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Corning Brushes Off Macro Concerns With Another Fantastic Quarter

Steve Symington, The Motley Fool

Corning (NYSE: GLW) released fourth-quarter 2018 results early Tuesday, successfully sustaining last quarter's momentum with expanding margins and strong growth across each of its five business segments. The glass technology specialist also provided an early look at its expectations for the coming year.

With Corning shares up 11% in response, let's take a more polished look at how it finished 2018, as well as what investors should be watching in the quarters ahead.

Two Corning scientists wearing white coats and safety goggles as they test a bending pane of glass.

IMAGE SOURCE: CORNING.

Corning's headline numbers, framework progress

Corning's fourth-quarter core sales climbed 15% year over year to $3.08 billion, translating to 18% growth in core earnings to $539 million, and a 28% increase in core earnings per share to $0.59. Corning doesn't provide specific quarterly financial guidance. But as I noted in my earnings preview last week, and based on Corning's full-year outlook for sales to reach "at least $11.3 billion," most investors watching the stock were modeling core earnings of $0.57 per share on revenue closer to $3.05 billion. 

Corning CFO Tony Tripeny stated:

We had another outstanding quarter, and our full-year results exceeded our expectations. In 2018, we did what we said we were going to do, which was to expand our manufacturing capacity in the first half and begin leveraging those growth investments in the second half. In 2019, we expect to build on this momentum and keep growing across all of our businesses.

Corning further confirmed that, under its four-year strategy and capital allocation framework unveiled in late 2015, the company has returned $11.8 billion (of a $12.5 billion goal) to shareholders through dividends and repurchases, while investing $10 billion in the business toward capturing future growth opportunities.

"As we enter the final year under the Framework, the strategic and financial benefits of Corning's cohesive portfolio are clear," elaborated Corning CEO Wendell Weeks. "We're especially pleased with the significant achievements across our market-access platforms."

Corning's segment results

As for the performance of each of Corning's core businesses, optical communications remains its single largest segment. There, quarterly sales climbed a better-than-expected 26% year over year to $1.166 billion, driven by demand from multiyear data-center and carrier projects. Segment net income soared 67%, to $165 million.

Corning's display technology segment saw revenue climb 15% year over year to $899 million, as the ramp of its new Gen 10.5 LCD glass substrate facility in China allowed Corning's volume to grow faster than the overall market. Display segment net income climbed 17% to $206 million.

Next, environmental technologies sales climbed 10% year over year to $319 million -- above guidance for a high-single-digit percent increase with growth from all product categories and early incremental sales of gasoline particulate filters. Environment segment net income declined 2% to $42 million; Corning is currently making dedicated capacity and engineering investments to support the ramp of this business in China with the early adoption of new emissions regulations in the country.

Life sciences revenue also rose 6% this quarter to $238 million -- near the high end of guidance for a low- to mid-single-digit percent increase -- translating to a 21% jump in segment net income to $29 million. Corning noted sales growth from its life sciences product lines continue to outpace that of the broader market.

Finally, Corning's specialty materials sales grew 2% to $399 million -- above guidance for a flat performance as compared with last year's fourth quarter, when customers aggressively built inventory of Corning's flagship Gorilla Glass cover glass products ahead of their respective device launch cycles. 

Looking forward

Corning anticipates consolidated sales will increase in the low- to mid-single-digit percent range both in the first quarter and full year of 2019. Corning also expects gross margin to expand this year, though that expansion will likely be muted in the first quarter (before building through the remainder of the year) due to continued investments to meet demand in the optical, gasoline particulate filter, and automotive glass markets. 

Finally, during the subsequent conference call, Tripeny offered some color to appease investors' concerns over the current volatile macroeconomic environment. More specifically, he reiterated that Corning does not expect a material negative impact from recently enacted tariffs in China. What's more, Corning's 2019 growth assumes "conservative estimates for China in-market demand for TVs and autos."

"If China's demand is better," Tripeny added, "there is an opportunity for upside."

In the end, after coupling that assurance with Corning's broad-based top- and bottom-line outperformance in the fourth quarter, as well as its strong guidance for the coming year, this report gave investors every reason to celebrate their company's enviable position. Corning stock simply responded in kind today.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends Corning. The Motley Fool has a disclosure policy.