on the back of strong demand for both enterprise and carrier products. Further, acquisition synergies drove the segmental revenues.

The Environmental Technologies segment generated around 10.6% of revenues. Reported segment revenues were up 19% year over year and 5% sequentially to $291 million. Strong demand for Corning's solutions in the automotive market and additional contract wins drove year-over-year growth.

Specialty Materials generated 14.3% of revenues. Reported segment revenues surged 17% year over year and 5% sequentially to $393 million backed by strong shipment of Gorilla Glass.

The Life Sciences business accounted for around 8.2% of revenues. Reported revenues were up 9% from the year-ago quarter and 1% sequentially to $225 million.

Operating Details

Adjusted gross margin contracted 200 basis points (bps) from the year-ago quarter and 100 bps from the previous quarter to 41%.

Adjusted selling, general & administrative expenses (SG&A), as a percentage of revenues, increased 50 bps from the year-ago quarter and 40 bps from the previous quarter to 14.2%.

Moreover, research & development expenses (R&D), as a percentage of revenues, increased 200 bps on a year-over-year basis and came in at 8.8%.

Guidance

For full year 2018, Corning expects LCD glass market to be in the mid-single digit. Management expects Corning's volume to grow faster than the market, primarily owing to robust world's first Gen 10.5 fab. The company expects sequential LCD glass price declines to be moderate.

Optical Communications sales are anticipated to increase by approximately 10% for 2018. This increase excludes any contribution from the pending acquisition of 3M's Communications Markets Division.

For 2018, Environmental Technologies sales are expected to increase by high-single digit percentage, while Specialty Materials sales are anticipated to increase year over year. The Life Sciences business will grow mid-single digit percentage year over year.

Last Word

Corning is a worldwide provider of connectivity solutions. The company has been supplementing its portfolio with various acquisitions.

The demand for Corning's fiber optics products is growing, as reflected by the Verizon Communications Inc deal, which was signed in April. Moreover, strong demand for Gorilla Glass 5 (GG5) is a key catalyst.

These along with strategic acquisitions like SpiderCloud, Gerresheimer's Pharmaceutical Glass Tubing Business, Alliance Fiber Optic Products and STRAN Technologies will aid the stock sustain momentum in the rest of 2018.

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