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Why Is Corning (GLW) Down 5.5% Since the Last Earnings Report?

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About a month has gone by since the last earnings report for Corning Incorporated (GLW - Free Report) . Shares have lost about 5.5% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted 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 reported second-quarter 2017 adjusted earnings of $0.42 per share, beating the Zacks Consensus Estimate by $0.02. Earnings surged 13.5% on a year-over-year basis and 7.7% sequentially in the reported quarter.

The year-over-year growth was driven by improvement in revenues. Adjusted revenues increased 6.6% year over year to $2.59 billion, which comfortably surpassed the Zacks Consensus Estimate of $2.52 billion. Revenues increased 4.2% on a sequential basis.

The results reflect strength in the company’s Optical Communications and Specialty Materials business lines. Moreover, Corning’s Strategy and Capital Allocation Framework continues to boost shareholder value. The company returned almost $800 million to shareholders through a combination of dividends and share buyback in the reported quarter.

During the quarter, Apple announced that it will be investing $200 million in Corning to help create better products. We also note that the recently launched Valor Glass, a new pharmaceutical glass packaging solution, has been developed in collaboration with Pfizer and Merck.

Segment Details

The Display Technologies segment generated around 33.7% of total revenue. On an adjusted basis, revenues decreased 4.4% from the year-ago quarter and 0.6% sequentially to $841 million.

The LCD glass market and Corning’s volume were up by low-single digit percentage on a sequential basis. The company noted that LCD glass prices declined moderately and substantially less than the previous quarter.

Optical Communications generated 35.3% of total revenue. Reported segment revenues grew 12.8% year over year and 7.8% on a sequential basis to $882 million on the back of strong demand for fiber-to-the-home market solutions in North America. The year-over-year growth was much better than management’s anticipated increase of 10%.

We note that the deal with Verizon reflects this strength, as U.S.-based service providers overhaul networks to improve 4G coverage and accelerate 5G deployments.

The Environmental Technologies segment generated around 10.5% of revenues. Reported segment revenues were up 1.5% year over year but declined 4.4% sequentially to $275 million. The year-over-year growth was driven by strong demand for Corning’s solutions in the auto market and additional contract wins.

Specialty Materials generated 13.5% of revenues. Reported segment revenues surged 26.7% year over year and 12.3% sequentially to $337 million backed by consistent strong shipment of Gorilla Glass.

The Life Sciences business accounted for around 8.9% of revenues. Reported revenues were up 2.8% from the year-ago quarter and 5.2% sequentially to $221 million.

Operating Details

Adjusted gross margin contracted 70 basis points (bps) from the year-ago quarter but expanded 10 bps from the previous quarter to 42.4%.

Adjusted selling, general & administrative expenses (SG&A), as a percentage of revenues, decreased 20 bps from the year-ago quarter and 50 bps from the previous quarter to 13.8%.

Moreover, research & development expenses (R&D), as a percentage of revenues, increased 20 bps on a year-over-year basis but decreased 10 bps sequentially.

Operating margin (excluding amortization of purchased intangibles and restructuring, impairment & other charges) contracted 60 bps on a year-over-year basis and 90 bps from the previous quarter to 20.5%.

Guidance

For the third-quarter 2017, Corning expects glass volume to increase by low-single digit percentage sequentially. The company expects sequential LCD glass price declines to be similar to the sequential decline reported in the second-quarter 2017.

Optical Communications sales are anticipated to increase more than 10% from the year-ago period in the third quarter.

Environmental Technologies sales are expected to increase by low single-digit percentage, while Specialty Materials sales are anticipated to increase by low-to-mid teen percentage range. The Life Sciences business will grow low-single digit percentage from the year-ago quarter.

For full-year 2017, Corning still expects mid-single digit percentage growth in glass volume, in line with the overall LCD glass market. Price is now anticipated to decline approximately 10% or lower.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.

Corning Incorporated Price and Consensus

VGM Scores

At this time, Corning's stock has a subpar Growth Score of D, though it is lagging a bit on the momentum front with an F. 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for value investors based on our style scores.

Outlook

Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.




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