It has been about a month since the last earnings report for Corning (GLW). Shares have added about 1.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Corning due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Corning Beats Q3 Earnings on Holistic Growth, View Up
Corning delivered healthy third-quarter 2018 results driven by sales and profit growth in each of its businesses led by investment in innovation and capacity expansions.
On a GAAP basis, net income improved significantly to $625 million or 67 cents per share from $390 million or 39 cents per share reported in the year-ago quarter primarily due to top-line growth and net gain in translated earnings contract.
Core earnings for the quarter came in at $476 million or 51 cents per share compared with $403 million or 40 cents per share in the year-earlier quarter. Adjusted earnings beat the Zacks Consensus Estimate by 3 cents.
GAAP net sales were up 15.4% year over year to $3,008 million driven by revenue growth in all businesses, particularly Optical Communications, Environmental Technologies and Specialty Materials.
Quarterly core sales increased 15.6% year over year to $3,045 million, surpassing the Zacks Consensus Estimate of $2,996 million.
The Display Technologies segment net sales were $852 million compared with $795 million, reflecting moderate pricing climate and continuation of the Gen 10.5 capacity ramp up. Net sales in Optical Communications increased 21.8% year over year to $1,117 million driven by solid demand from both data center and carrier customers as well as the acquisition of 3M’s Communication Markets Division. Environmental Technologies segment net sales increased 19% to $331 million led by volume growth in all product categories as well as strong performance in manufacturing operations. The Specialty Materials segment net sales climbed 23% and topped the company’s expectation to $459 million driven by strong pull for glass innovations. The Life Sciences business net sales were up 4% to $231 million.
Despite 14.1% year-over-year rise in cost of sales to $1,776 million, operating income increased to $522 million from $442 million in the year-ago quarter owing to top-line growth. Gross profit increased to $1,232 million from $1,050 million. Core gross profit was $1,280 million compared with $1,087 million in the prior-year quarter, with respective margins of 42% and 41%.
Cash Flow and Liquidity
Corning generated $1,978 million of cash from operations in the first nine months of 2018 compared with $1,116 million recorded in the prior-year period.
As of Sep 30, 2018, the company had $1,903 million of cash and cash equivalents with long-term debt of $5,056 million.
Owing to excellent results in the third quarter, Corning expects solid performance for full-year 2018. The company anticipates exceeding $11.3 billion sales mark in 2018.
Optical Communications is likely to grow by a high-teens percentage year over year, while Environmental Technologies is expected to rise by mid-teens. In Display Technologies, glass market volume is likely to rise at mid-single-digit percentage as television screen size growth continues. For Specialty Materials, the company expects growth by a mid-single digit percentage year over year. Life Sciences’ sales are expected to increase by a mid-to-high single-digit percentage, continuing to outpace overall market growth.
In the third quarter, the company returned $542 million to shareholders as part of Capital Allocation Framework and remains well on track to deliver more than $12.5 billion to shareholders while investing $10 billion in growth opportunities by 2019.
Corning is making encouraging progress on its focused portfolio objectives, remaining well poised to achieve its Strategy and Capital Allocation Framework goals. Standing at an inflection point, the company is gaining momentum. We remain impressed with the solid growth potential of the company.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Corning has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Corning has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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