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A month has gone by since the last earnings report for Corning (GLW). Shares have added about 3.7% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.
Corning Beats Q2 Earnings Estimates on Operational Execution
Corning reported healthy second-quarter 2020 results, with the top and the bottom line beating the respective Zacks Consensus Estimate.
In the second quarter, the company advanced multiple initiatives, including the launch of Gorilla Glass Victus and innovation with 5G industry leaders. Importantly, Corning’s Valor Glass was selected by the U.S. Department of Health & Human Services and the Department of Defense to accelerate the delivery of COVID-19 vaccines.
On a GAAP basis, net loss in the June-end quarter was $71 million or loss of 13 cents per share against a net income of $92 million or 9 cents per share in the year-ago quarter. The downside was a result of operating loss.
However, core net income came in at $218 million or 25 cents per share compared with $410 million or 45 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 14 cents, with earnings surprise of 127.3%.
Second-quarter GAAP net sales fell 12.9% year over year to $2,561 million. This downtick was caused by lower sales in all of its business segments, except Specialty Materials.
Quarterly core sales declined to $2,588 million from $2,986 million recorded in the year-ago quarter. Nevertheless, the top line surpassed the consensus estimate of $2,386 million.
Net sales in Optical Communications declined 18.6% year over year to $887 million. This was in line with the passive optical market decline. However, sales were up 12.1% sequentially as major carriers increased spending on cable deployments and access network projects. The segment’s net income was $81 million compared with $158 million in the prior-year quarter.
Net sales in Display Technologies were $753 million compared with $848 million in the prior-year quarter, caused by lower glass volume and price. The segment’s net income was $152 million compared with $213 million in the year-ago quarter.
Specialty Materials’ net sales were up 13% year over year to $417 million. The upside was driven by strong demand for premium glasses, growth in IT products due to work- and study-from-home trends as well as demand for products in the semiconductor equipment space. The segment’s net income was $90 million compared with $67 million in the prior-year quarter, courtesy of higher sales volume.
Environmental Technologies’ net sales fell 38.3% year over year to $226 million. This was a result of vehicle manufacturers’ suspended production in key markets that began in the first quarter continued for much of the second quarter. The segment’s profitability was impacted by the lower sales and production volumes.
Net sales in Life Sciences were down 6.5% year over year to $243 million. This was because research lab closures in EMEA and North America related to the COVID-19 pandemic more than offset strong demand for test kit consumables and other products to address the crisis. The segment’s net income declined to $31 million from $40 million reported in the prior-year quarter due to lower sales.
Quarterly cost of sales fell 3.7% year over year to $1,805 million. Gross profit declined to $756 million from $1,065 million due to lower revenues. Core gross profit was $863 million compared with $1,198 million recorded in the prior-year quarter, with a respective margin of 33% and 40%. Operating loss was $103 million against an operating income of $374 million in the prior-year quarter.
Cash Flow & Liquidity
In the first half of 2020, Corning generated $798 million of net cash from operating activities compared with $124 million in the prior-year period. As of Jun 30, the company had $2,158 million in cash and cash equivalents with $7,797 million of long-term debt.
Corning holds a leadership position in each of the markets addressed by its five Market-Access Platforms. The company operates on a strong financial foundation, which positions it for long-term growth while adjusting to near-term conditions. Across its businesses, demand improved in the second quarter. The materials science innovator anticipates sales and profit growth in the third quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 12.98% due to these changes.
At this time, Corning has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. 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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