Corning Inc. (GLW) reported fourth quarter 2009 results than beat the Zacks Consensus Estimate by 2 cents. However, shares are down since the earnings announcement, as the company continues to see flat pricing.
Revenue
Revenue of $1.53 billion was up 3.6% sequentially, 41.3% year over year and 5.7% over consensus expectations. The year-over-year increase was very encouraging and came after three consecutive quarters of decline. The sequential increase included a $33 million favorable foreign exchange benefit.
Revenue by Segment
Four of the five main segments witnessed sequential revenue increases, while all segments grew on a year-over-year basis.
Display Technologies, the largest segment, had a revenue share of around 47%. The segment grew 5.6% sequentially and 83.8% year over year. The increase was due to very strong demand in the LCD TV market, particularly in China and Japan. LCD TV units in the U.S. and Europe also grew double-digits, although at a much slower rate than the Asian countries. The Samsung Precision LCD glass business (which the company reports as equity earnings) saw a 3% volume increase and flat prices. This included a $20 million foreign exchange benefit.
Telecommunications (26% of revenue) was down 10.0% sequentially and 1.2% from the year-ago quarter. Both fiber & cable and hardware & equipment declined sequentially, mainly due to seasonal softness. However, fiber sales were up over 15% from the year-ago quarter. Private network products in North America and fiber products in China were bright spots in the last quarter.
The Environmental Technologies segment, which generated 12% of revenue, grew 8.4% sequentially and 41.4% year over year. The automotive business within environmental was up 4.9% sequentially and 40.3% year over year. Auto is usually down in the fourth quarter, but benefited from incentive schemes such as “Cash for Clunkers.” Diesel product sales were also very strong, increasing 14.1% sequentially and 43.1% year over year. Sales benefited from light duty filter growth from previous platform wins.
Specialty Materials generated around 7% of revenue, increasing 22.2% sequentially and 31.0% year over year. The stronger-than-expected growth was due to robust demand in the notebook and handheld markets.
The Life Sciences business accounted for another 8% of revenue, representing sequential and year-over-year increases of 27.2% and 56.0%, respectively.
The pro forma gross margin was 42.4%, up 186 bps from 40.5% reported in the September quarter. The main reason for the gross margin improvement was the higher volumes, which spread out fixed costs over a larger sales base. Foreign exchange gains also contributed.
The operating expenses of $389 million were up 11.1% sequentially. As a result, the operating margin of 17.0% was just 14 bps higher than the 16.8% reported in the September 2009 quarter.
Net Income
The pro forma net income was $698 million or 45.6% of sales, compared to $658 million or 44.5% in the Sep 2009 quarter and $212 million or 19.6% of sales in the Dec quarter of 2008. Our pro forma estimate excludes restructuring charges, intangibles amortization charges, asbestos litigation charges on a tax-adjusted basis, as well as discrete tax items in the last quarter.
Including these special items, the GAAP net income was $740 million ($0.47 per share), compared to $643 million ($0.41 per share) in the previous quarter and $249 million (0.16 per share) in the year-ago quarter.
Balance Sheet
Inventories declined 6.3% during the quarter, yielding inventory turns of 6.1x, up from 5.7x at the end of the September quarter. Receivables were also down, with DSOs dropping from 52 to 45 days, reflecting better collection patterns.
Corning ended the quarter with $3.58 billion in cash and short-term investments, up $653 million from the third quarter. However, the company has a huge debt balance. Including long-term liabilities, the net debt position at quarter-end was $578 million. Cash generated from operations was $913 million, of which $163 million was spent on capex and $78 million on dividends.
Guidance
Management expects volumes in the display glass business to be up 8-10% sequentially in the first quarter of 2010, with modest price declines. The Samsung Precision LCD glass business is expected to be flat to slightly up. Telecom is expected to be down 10-15% sequentially, Environmental Technologies down around 10%, Specialty Materials down 10-15% and Life Sciences flat to up 5%.
The gross margin is expected to be up slightly in the next quarter, both SG&A and R&D to be flat sequentially and the tax rate to be in the 10% range.
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