A month has gone by since the last earnings report for Corning (GLW). Shares have lost about 13.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Corning due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Corning Q4 Earnings & Revenues Top Estimates, Fall Y/Y
Corning reported decent fourth-quarter 2019 results, wherein the top line and the bottom line surpassed the respective Zacks Consensus Estimate. However, revenues and earnings decreased on a year-over-year basis.
In 2019, Corning successfully delivered on its 2016-2019 Strategy and Capital Allocation Framework goals. It returned more than $12.5 billion to shareholders over four years, including a 67% increase in dividends per share, while investing to advance longer-term growth initiatives.
Net Income
On a GAAP basis, net income for the December quarter declined to $32 million or 1 cent per share from $292 million or 32 cents per share in the year-ago quarter, primarily due to lower operating income and equity in losses of affiliated companies. For 2019, net income was $960 million or $1.07 per share compared with $1,066 million or $1.13 per share in 2018.
Quarterly core net income came in at $406 million or 46 cents per share compared with $539 million or 59 cents per share in the prior-year quarter. The bottom line, however, beat the Zacks Consensus Estimate by 2 cents.
Revenues
Fourth-quarter GAAP net sales were down 7.2% year over year to $2,817 million. This reflects the material impact of changing market and customer dynamics in Optical Communications and Display Technologies business segments. For 2019, GAAP net sales were up 1.9% year over year to $11,503 million.
Quarterly core sales decreased to $2,851 million from $3,081 million recorded in the year-ago quarter. The top line, however, surpassed the consensus estimate of $2,680 million.
Quarterly Segment Results
Net sales from the Optical Communications segment, which accounts for the lion’s share of total revenues, declined 22.6% year over year to $903 million reflecting overall market weakness due to customers’ project spending decisions, primarily in carrier networks. The segment’s net income was $62 million compared with $165 million in the prior-year quarter, impacted by lower volume and reduced production to decrease inventory.
The company expects full-year 2020 sales to decline by 5-10% as the lower level of sales experienced in the second half of 2019 continues throughout the first half of 2020. It expects first-quarter 2020 sales to be down nearly 25% year over year, implying strong project spending in first-quarter 2019. It anticipates year-over-year growth in sales and profit to resume in the second half of 2020 driven by projects for 5G, fiber-to-the home and hyperscale data center deployments.
Net sales from Display Technologies were $795 million compared with $899 million in the year-earlier quarter due to lower glass volume and prices. For 2020, the company anticipates its display glass volume to grow by a mid-single digit percentage, similar to the mid-single digit growth expected in the display glass market. It expects glass price declines to remain moderate, down mid-single digits for the full year. The segment’s net income was $180 million compared with $240 million in the prior-year quarter.
Specialty Materials’ net sales were up 13.5% to $453 million, supported by innovations and strong demand for premium glasses. The company expects high-single digit year-over-year sales growth in 2020. The segment’s net income was $94 million compared with $87 million in the prior-year quarter.
Environmental Technologies’ net sales increased 17.2% to $374 million, primarily driven by gasoline particulate filter (GPF) adoption. The segment’s net income was $64 million compared with $42 million in the prior-year quarter. On a year-over-year basis, management expects sales to increase by a mid-single digit percentage in both first-quarter and full-year 2020.
Net sales from Life Sciences were up 7.6% to $256 million, as the business continued to outpace market growth. The segment’s net income was $38 million compared with $29 million in the prior-year quarter. On a year-over-year basis, sales are expected to increase by a mid-single digit percentage in both first-quarter and full-year 2020.
Other Details
Quarterly cost of sales increased 7.1% year over year to $1,963 million. Gross profit declined to $854 million from $1,202 million due to lower revenues and higher cost of sales. Core gross profit was $1,054 million compared with $1,297 million recorded in the prior-year quarter, with respective margin of 37% and 42%.
Cash Flow & Liquidity
In 2019, Corning generated $2,031 million of net cash from operating activities compared with $2,919 million in 2018. As of Dec 31, 2019, the specialty glass maker had $2,434 million in cash and equivalents with $7,729 million of long-term debt compared with the respective tallies of $2,355 million and $5,994 million a year ago.
Going Forward
While sales growth in 2019 did not meet long-term targets, the company outperformed the underlying markets and expects to build momentum throughout 2020. It remains confident in its 2020-2023 Strategy & Growth Framework goals.
Through 2023, Corning expects to deliver 6-8% compound annual sales growth and 12-15% compound annual earnings per share growth while investing $10 billion to $12 billion in RD&E, capital, and mergers and acquisitions. It also plans to expand operating margin and ROIC, and deliver $8 billion to $10 billion to shareholders, including annual dividend per share increase of at least 10%. To deliver its goals, the company expects to add an incremental $3 billion to $4 billion in annual sales and improve profitability by the end of 2023.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -35.78% due to these changes.
VGM Scores
Currently, Corning has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Corning has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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