Strong LCD glass demand continues
CORNING, N.Y., July 27 /Xinhua-PRNewswire/ -– On July 25, 2007, Corning Incorporated (NYSE: GLW) announced second-quarter sales of $1.42 billion and net income of $489 million, or $0.30 per share.
Corning's second-quarter results include net special charges totaling $57 million, or $0.04 per share. Excluding these charges, Corning's second-quarter net income would have been $546 million, or $0.34 per share. These are non-GAAP financial measures. These and all non-GAAP financial measures are reconciled on the company's investor relations Web site and in attachments to this news release.
"We were delighted with our second-quarter performance," Wendell P. Weeks, chairman and chief executive officer, said. "Our Display Technologies business had a strong quarter as consumer demand for all liquid crystal display (LCD) applications continues to grow. We also had solid results from our Environmental Technologies business. Sales of both our light-duty and heavy-duty diesel products increased and we saw gains in our automotive business as well. On the other hand, sales in our Telecommunications segment were softer than we expected."
Corning's second-quarter results included the following special items: A $76 million non-cash pretax and after-tax charge primarily reflecting the increase in market value of Corning common stock to be contributed to settle the asbestos litigation related to Pittsburgh Corning Corporation; and a $19 million after-tax gain from the sale of the company's European submarine cabling business.
Second-Quarter Operating Results
Corning's second-quarter sales of $1.42 billion increased 12.7 percent over last year's second-quarter sales of $1.26 billion. Sales increased 8.4 percent when compared to first-quarter sales of $1.31 billion. Gross margin of 46.5 percent in the second quarter was an all-time record for the company.
Corning's second-quarter results include a very low effective tax rate caused, in part, by a favorable tax ruling in Taiwan which reduced the company's tax expense by $17 million. In addition, Corning's forecasted ongoing tax rate was lowered to a range of 14 percent to 15 percent.
Equity earnings for the second quarter were $220 million, compared to $216 million in the first-quarter. Second-quarter equity earnings include $132 million from Samsung Corning Precision Glass Co., Ltd. (SCP), a 17-percent increase over SCP's first-quarter equity earnings of $113 million. Samsung Corning Precision is Corning's 50-percent owned equity venture in Korea which manufactures LCD glass substrates for the Korean market. The gains at SCP were mostly offset by losses from Samsung Corning Company, Ltd. Samsung Corning is Corning's 50-percent owned equity venture in Korea which manufactures glass panels and funnels for cathode ray tubes for conventional televisions and computer monitors. Equity earnings from Dow Corning Corporation were $88 million in the second quarter compared to $92 million in the first quarter.
Second-quarter sales for Corning's Display Technologies segment were $610 million, a 32-percent increase from the second quarter of 2006. Second-quarter sales increased 16 percent from the $524 million of first-quarter sales. Sequential price declines were in line with the company's new pricing strategy and consistent with the first quarter. Volume increased 20 percent sequentially and 58 percent over the weak second quarter of 2006.
"Continued demand for larger-size glass substrates, caused by the growing consumer popularity of LCD televisions, contributed to our volume increases in the second quarter," Weeks said. The company said that glass volume also was driven by larger screen LCD monitor and notebook computer demand in the quarter.
Telecommunications segment sales in the second-quarter were $438 million, a decline of 7 percent from second-quarter 2006 sales of $472 million, and essentially even with the $439 million in first-quarter sales. Excluding the sales from the company's European submarine cabling business which was sold on April 27, 2007, sales increased 5 percent sequentially. The growth in sales was lower than the company's expectations due to a labor strike at a key European customer and more level purchasing patterns by a primary fiber-to-the-home customer. This is a non-GAAP financial measure.
The Environmental Technologies segment had sales of $191 million, a 26-percent increase over second-quarter 2006 sales of $152 million, and a 7-percent increase over the $179 million in first quarter. The sequential sales increase was fueled primarily by the continued ramp of heavy-duty diesel products and stronger automotive product sales in the European market.
Corning's Life Sciences segment had second-quarter sales of $78 million, a 4-percent increase over second-quarter 2006 sales of $75 million.
Cash Flow/Liquidity Update
Corning ended the second quarter with $3.2 billion in cash and short-term investments, up from $2.9 billion at the end of the first quarter. The company's debt level remained at $1.5 billion. Last week, Corning announced that its board of directors declared a third-quarter cash dividend of $0.05 per share, the company's first since April of 2001. The board also approved the repurchase of $500 million of common stock between now and the end of 2008.
"The strength of the company's financial position was recently recognized by all three of the financial rating agencies, who increased our rating to BBB plus or the equivalent. We are very comfortable that our cash flow will support our dividend payment and the share repurchase program, while we also continue to invest in our current businesses and future technologies," James B. Flaws, vice chairman and chief financial officer, said.
Flaws added that Corning continues to invest in a number of emerging technologies that hold significant potential for the company. "We are receiving very positive feedback from the pharmaceutical industry on our Epic? System, the world's first high-throughput label-free drug screening process, which has the potential to shorten the drug discovery cycle," he said. Corning is also investing in future display technologies including silicon-on-glass applications that could eventually enable electronic circuits to be added to display glass; green laser technology to enable high-quality imaging through handheld devices; and microreactors, which have the potential to deliver major process innovation and cost reduction for the chemical processing industry. Also, earlier in the week, Corning announced that it had achieved a breakthrough in nanoStructures? optical fiber design that allows cabled fibers to be bent around very tight corners with virtually no signal loss. The company will launch a full suite of fiber, cable and hardware and equipment products based on this new technology and targeted to the multiple-dwelling unit market this fall.
Third-Quarter Outlook
Flaws said that the company expects third-quarter sales to be in the range of $1.525 billion to $1.575 billion and EPS in the range of $0.34 to $0.37 before special items. This EPS estimate is a non-GAAP financial measure and excludes special items. The gross margin percentage for the third quarter is expected to be in the range of 47 percent to 48 percent. The company anticipates that its third-quarter tax rate will be about 17 percent. This reflects a forecasted ongoing tax rate of 14 percent to 15 percent, plus the impact of a $14 million adjustment to deferred taxes caused by a rate change in Germany. The 14 percent to 15 percent rate is a change from the company's tax rate guidance at the beginning of the year.
Corning also stated that it is likely that the company will continue to carry full valuation allowances on its U.S. deferred tax assets until at least the end of 2008. As a result, the company does not expect to recognize net tax expense on U.S. income until 2009 at the earliest. The company expects its tax rate will move to the "mid-20 percent range" when it begins to recognize net U.S. tax expense.
"We will continue to monitor our deferred tax asset position and we will provide an update if there are any changes. Corning does not anticipate paying cash taxes on U.S. income for many years. Our U.S. tax net operating loss carryforward is approximately $5 billion and does not begin to expire until 2023," Flaws said.
Corning anticipates that its third-quarter sequential LCD volume growth for the company's wholly owned business will be in the range of 10 percent to 15 percent and in the range of 5 percent to 10 percent at SCP. Price declines for the third quarter are expected to be in line with the second quarter. Flaws said that some of the volume strength that Corning experienced in the second quarter may have been the result of an earlier-than-expected build in the LCD industry supply chain. "However, we believe that our third-quarter glass volume will remain strong as the consumer electronics industry gears up for its seasonally heavy retail season later in the year," he said.
"We continue to believe that the annual market volume growth rate for LCD glass will be 35 percent to 40 percent this year. However, for the next few years, the seasonal purchasing patterns for glass will continue to evolve as LCD television becomes a greater share of the total market," Flaws said.
Corning believes that the LCD television penetration rate will be 36 percent of the global TV market this year and reach 47 percent in 2008. "We are encouraged by what we are seeing in the retail space with consumers opting for larger LCD televisions which increases demand for our glass," Flaws said.
Corning's Telecommunications segment third-quarter sequential sales growth is expected to be about 10 percent, excluding the sales of the divested European submarine cabling business. This is a non-GAAP financial measure. The anticipated sales growth reflects increased private network activity and an expected recovery in European hardware and equipment sales. European equipment demand in the third quarter is expected to be driven by renewed purchasing from a major telecommunications carrier and a new fiber-to-the-premises customer.
Third-quarter sales in the company's Environmental Technologies segment are expected to be flat sequentially. Diesel product sales are expected to increase in the quarter but this increase will likely be offset by declines in automotive products. While the company still anticipates that sales of diesel products will increase about 60 percent in 2007, the ramp of heavy-duty diesel products has been slower than originally anticipated, due to lower U.S. engine sales after last year's diesel engine pre-buys, and the impact of a slowdown in domestic freight shipments.
Sales for the Life Sciences segment are also expected to be flat to down 5 percent sequentially.
Equity earnings for the third quarter are expected to be up about 10 percent from the second quarter.
"We had an outstanding first half," Flaws said, "and this has given us solid momentum heading into the second half of the year. We are especially pleased with the growth we see for our display business as LCD televisions become a larger part of the overall glass demand."
Upcoming Investor Meetings
Corning Incorporated Chairman and Chief Executive Officer Wendell P. Weeks and Vice Chairman and Chief Financial Officer James B. Flaws will meet with investors in Boston on July 31. Investors interested in meeting with the company should contact Corning's investor relations department at (607) 974-8764.
Second-Quarter Conference Call Information
The company will host a second-quarter conference call on July 25 at 8:30 a.m. EDT. To access the call, dial (210) 234-0001 approximately 10-15 minutes prior to the start of the call. The password is QUARTER TWO. The leader is SOFIO. To listen to a live audio webcast of the call, go to Corning's Web site at http://www.corning.com/investor_relations and follow the instructions. A replay of the call will begin at approximately 10:30 a.m. EDT, and will run through 5 p.m. EDT, Wednesday, August 8. To listen, dial (402) 220-9725. No pass code is required. The audio webcast will be archived for one year following the call.
Presentation of Information in this News Release
Non-GAAP financial measures are not in accordance with, or an alternative to, GAAP. Corning's non-GAAP net income and EPS measures exclude restructuring, impairment and other charges and adjustments to prior estimates for such charges. Additionally, the company's non-GAAP measures exclude adjustments to asbestos settlement reserves required by movements in Corning's common stock price, gains and losses arising from debt retirements, charges or credits arising from adjustments to the valuation allowance against deferred tax assets, equity method charges resulting from impairments of equity method investments or restructuring, impairment or other charges taken by equity method companies, and gains from discontinued operations. The company believes presenting non-GAAP net income and EPS measures is helpful to analyze financial performance without the impact of unusual items that may obscure trends in the company's underlying performance. These non-GAAP measures are reconciled on the company's Web site at http://www.corning.com/investor_relations and accompanies this news release.
About Corning Incorporated
Corning Incorporated ( httP://www.corning.com ) is the world leader in specialty glass and ceramics. Drawing on more than 150 years of materials science and process engineering knowledge, Corning creates and makes keystone components that enable high-technology systems for consumer electronics, mobile emissions control, telecommunications and life sciences. Our products include glass substrates for LCD televisions, computer monitors and laptops; ceramic substrates and filters for mobile emission control systems; optical fiber, cable, hardware & equipment for telecommunications networks; optical biosensors for drug discovery; and other advanced optics and specialty glass solutions for a number of industries including semiconductor, aerospace, defense, astronomy and metrology.
Forward-Looking and Cautionary Statements
This press release contains forward-looking statements that involve a variety of business risks and other uncertainties that could cause actual results to differ materially. These risks and uncertainties include the possibility of changes in global economic and political conditions; currency fluctuations; product demand and industry capacity; competition; manufacturing efficiencies; cost reductions; availability of critical components and materials; new product commercialization; changes in the mix of sales between premium and non-premium products; new plant start-up costs; possible disruption in commercial activities due to terrorist activity, armed conflict, political instability or major health concerns; adequacy of insurance; equity company activities; acquisition and divestiture activities; the level of excess or obsolete inventory; the rate of technology change; the ability to enforce patents; product and components performance issues; stock price fluctuations; and adverse litigation or regulatory developments. Additional risk factors are identified in Corning's filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the day that they are made, and Corning undertakes no obligation to update them in light of new information or future events.
