Corning Incorporated: Third-quarter sales

We have been relentless throughout the year in focusing on our three leadership priorities: maintaining our financial health; restoring profitability; and continuing to invest in our future.I am particularly pleased that we achieved our profitability goal in the third quarter,” James R. Houghton, chairman and chief executive officer, said. “The hard work and dedication of all our employees is paying off,” he said.

Third-Quarter Operating Results
Third-quarter sales of $772 million surpassed the company’s guidance range of $740 million to $765 million and increased by $20 million over second-quarter sales. Corning’s technologies segment sales for the quarter were $396 million compared to sales of $400 million for the second quarter. Sales increases in the company’s Display Technologies and Environmental Technologies businesses were offset primarily by declines in the conventional television tube business (CAV), which Corning decided to exit earlier this year.
The Display Technologies business recorded its eighth consecutive quarter of sequential sales growth of liquid crystal display (LCD) glass with a 7 percent volume increase over the previous quarter. The volume increase was due to the continued popularity of notebook computers, the displacement at the desktop of CRTs by flat panel monitors and the migration to larger screen sizes by panel manufacturers. The business experienced stable prices and continued favorable foreign exchange rates in the quarter.

Sales in Corning’s environmental business were $121 million for the third quarter versus $117 million for the previous quarter, a sequential increase of 3 percent. The increase was the result of diesel and automotive ceramic substrate demand and the industry’s shift to thin-wall and ultra-thin wall solutions. This business also continued to benefit from favorable foreign exchange rates in the quarter.

Corning’s telecommunications segment sales were $370 million, an increase of $23 million over second-quarter sales of $347 million. The gain was due to a sequential increase in fiber volume of almost 20 percent, driven primarily by seasonal strength in North America and Europe, along with continued demand in Japan and China. Fiber pricing for the quarter was down less than 5 percent. The telecommunications segment also benefited from several submarine cable project sales in the third quarter.

Equity earnings for the third quarter were $75 million, a $15 million increase over second quarter equity earnings, driven by strong performance by Samsung Corning Precision Glass Company. Corning’s equity earnings from Dow Corning were $22 million for the quarter compared to $25 million in the second quarter. Corning began to recognize equity earnings from Dow Corning in January of this year.

Cash Flow Update
The company ended the third quarter with $1.4 billion in cash and short-term investments, a decline of $96 million from the second quarter. The decline included $383 million of net debt repayments, substantially offset by $370 million of net proceeds from the July common stock offering. In addition, Corning made $58 million in restructuring payments and a $70 million voluntary pension fund contribution. The company’s debt-to-capital ratio was 35 percent at the end of the third quarter, a significant improvement from the second-quarter ratio of 40 percent.

Fourth-Quarter Outlook
Corning said it anticipates fourth-quarter sales to be in the range of $740 million to $765 million, with earnings per share in the range of $0.03 to $0.04, before special items. The company expects fourth-quarter sales in its technologies segment to grow, led by sequential volume increases in LCD glass of 15 percent to 20 percent, with continued stable pricing. The company said that the volume increase will be driven by the rapid ramp up of Generation 5 glass production in Taiwan and Generation 6 glass manufacturing in Japan. The growth in Display Technologies is expected to be partially offset by seasonal declines in the Life Sciences and Environmental Technologies businesses.

Telecommunications segment fourth-quarter sales are expected to be down from third quarter levels due to lower submarine cable project sales and anticipated fiber volume declines of 15 percent to 20 percent. The expected decline in fiber volume is primarily the result of traditional seasonal slowdowns in North America and Europe. Fiber pricing declines are expected to be less than 5 percent.

Remarking on the company’s performance, James B. Flaws, vice chairman and chief financial officer, said, “We clearly have been tested over the past two years by the severe downturn in the telecommunications market. We have passed this test with our return to profitability and improved balance sheet and are now poised for long-term growth with three exciting business opportunities.

“First, demand for flat panel desktop monitors is approaching 40 percent market penetration and their popularity continues to grow. The number of LCD televisions purchased this year will double over last year, and we should see significant growth in larger size glass panels for LCD televisions in the future. The combination of an emerging LCD TV market and larger flat panel desktop monitors plays to a unique competitive advantage for Corning as we bring on additional Generation 5 and Generation 6 manufacturing capacity next year to meet the expected market demand,” he said.

Flaws added, “We also are investing to seize the significant opportunities that the global diesel emissions market presents, and we will continue innovating our product offering for the automotive passenger car market. Finally, we believe that fiber-to-the-premises represents a long-term opportunity for Corning as favorable public policy in the U.S. and elsewhere will spur future telecommunications industry investment.”