Corning Q2 2016 Earning to remain depressed but sales may increase sequentially
Corning (NYSE: GLW) will announce its Q2 2016 earnings results on Wednesday, July 27th. Corning’s Q1 2-16 sales declined by 10.7% year-on-year due to lower volume and pricing in display technologies, foreign currency translation losses, and the software implementation issue in its optical communications department. We expect that the company’s core sales, including Display Technologies, Optical communications and Specialty materials, grew sequentially in Q2 2016, driven by improvement in overall glass and specialty material markets. However, we may see a year-on-year decline in the volume of Optical Communications, as the prior year quarter included some service oriented business that did not repeat. Additionally, the software implementation issue may have had some impact on Q2 sales as well. The only segment where we are expecting a decline sequentially for Corning is Environmental Technologies, as the heavy duty truck market, which was declining for the last few quarters, did not show any signs of improvement in Q2.
Improvement In Glass Market To Drive Display Technologies Revenues
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Display technology sales declined by about 15% year on year in Q1 2016, as there had been a significant inventory buildup in the supply chain in the preceeding quarters due to weaker demand. This further resulted in price declines in Q1 2016, but Corning secured the remainder of their 2016 volume under customer agreements which will drive stable growth in Q2, as well as rest of the year. The shift towards large LCD screens is likely to create demand in the glass market which may help Corning in driving volumes in the next few quarters. We believe the glass industry improved in Q2 sequentially and is expected to generate a CAGR of 5.5% over the next five years.
Optical Communication May See Grow Sequentially Among But decline Year Over Year
Optical communications suffered a decline of about $100 million in Q1 2016 due to the software implementation issue. Corning announced after its first quarter results that they had resolved this issue. We thus expect the division to see about 20% growth over Q1 2016. However, we may see a decline year on year.
Acquisition and Joint Venture To Boost Its Automotive and Fiber Optic Solutions
Corning announced a joint venture with Saint-Gobain Sekurit to develop, manufacture, and sell light-weight automotive glazing solutions in January 2016. Company expects to scale its Gorilla Glass glazing solutions globally and sell glazing solutions by vesting on Sekurit’s excellent reputation among car manufacturers. Corning also completed the acquisition of Alliance Fiber Optic Products in Q2 2016 in order to expand their market access and enhance product sets in fiber-to-the-home and data center portfolios. We believe that these acquisitions will lead to better performance of Corning’s automotive and fiber optic segments in Q2 2016.
Overall, we expect the company-wide revenue to increase from $9.11 billion in 2015 to $9.40 billion in 2016. We also project GAAP diluted EPS to increase from $1.00 to $1.23 per share from 2015 to 2016 and then gradually increase over the next few years. We currently have a price estimate of $19.5 for Corning’s shares, which we will update after the second quarter earning announcement.
For more information, please refer to our complete analysis for Corning
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