Corning’s Earnings Preview: Will Gorilla Glass Sales Offset Lower LCD Prices?

Corning (NYSE:GLW) will announce its fourth quarter and full year 2012 earnings on Tuesday, January 29. In the nine months ended September 30, 2012, earnings were down 35% year-over-year to $0.95 per share due to declining LCD and silicon prices partially offset by the sales growth of Gorilla Glass. ^[1]

In the fourth quarter, Corning expects the LCD price decline to be more severe than it was in the third quarter. But, it also expects LCD shipment volume to rise in mid-single digits sequentially. TheSales of Gorilla Glass, the market leading display surface for smartphones and tablets, are also expected to rise around 5% sequentially. ^[2] In all, Corning’s fourth quarter earnings will reveal if the sales growth in Gorilla Glass was able to offset the negative impact from the decline in LCD prices.

Forthe full year 2012 though, Corning’s sales and earnings will contract significantly in our opinion. We currently have a stock price estimate of $13 for Corning, approximately 5% above its current market price.

See our complete analysis of Corning here

Declining LCD prices

LCD prices are declining due to excess manufacturing capacity in the industry. Additionally, low disposable incomes and high unemployment rates brought on by weak global economic growth have prevented LCD shipments from rising to levels which could offset the impact from lower prices. This decline in LCD prices has hit Corning especially hard as the LCD business constitutes nearly 53% of its total value, according to our analysis.

In the nine months ended September 30, sales at the Display Technologies division that manufactures LCD glass were down $256 million or 11% y-o-y to $2.1 billion. Corning’s share of earnings from Samsung Corning Precision, a 50/50 joint venture between Corning and Samsung (PINK:SSNLF) that manufactures LCD glass, was also down $291 million or 34% y-o-y to $562 million over the same period. ^[1] In the fourth quarter, LCD prices continued to erode and this will impact earnings.

Restructuring costs

Additionally, Corning finalized a restructuring plan in the fourth quarter to reduce its headcount, project spending, capital expenditures and other fixed costs in light of its weak earnings over the past couple of years. The plan will likely incur one-time costs of up to $50 million in the fourth quarter. ^[3]

Rising sales of Gorilla Glass

On the bright side, Gorilla Glass continued its strong performance in the fourth quarter. This glass which is now present on more than 1 billion devices globally, will likely cross $1 billion in net sales in 2012. In the first three quarters, sales of Corning’s Specialty Materials division, which includes the Gorilla Glass, increased $111 million or 13% y-o-y to $947 million. ^[1]

Understand How a Company’s Products Impact its Stock Price at Trefis

1. 2012 Q3 10-Q, October 25 2012, www.corning.com [↩] [↩] [↩]
2. Company updates fourth-quarter outlook for LCD glass volume and Corning® Gorilla® Glass sales, November 27 2012, www.corning.com [↩]
3. Corning Q3 Results, October 24 2012, www.corning.com [↩]