This summary is based on the third quarter fiscal 2008 earnings call conducted by Corning, Inc. (GLW) on October 29, 2008.
Management:
Division Vice President of Investor Relations: Kenneth C. Sofio
Vice Chairman of the Board, Chief Financial Officer: James B. Flaws
Chairman of the Board, Chief Executive Officer: Wendell P. Weeks
Key Investors Issues
- EPS were 49 cents compared to 38 cents a share last year.
- Net income jumped to $768 million from $617 million a year ago.
- Revenue was virtually flat at $1.56 billion, from $1.55 billion last year.
Third Quarter Highlights
Sales were $1.56 billion, 2% under the low end of guidance range.
- Lower volume in display and environmental segments led to the sales miss. Compared to a year ago sales were flat.
- EPS excluding special items was 46 cents per share and actually higher than revised expectations. This represents a 21% increase over the third quarter EPS ex specials of 38 cents per share a year ago.
- Net income excluding special items was $732 million, an increase of 18% over last year’s third quarter net income excluding special items of $619 million.
- Gross margin was 47% as expected. The decline from quarter two gross margin, which was 50%, was primarily due to the impact of lower volumes in display business.
- SG&A was $220 million or 14% of sales as expected.
- RD&E was $160 million, about 10% of sales.
- Equity earnings were $382 million compared to $360 million in the second quarter, a sequential increase of 6%. The increase was due to stronger earnings at both SCP and Dow Corning. Third quarter equity earnings include an $18 million special charge at Dow Corning and last year’s equity earnings included a restructuring charge of $18 million at Samsung Corning CRT. Compared to the third quarter of last year, total equity earnings increased 60%.
- Tax rate was 14% and wrapping up income statement share count declined to 1.58 billion shares.
- Results included net special gains of $36 million or 3 cents per share. The company recognized a $43 million gain from the settlement of a longstanding tax dispute and also released an additional $70 million of US deferred tax asset valuation allowances.
- These items were offset by a charge of $6 million related to the pending Pittsburgh Corning bankruptcy proceeding, a $14 million loss on the sale of a minor business, and a $39 million loss on cash and short-term investments. The company had an $18 million reduction of equity earnings from Dow Corning related to losses on their cash and short-term investments.
- Including the special items EPS was 49 cents per share.
Display segment sales were $696 million or 14% lower than quarter two.
- Volume at wholly owned business was down 10% sequentially. Display segment sales were negatively impacted by the yen moving from 105 in the second quarter to an average of 108 in the third quarter.
- Equity from SCP’s LCD glass business was $259 million, an increase of 6% versus $244 million in the second quarter. The increase was driven by strong volume gains of 12% offset by price declines and the impact of the yen.
- Price declines were consistent in SCP with previous quarters. SCP’s third quarter sales were $896 million compared to $842 million in the second quarter, an increase of 6%.
- Net income in the display segment which includes the equity earnings were $635 million in the third quarter and lower than the second quarter.
- In comparison to the third quarter of last year sales in display segment were fairly consistent. Volume declined 2% and price declines were 8% year-over-year. Sales actually benefited from the strengthened yen year-over-year. Equity earnings from SCP’s LCD glass business were up 62% over the third quarter of 2007 led by volume gains of 38%. Segment net income grew 16% versus last year.
- The Taiwanese entered the third quarter running in the mid-80% range but dropped utilization rates through the month of august to the low to mid-70% range. The average for the quarter was around 75%.
- In Korea the panel makers maintained high utilization rates throughout quarter three in the low 90s.
On the retail side, the company has LCD TV unit sales for the US, China and Japan through September.
- The US September LCD TV unit sales were up 23% year-over-year. This is lower than the expectations set for September at the beginning of the year but not a surprise given the heightened economic worries and the decline in the stock market that took place during the month. While the LCD TV unit sales in the first week were strong, they were much weaker in the last week of September. According to MPD, US LCD TV unit sales were up 27% year-over-year in the first week of September but up only 12% in the last week.
- In Japan LCD TV retail sales in September were up only 15% year-over-year. This was also lower than expected and lower than the previous month this year.
- In China LCD TV retail sales in September were up 103% year-over-year. This was higher than expected and higher than the previous month.
Environmental segment sales were $177 million, a 15% decrease versus the second quarter sales of $209 million.
- Auto product sales were $112 million and much lower than expected. Sales were impacted by slower auto production in the United States. At the end of the quarter the company began seeing much weaker demand in Europe and the rest of the world.
- Diesel product sales were $65 million versus $77 million in the second quarter. The decline was due mainly to completion of heavy-duty retrofits for the Olympics in China. The US truck industry also remained very weak.
- Segment net income was $15 million, a decline versus second quarter net income of $28 million.
- In comparison to a year ago the environmental segment sales decreased 11% driven primarily by lower auto product demand and net income was consistent with the year ago.
Telecommunications segment sales were $496 million, an increase of 4% over the second quarter.
- The increase was driven by a higher private network demand.
- Sales in fiber and cable products were $258 million, an increase of 4% sequentially.
- Sales of hardware and equipment products were $238 million and also up 4% versus the second quarter. Fiber to the home sales which are primarily hardware and equipment related were $96 million and consistent with the second quarter. Compared to a year ago fiber to the home sales increased 16%.
- Net income in the telecom segment was $25 million compared to $23 million in the second quarter. Compared to last year third quarter sales increased 5% but net income was lower due to higher operating costs.
Sales in specialty materials segment were $101 million and down versus the second quarter.
