A month has gone by since the last earnings report for Corning (GLW). Shares have lost about 3.4% 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 the most recent earnings report in order to get a better handle on the important drivers.
Corning Q3 Earnings & Revenues Top Estimates, Fall Y/Y
Corning's third-quarter 2019 results were consistent with its earlier update, issued on Sep 16.
On a GAAP basis, net income for the September quarter declined to $337 million or 38 cents per share from $625 million or 67 cents per share in the year-ago quarter, primarily due to lower operating income and lower net gain from translated earnings contract.
Core net income came in at $397 million or 44 cents per share compared with $476 million or 51 cents per share in the prior-year quarter. The bottom line, however, beat the Zacks Consensus Estimate by 4 cents.
Quarterly GAAP net sales were down 2.5% year over year to $2,934 million, which were consistent with the Sep 16 update. Core sales decreased to $2,969 million from $3,045 million reported in the year-earlier quarter. The top line, however, surpassed the consensus estimate of $2,893 million.
Net sales from Display Technologies segment were $793 million compared with $852 million in the year-earlier quarter. Display glass volume declined by a high single-digit percentage sequentially (consistent with the Sep 16 update). The full-year 2019 price decline is expected to improve to a low single-digit percentage compared with prior expectation of a low- to mid-single-digit percentage decline. The segment’s net income was $185 million compared with $218 million in the prior-year quarter.
Net sales from Optical Communications segment declined 9.8% year over year to $1,007 million due to overall market weakness driven by customer project spending decisions, primarily in carrier networks. The segment’s net income was $127 million compared with $168 million in the prior-year quarter. Management continues to expect full-year sales to decline 3-5% compared with 2018.
Environmental Technologies segment’s net sales increased 19.9% to $397 million, driven by sustained adoption of gasoline particulate filters and strong demand in the heavy-duty market. The segment’s net income was $79 million compared with $60 million in the prior-year quarter. For the full year, management currently expects sales to grow by a mid-teen percentage compared with prior expectation of low-teens percentage growth.
The Specialty Materials segment’s net sales were up 1% to $463 million, led by healthy demand for the company’s portfolio of mobile consumer electronics glass solutions. The segment’s net income was $92 million compared with $116 million in the prior-year quarter.
Net sales from Life Sciences segment were up 10.8% to $256 million. The segment’s net income was $41 million compared with $30 million in the prior-year quarter, owing to higher sales volume and manufacturing performance optimization. Corning continues to outpace overall market growth and expects full-year sales to be up by a mid-single-digit percentage year over year.
Cost of sales increased 7.9% year over year to $1,917 million. Gross profit declined to $1,017 million from $1,232 million due to lower net sales as well as higher cost of sales. Core gross profit was $1,156 million compared with $1,280 million in the prior-year quarter, with respective margin of 39% and 42%.
Cash Flow & Liquidity
During the first nine months of 2019, Corning generated $1,013 million of net cash from operating activities compared with $1,978 million in the year-ago period. As of Sep 30, 2019, the specialty glass maker had $971 million in cash and equivalents with $6,225 million of long-term debt.
While taking actions to offset recent headwinds, Corning remains confident in its strategy and continues to advance its long-term growth initiatives. The company is extending performance under its 2020-2023 Strategy & Growth Framework. It is focusing on its portfolio and utilizing financial strength to enhance shareholder returns. The company’s capabilities are becoming increasingly vital to diverse industries, and multiple opportunities support leadership across all of its market-access platforms.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
At this time, Corning has an average Growth Score of C, 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 C. 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 these revisions has been net zero. 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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