Corning (GLW) Down 9.7% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Corning (GLW). Shares have lost about 9.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Corning due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Corning Q1 Earnings and Revenues Top Estimates, Up Y/Y

Corning reported solid first-quarter 2019 financial results led by investments in product development and manufacturing capacity, driving sales and profit growth across markets.

Net Income

On a GAAP basis, net income for the quarter improved significantly to $499 million or 55 cents per share from net loss of $589 million or loss of 72 cents per share in the year-ago quarter, primarily due to top-line growth, translated earnings contract gain and lower provision for income tax.

Core earnings came in at $365 million or 40 cents per share compared with $299 million or 31 cents per share in the year-earlier quarter. Adjusted earnings beat the Zacks Consensus Estimate by 1 cent.

Revenues

Quarterly GAAP net sales were up 12.5% year over year to $2,812 million driven by revenue growth in all businesses, particularly Display Technologies, Optical Communications and Environmental Technologies.

Core sales increased 13.4% to $2,850 million, surpassing the Zacks Consensus Estimate of $2,813 million.

Segmental Performance

Net sales of Display Technologies segment were $818 million compared with $745 million, reflecting improving pricing climate and Corning’s extended global leadership by successfully ramping Gen 10.5 production, which allowed it to grow volume faster than the overall market. The segment’s net income was $208 million compared with $185 million in the prior-year quarter.

Net sales of Optical Communications increased 20.1% year over year to $1,064 million, driven by solid demand from data center and carrier customers. The business remains on track to exceed its goal of $5 billion in 2020 sales. The segment’s net income was $142 million compared with $109 million in the prior-year quarter.

Environmental Technologies segment’s net sales increased 12.4% to $362 million, driven by growth in all product categories and sales of gasoline particulate filters. The segment’s net income was $55 million compared with $52 million in the prior-year quarter.

The Specialty Materials segment’s net sales climbed 11.2% to $309 million, driven by strong pull for Corning’s portfolio of mobile consumer electronics glass solutions. The segment’s net income was $49 million compared with $46 million in the prior-year quarter.

Net sales of Life Sciences segment were up 4.7% to $243 million as the business continued to outpace market growth. The segment’s net income was $31 million compared with $27 million in the prior-year quarter.

Other Details

Despite 10.9% year-over-year rise in cost of sales to $1,713 million, operating income increased to $420 million from $194 million owing to top-line growth.

Gross profit increased to $1,099 million from $955 million. Core gross profit was $1,139 million compared with $1,010 million in the prior-year quarter.

During the reported quarter, Corning announced 518 U.S. patents issued in 2018, bolstering its leadership in glass, ceramics, optical physics and proprietary manufacturing technology.

Cash Flow and Liquidity

During the first quarter, Corning utilized $29 million of net cash from operating activities against cash generation of $320 million in the year-ago period. As of Mar 31, 2019, the company had $1,456 million in cash and equivalents with $6,018 million of long-term debt.

2019 Outlook

Corning expects growth in 2019 and beyond, driven by benefits from its investments as well as adoption of technologies aligned to key industry trends and the company’s cohesive portfolio. Optical Communications is expected to be up about 10%, (revised from previous expectation of a low-teens percentage).

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 low-to-mid single-digit percentage, continuing to outpace overall market growth.

The company is progressing well on Strategy and Capital Allocation Framework. Since the program began, it has returned $12.3 billion to shareholders and aims to return more than $12.5 billion.

Going Forward

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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.36% due to these changes.

VGM Scores

Currently, Corning has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Corning has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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