Palm Beach, FL 1/25/12 (StreetBeat) – Corning (NYSE: GLW) shares are trading sharply lower this morning following the company’s Q4 financial results, as the company provided some sobering commentary on the outlook for the LCD glass market, forecasting little growth ahead in the company’s core market.For the fourth quarter, the company reported sales of $1.9 billion, down 9% sequentially, up 7% from a year ago, and roughly in line with the Street at $1.85 billion. Adjusted profits of 33 cents a share were in line with the Street.
The real issue was the company’s discussion of current conditions in the industry. And give the company credit for taking its usual thorough approach in laying out the situation, difficult though it may be. Among other things, Corning warned that prices will continue to fall rapidly, and that it does not expect any growth in the core display glass business over the next few years.
There was a hint of the current troubles yesterday in Apple’s spectacular December quarter results; Apple posted better-than-expected gross margins in part to lower-than-expected for components – including LCD displays.
“The display industry is in a period of transition and we are in the process of resetting expectations for its future growth and profitability,” CFO James B. Flaws said in a statement. “We are working closely with our customers to reduce glass prices to help them with their immediate financial strains. To that end, price declines will be significant in the first quarter of 2012, as they were in last year’s fourth quarter. We expect significant double-digit price declines over the cumulative two-quarter period. We are hopeful that our pricing actions, combined with our capacity decisions, will help us get back to more stable price declines in the coming quarters.”
Flaws add that Corning believes the actions the company have taken to reduce capacity “have brought LCD glass supply closer to end market demand.” He adds that if the company’s calculations on retail demand and supply chain dynamics are right, “then we believe worldwide glass supply will become balanced with glass demand at some point during the year.”
He adds that Corning “will be cautious on pace and timing of bringing capacity back on line.”
Corning said it does not expect much sequential change in the overall glass market in Q1. Volume at its wholly owned business should be in line with the market; at the Samsung Corning Precision joint venture, Flaws sees volumes flat to down double digits, depends on “the outcome of negotiations with a key customer.”
- In the telecom segment, Corning sees sales up “significantly” for the full year, with a 5%-10% increase sequentially.
- The company expects environmental technologies segment to grow in 2012, with a slight increase in Q1.
- The Specialty Materials segment, which includes Gorilla Glass, should show significant growth. The company said it expects yield improvements at its customers, as well as some price declines. Q1 sales should be up slightly.
- In life sciences, the company sees a “strong year,” with Q1 sales up 10% sequentially.
- Equity earnings in the first quarter are expected to drop 5% to 20%, excluding special items, due to lower earnings at both Dow Corning and Samsung Corning Precision Materials.
“We believe Corning is approaching a new floor in terms of profitability due to transitions in our LCD business and Dow Corning’s polysilicon business,” Flaws cautioned. “Moving forward, our plan is to grow profits from this new level.”
Approaching a new floor? Ugh.
The company said it expects “strong sales and profit growth over the next several years in our Telecommunications, Environmental Technologies, Specialty Materials, and Life Sciences segments.” Sales in the company’s Display Technologies segment are not expected to grow, however.
Flaws says that “overall, we anticipate generating strong free cash flow* over the next several years. “We plan to use the cash for acquisitions to supplement growth, dividend payments, and our share repurchase program.”
Concludes Flaws: “At Corning, we are not threatened by business transitions. We have faced many in the past and weathered them successfully. We believe our business portfolio is strong, we have a leading competitive position in each market, and our innovation investments will generate future growth.”
The overall message is that the glass business is struggling; and that is weighing on Corning shares.
GLW is down $1.32, or 9%, to $13.30.
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- In life sciences, the company sees a “strong year,” with Q1 sales up 10% sequentially.
- Equity earnings in the first quarter are expected to drop 5% to 20%, excluding special items, due to lower earnings at both Dow Corning and Samsung Corning Precision Materials.
“We believe Corning is approaching a new floor in terms of profitability due to transitions in our LCD business and Dow Corning’s polysilicon business,” Flaws cautioned. “Moving forward, our plan is to grow profits from this new level.”
Approaching a new floor? Ugh.
The company said it expects “strong sales and profit growth over the next several years in our Telecommunications, Environmental Technologies, Specialty Materials, and Life Sciences segments.” Sales in the company’s Display Technologies segment are not expected to grow, however.
Flaws says that “overall, we anticipate generating strong free cash flow* over the next several years. “We plan to use the cash for acquisitions to supplement growth, dividend payments, and our share repurchase program.”
Concludes Flaws: “At Corning, we are not threatened by business transitions. We have faced many in the past and weathered them successfully. We believe our business portfolio is strong, we have a leading competitive position in each market, and our innovation investments will generate future growth.”
The overall message is that the glass business is struggling; and that is weighing on Corning shares.
GLW is down $1.32, or 9%, to $13.30.
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