After a strong performance in the first three quarters of 2018, Corning (NASDAQ: GLW) posted another impressive quarter and sustained its growth trend in Q4. The company comfortably beat consensus estimates, with its revenue coming in at $3.1 billion (+15% y-o-y), and its adjusted earnings per share coming in at 59 cents (vs. 46 cents in Q4’17). As expected, much of its growth came from the Optical Communications segment, largely due to improved demand for its Carrier and Enterprise Network products, coupled with the acquisition of 3M’s Communications Markets business. In addition, solid performance in Specialty Materials and Environmental Technologies – led by investments in innovation and capacity expansion – drove growth for the company. Further, the Display Technologies segment witnessed another quarter of moderate growth led by an improved display glass pricing environment and the successful ramp up of the Gen 10.5 plant. Increased consumption of streaming services, new smartphones launches, and improvement of the heavy-duty truck market in North America drove the company’s full year results. Below we provide a brief overview of the company’s results and what lies ahead.
Our price estimate for Corning’s stock stands at $33, which is slightly below than the current market price. We are in the process of updating our model to account for the company’s FY’18 results. We have also created an interactive dashboard which outlines what to expect from GLW in 2019. You can modify the key value drivers to see how they impact the company’s revenues and bottom line. Below we discuss some of the key factors that are likely to impact the company’s earnings.
The Optical Communications segment accounts for about 37% of the company’s overall revenue and continued its robust performance in Q4, as a result of improved demand for its products by data center and carrier businesses across North America and Europe – largely driven by increased consumption of streaming and cloud services. In addition, the acquisition of 3M’s Communication Markets Division should not only expand both its global reach and portfolio, but also provide for reasonable growth opportunities in the upcoming quarters and provide for significant long-term growth opportunities. Further, we expect Corning’s multi-year contracts with industry leaders in the carrier and data center segments should provide for substantial medium term growth for this segment. Additionally, the expected deployment of 5G between mid-2019 and late 2020 should drive growth for its fiber-optic products and provide for meaningful long-term growth opportunities. Consequently, we expect the segment to grow by nearly 12% y-o-y to $4.7 billion in 2019.
The Environmental Technologies segment posted another robust quarter, as a result of strong growth in all product categories and improved sales of gas particulate filters (GPFs). This was largely driven by the improvement of the heavy-duty truck market in North America, coupled with better than expected demand in Europe – owing to initial adoption of the European emission standards by auto manufacturers. Further, the early adoption by auto OEMs of China 6 bodes well with the company and we expect this to further boost the segment’s revenue in 2019. We expect the Environmental Technologies division to grow by nearly 8% to $1.4 billion in 2019.
Corning’s Specialty Materials segment reported another quarter of positive growth. The decent performance was as a result of higher shipments of Gorilla Glass due to several new smartphone launches in Q4, coupled with increased use of glass-back smartphones. Further, the company also witnessed reasonable demand for its advanced optics products. The anticipated launch of new smartphones in 2019 and the strategic partnership with smartphone manufacturer OPPO should result in robust demand for Corning’s recently launched Gorilla Glass 6. In addition, Samsung’s decision to use Gorilla Glass DX+ for its smartwatch should provide a moderate boost in the near term. As a result of the aforementioned factors, we expect the Specialty Materials segment to grow by nearly 6% to $1.6 billion in 2019.
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