Corning Earnings: All-Around Performance Beats Expectations

Corning (NYSE: GLW) reported its Q1’17 earnings on April 25 and its results came in $130 million above consensus estimates. Corning’s overall revenues grew by about 15% driven by strong growth in optical communication and specialty materials. Corning’s display technology, environmental and life sciences businesses all contributed to its growth this quarter. The growth in optical communications was driven by the software implementation issue from Q1’16. Gorilla Glass also grew 32% this quarter, helped by partnerships with Samsung, Google, LG and other Chinese smartphone manufacturers. Display technology is also expected to improve over the next few months as LCD prices are expected to stop declining due to lower industry profitability, while volumes are going up due to increased demand. Corning’s new contract wins in Environmental Technology will also boost its revenues in the second half of 2017.

Record Growth Observed in Optical Communications and Specialty Materials

Corning’s Optical Communications segment revenue grew 34% in Q1’17 and was the primary driver of Corning’s overall growth this quarter. In Q1’16 Corning’s Optical Communications segment faced a software implementation issue which resulted in constrained sales for the company. However, even if we consider the losses caused by the software implementation issue, Corning’s optical communication grew in the mid-single digits. The growth in Optical Communications is likely to pick up momentum going forward as more and more industries are shifting towards optical solutions and Corning signed a 3-year purchase agreement for its products with Verizon. Corning’s Optical Communications segment has grown at a CAGR of 11.75% in the last 5 years and it further expects this segment to grow from $3 billion in 2016 to $5 billion by 2020.

Corning’s Specialty Materials segment has shown great growth potential in the last few years. Specialty Materials sales grew 32% in the first quarter of 2016 driven by strength in Gorilla Glass volumes. Many leading smartphones, including the Samsung Galaxy S8, the LG G6, and the Google Pixel, adopted Corning’s Gorilla Glass, which resulted in significant growth in the last few quarters. Corning’s net income from specialty materials was also up by 50% this quarter due to the high profitability of Gorilla Glass 5. Additionally, an increasing number of Asian mid-range smartphone manufacturers are adopting Corning’s Gorilla Glass, which presents a substantial growth opportunity as the smartphone markets in India and China are growing rapidly.

Display And Environmental Technology Growth Likely To Pick Up

Corning’s largest revenue and profit share come from its Display Technology unit, which had been under pricing pressure from competitors in the last few years. LCD prices declined continuously, putting pressure on industry margins. However, the decline slowed down in recent quarters as many companies didn’t have the ability to lower prices further. On the other hand, volumes were up significantly for this segment and we continue to expect high demand due to shifting customer preference towards bigger displays. Accordingly, we expect the Display Technology segment to see some improvement in the coming months.

Corning’s Environmental Technology segment also grew moderately this quarter, but its growth is likely to pick up in the second half of 2017. The first quarter results were driven by a 14% increase in automotive sales but were partially offset by weakness in the heavy duty diesel market in North America due to an increased fleet of dealers. However, Corning won several new contracts in the emerging GPF market, which are likely to generate higher returns starting in the third quarter of 2017.

For precise figures, please refer to our complete analysis of Corning

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