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Why Is Corning (GLW) Up 3.4% Since Its Last Earnings Report?

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A month has gone by since the last earnings report for Corning Incorporated (GLW - Free Report) . Shares have added about 3.4% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is GLW 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 catalysts.

Recent Earnings

Corning delivered first-quarter 2018 adjusted earnings of 31 cents per share surpassing the Zacks Consensus Estimate by a penny. However, earnings decreased 13.9%, year over year and 36.7% sequentially.

Core revenues increased 3.8% year over year to $2.513 billion, which came ahead of the Zacks Consensus Estimate of $2.510 billion. However, revenues declined 6.1% on a sequential basis.

The results reflect strength in the company’s Optical Communications, Environmental Technologies and Life Sciences business lines.

Segmental Performance

Display Technologies segment generated around 29.8% of total revenues. Revenues decreased 5% from the year-ago quarter as well as sequentially to $745 million. Per management, sequential decline in LCD glass prices “were the best first quarter since 2010.”

Optical Communications garnered 35.4% of total revenues. Reported segment revenues increased 8% year over year on the back of strong demand for both enterprise and carrier products. However, it declined 5% on a sequential basis to $886 million.

Environmental Technologies segment generated around 12.9% of revenues. Reported segment revenues were up 17% year over year and 11% sequentially to $322 million. Strong demand for Corning’s solutions in the automotive market and additional contract wins drove year-over-year growth. Improvement in heavy-duty diesel truck demand and new gasoline particulate filter business led to an increase in diesel sales.

Specialty Materials generated 11.1% of revenues. Reported segment revenues declined 7% year over year and 29% sequentially to $278 million backed by penetration into developing regions and product portfolio expansion.

Life Sciences business accounted for around 9.3% of revenues. Reported revenues were up 10% from the year-ago quarter and 3% sequentially to $232 million.

Operating Details

Adjusted gross margin reduced 100 basis points (“bps”) from the year-ago quarter to 40% while remained flat from the previous quarter.

Adjusted selling, general & administrative expenses (“SG&A”), as a percentage of revenues, increased 100 bps, from the year-ago quarter to 15%. However, it remained flat on a sequential basis.

Moreover, research & development expenses (R&D), as a percentage of revenues, increased 200 bps on a year-over-year basis and 100 bps from the previous quarter to 10%.

Guidance

Corning reiterated the full-year 2018 outlook. For 2018, management continues to project core sales to surge 7% to $11 billion.

The company expects LCD glass market growth to be in the mid-single digit. Management anticipates Corning’s volume to grow faster than the market, primarily attributed to ramping production of world’s first Gen 10.5 fab in Hefei. It expects LCD glass prices to decline sequentially.

Optical Communications sales are anticipated to grow around 10% on a year-over-year basis. Notably, this growth excludes contribution from 3M’s Communications (MMM) Markets Division.

For 2018, Environmental Technologies sales are expected to increase by 10%, while Specialty Materials sales are anticipated to grow depending “on timing and extent of new model launches and adoption of our innovations.” The Life Sciences business will increase in the mid-single digits range.

For the second quarter, Corning projects LCD glass market volume to grow sequentially in the low-single digit range. Growth is expected to pick up as company ramps production. Decline in LCD glass price is projected to be lesser than the first quarter, marking it as the “best second quarter” considering a time-span of a decade.

Optical Communications and Environmental Technologies are envisioned to grow by low-teens and high-teens, respectively on a year-over-year basis in the second quarter.

While Specialty Materials segment performance is expected to decline mid to high-single digits from the year-ago quarter, Life Sciences segment is projected to up high-single digits.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimate. There has been one revision higher for the current quarter compared to three lower.

Corning Incorporated Price and Consensus

 

VGM Scores

At this time, GLW has an average Growth Score of C, however its Momentum is doing a lot better with an A. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.

Outlook

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


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