Corning (NYSE:GLW) posted lower than expected third quarter earnings on Wednesday, October 24. As a result its stock price declined nearly 10% by the end of trading on the day. The company’s top line continued to decline on declining LCD prices and lower sales in its optical fiber and cable business, partially offset by strong growth in sales of Gorilla Glass. Sales were $2 billion, down 2% y-o-y and earnings were $0.35 per share, 31% y-o-y lower in the three months ended September 30, 2012.  In the year-to-date period, sales and earnings have declined significantly for Corning. The company expects the price decline in LCD and global economic headwinds to continue in the fourth quarter and 2013, and to help offset their impact it will be implementing a restructuring plan to lower its costs.
We currently have a stock price estimate of $23 for the company, approximately 5% above its current market price.
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Sales growth of Gorilla Glass fails to offset the decline in sales at other businesses
Sales in the Specialty Materials division of Corning which comprises mostly of sales of Gorilla Glass increased $64 million or 21% y-o-y to $363 million in the third quarter. However, this increase was more than offset by a $101 million decline in sales at all other divisions, except Life Sciences division where sales increased marginally. The largest decline was registered at Display Technologies division which consists of Corning’s LCD business. Sales in this division declined by $52 million or 6.4% y-o-y to $763 million on continuing decline in prices of LCDs.  Corning anticipates this decline to continue in the fourth quarter.
Sales in Corning’s telecommunications business, which comprises of optical fiber and cable and telecom hardware businesses declined $37 million or 7% y-o-y due to lower sales in the U.S. and Europe partially offset by higher sales in China.  Sales declined in the U.S. because of winding down of stimulus spending on optical fibers used in telecommunication infrastructure projects. While sales of Corning’s diesel filters declined to the weak global economic environment, and sales at Dow Corning declined due to lower prices and demand of silicon products. The company anticipates weakness in its these businesses to continue in the fourth quarter as well.
Overall, sales and earnings at Corning are expected to contract significantly in 2012 compared to 2011.
Restructuring to help offset the decline in performance
In view of this, Corning will be finalizing a restructuring plan in the fourth quarter. Under this it will reduce its project spending, capital expenditures, other fixed costs and headcount. The plan will likely incur one time costs of up to $50 million in the fourth quarter.  However, benefits from the plan have yet to be quantified.
All in all, Corning faces a tough business environment in the near term and additional steps including but not limited to strategic acquisitions could help to improve earnings and generate growth.Notes: