Corning Incorporated (NYSE: GLW) today announced its results for the second quarter ended June 30, 2016.
- Q2 GAAP EPS up $2.23 sequentially to $1.87, reflecting a one-time $2.7 billion non-taxable gain on strategic realignment of Dow Corning; core EPS up $0.09, or 32% sequentially, to $0.37; Q2 GAAP and core sales increased sequentially
- Optical Communications sales increased 28% sequentially on strong demand and cable production recovery, exceeding management expectations
- Corporate gross margin exceeded guidance by more than one percentage point, benefiting from higher sales and operational improvements in Optical Communications
- Strategic realignment of Dow Corning Corporation was a significant milestone in focusing Corning’s portfolio, and added $4.8 billion in cash
- Sales and EPS expected to grow both sequentially and on year-over-year basis in Q3
- New $2 billion accelerated share repurchase further advances Strategy and Capital Allocation Framework
“The sequential improvement surpassed our expectations and reflects increasing momentum in our businesses that we expect to continue through the second half of this year. We anticipate both sequential and year-over-year sales and EPS growth in the third quarter,” Wendell P. Weeks, chairman, chief executive officer, and president, said.
Update on Strategy and Capital Allocation Framework
Weeks added, “We continue to make great progress on our leadership priorities through our Strategy and Capital Allocation Framework. We are creating significant value for our shareholders, increasing our financial strength, and focusing 80% of our resources on our three core technologies, four manufacturing and engineering platforms, and five market-access platforms. The realignment of our interest in Dow Corning is a significant milestone.”
On May 31, Corning completed the realignment of its interest in Dow Corning, acquiring a newly formed subsidiary that contains $4.8 billion in cash and holds an equity interest in Hemlock Semiconductor Group.
Weeks noted additional progress on long-term growth opportunities, including an acquisition in Optical Communications and new wins for gas-particulate filters in Environmental Technologies. And last week, the company introduced Corning® Gorilla® Glass 5, its newest innovation for mobile consumer electronic products, to greatly enhance protection against breakage from drops.
Corning also increased the cash it expects to distribute to shareholders through 2019 to more than $12.5 billion. The newly announced $2 billion accelerated stock repurchase is another step toward its cash distribution goals, which also include increasing the dividend by a double-digit percentage annually.
Second-Quarter 2016 Results and Comparisons
($ Figures in Millions Unless Otherwise Designated)
GAAP Net Sales
GAAP Net Income
Core Net Income*
*Core performance measures are non-GAAP financial measures. The reconciliation between GAAP and non-GAAP measures is provided in the tables following this news release, as well as on the company’s website. Core performance metrics (non-GAAP) are adjusted to exclude the impact of changes in Japanese yen and Korean won foreign exchange rates, as well as other items that do not reflect ongoing operations of the company. Corning does not forecast the movement of the Japanese yen against the U.S. dollar or other items that do not reflect ongoing operations. As a result, the company is unable to provide guidance on a GAAP basis. See “Use of Non-GAAP Financial Measures” for details on core performance measures.
Segment Results and Outlook
GAAP Net Sales
NOTE: In all segments except the Display Technologies segment, core net sales are consistent with GAAP net sales. Because a significant portion of revenues in the Display Technologies segment are denominated in Japanese yen, this segment’s net sales are adjusted to remove the impact of translating yen into dollars.
As expected, the worldwide glass market and Corning’s volume increased in the high-single-digit percent range sequentially in the second quarter. Corning’s LCD glass price declines were smaller than those experienced in the first quarter.
In the third quarter, demand for Corning’s LCD glass is expected to increase by a mid-single-digit percentage sequentially, and the company expects price declines to remain moderate and consistent with the second quarter.
GAAP Net Sales
Following a first-quarter software issue that impacted cable production, Corning returned to full capacity toward the end of the second quarter. Strong demand for fiber-to-the-home and data center solutions drove higher sequential volume in the second quarter.
In the third quarter, Corning expects Optical Communications demand to remain strong and sales to grow approximately 10% on a year-over-year basis.
GAAP Net Sales
Second-quarter segment sales were consistent with a year ago and in line with company expectations. High demand for Corning’s automotive light-duty substrates remained strong in the second quarter, while expected softness continued in heavy-duty truck demand in North America and China.
In the third quarter, the company anticipates Environmental Technologies sales will decline slightly on a year-over-year basis due to foreign exchange rates. Demand for light-duty products in the automotive market is expected to remain strong, while weakness will likely continue in the heavy-duty truck market in North America and China.
GAAP Net Sales
Second-quarter sales grew 17%, and core earnings increased 50% sequentially. On a year-over-year basis, second-quarter segment sales were below company expectations and down 2% from last year’s sales. The mobile consumer electronics industry is experiencing lower smartphone and tablet demand in 2016, driven by worldwide macroeconomic conditions, fewer major product launches, and longer replacement cycles.
Third-quarter segment sales are expected to be consistent with last year’s third-quarter sales, and up sequentially, due to increased Gorilla Glass demand as the mobile device supply chain ramps up for new product launches in the second half of this year.
Full-year sales for Specialty Materials are now expected to be consistent with, or down slightly from, 2015 versus prior guidance of full-year growth at a mid-to-high single-digit percentage rate.
GAAP Net Sales
On a year-over-year basis, second-quarter segment sales increased by a low-single-digit percentage, and third-quarter sales are expected to grow similarly.
“We are pleased with our second quarter progress, and we are confident that Corning’s performance will continue to improve with year-over-year sales and EPS growth in both the third and fourth quarters,” R. Tony Tripeny, senior vice president and chief financial officer, said.
Tripeny added, “We remain committed to strong capital stewardship and plan to execute the accelerated share repurchase on July 28. With this action, we will fulfill our commitment to be EPS accretive following the realignment of our interest in Dow Corning.”
Upcoming Investor Events
Corning will present at the Citi 2016 Global Technology Conference on Sept. 7 in New York City.
Second-Quarter Conference Call Information
The company will host a second-quarter conference call on Wednesday, July 27, at 8:30 a.m. EDT. To participate, please call toll free (800) 553-0318 or for international access call (612) 332-0725 approximately 10-15 minutes prior to the start of the call. The host is “NICHOLSON”. To listen to a live audio webcast of the call, go to Corning’s website at www.corning.com/investor_relations, click “Events” and follow the instructions. A replay will be available beginning at 11 a.m. EDT and will run through 5 p.m. EDT, Wednesday, August 10. To listen, dial (800) 475-6701 or for international access dial (320) 365-3844. The access code is 397185. The webcast will be archived for one year following the call.
Presentation of Information in this News Release
Non-GAAP financial measures are not in accordance with, or an alternative to, GAAP. Corning’s non-GAAP financial measures exclude the impact of items that are driven by general economic conditions and events that do not reflect the underlying fundamentals and trends in the company’s operations. The company believes presenting non-GAAP financial measures assists in analyzing financial performance without the impact of items that may obscure trends in the company’s underlying performance. Detailed reconciliations outlining the differences between these non-GAAP measures and the most directly comparable GAAP measure can be found on the company’s website by going to the Investor Relations page and clicking “Financial Highlights” under the “Performance” tab. These reconciliations also accompany this news release.
Forward-Looking and Cautionary Statements
This press release contains “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995), which are based on current expectations and assumptions about Corning’s financial results and business operations, that involve substantial risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include: the effect of global political, economic and business conditions; conditions in the financial and credit markets; currency fluctuations; tax rates; product demand and industry capacity; competition; reliance on a concentrated customer base; manufacturing efficiencies; cost reductions; availability of critical components and materials; new product commercialization; pricing fluctuations and changes in the mix of sales between premium and non-premium products; new plant start-up or restructuring costs; possible disruption in commercial activities due to terrorist activity, armed conflict, political or financial instability, natural disasters, adverse weather conditions, or major health concerns; adequacy of insurance; equity company activities; acquisition and divestiture activities; the level of excess or obsolete inventory; the rate of technology change; the ability to enforce patents; product and components performance issues; retention of key personnel; stock price fluctuations; and adverse litigation or regulatory developments. These and other risk factors are detailed in Corning’s filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the day that they are made, and Corning undertakes no obligation to update them in light of new information or future events.
Digital Media Disclosure
In accordance with guidance provided by the SEC regarding the use of company websites and social media channels to disclose material information, Corning Incorporated (“Corning”) wishes to notify investors, media, and other interested parties that it intends to use its website (http://www.corning.com/worldwide/en/about-us/news-events.html) to publish important information about the company, including information that may be deemed material to investors. The list of websites and social media channels that the company uses may be updated on Corning’s media and website from time to time. Corning encourages investors, media, and other interested parties to review the information Corning may publish through its website and social media channels as described above, in addition to the company’s SEC filings, press releases, conference calls, and webcasts.
About Corning Incorporated
Corning (www.corning.com) is one of the world’s leading innovators in materials science. For more than 160 years, Corning has applied its unparalleled expertise in specialty glass, ceramics, and optical physics to develop products that have created new industries and transformed people’s lives. Corning succeeds through sustained investment in R&D, a unique combination of material and process innovation, and close collaboration with customers to solve tough technology challenges. Corning’s businesses and markets are constantly evolving. Today, Corning’s products enable diverse industries such as consumer electronics, telecommunications, transportation, and life sciences. They include damage-resistant cover glass for smartphones and tablets; precision glass for advanced displays; optical fiber, wireless technologies, and connectivity solutions for high-speed communications networks; trusted products that accelerate drug discovery and manufacturing; and emissions-control products for cars, trucks, and off-road vehicles.