Corning in Long-Term Diesel Deals

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Corning Inc. (NYSE:GLW - News) has entered into long-term supply agreements with heavy-duty diesel engine, truck, construction and agricultural equipment manufacturers. The terms of these agreements were not disclosed, including the number of companies involved. However, the company specified that the agreements involved core customers and will ensure those manufacturers have access to Corning products in the coming years.

Corning is a leading global supplier of cellular ceramic substrates and diesel particulate filters. Its filters remove almost 95% of harmful gases and particulates from diesel emissions. The demand for Corning’s heavy-duty diesel products is expected to grow three folds over the next five years due to the raising of environmental safety standards all over the world.

Hence, in order to take care of the capacity constraints and support its key customers, Corning signed agreements, reserving a substantial portion of its current and future diesel capacity to ensure a steady supply to its core customers.

Several nations, including China, India and those in the European Union are expected to tighten their emission regulations, creating additional demand for Corning products. So, in order to cater to the increasing demand, Corning plans to construct a second heavy-duty diesel facility and support the projected market needs. The location for the facility will be announced in the first quarter of 2012. Corning’s primary facility is located in Erwin, where 600 new employees were recently hired to meet the requirement for emission control products.

Corning's Environmental Technologies segment supplies a range of advanced cellular ceramic substrates and particulate filters to manufacturers of gasoline and diesel engines and vehicles. In the third quarter, the segment’s sales were $247 million, down 4.3% sequentially. Corning expects this segment to reach approximately $1 billion in sales this year and grow to roughly $1.4 billion by 2014.

However, for hardware and equipment products, Corning faces significant competition from 3M Company (NYSE:MMM - News), Tyco Electronics, Ltd. (NYSE:TEL - News), Furukawa OFS, CommScope and ADC Communications. Also, in November, Corning slashed its fourth quarter Gorilla Glass outlook to a sequential decline of 25% from a decline of 15%, indicating lower global demand for cover glass used in tablet computers and LCD TVs.

This justifies the Zacks #5 Rank, which implies a Strong Sell rating on a short-term basis.

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