This summary is based on the second quarter fiscal 2008 earnings call conducted by Corning Inc. (GLW) on July 30, 2008.
Management:
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Chairman, CEO: Wendell Weeks
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Vice Chairman, CFO: Jim Flaws Analysts
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Division VP, IR: Ken Sofio Mark Sue – RBC Capital Markets
Key Investors Issues
- Earnings were $3.2 billion or $2.01 a share, up 557% from $489 million or 30 cents a share in 2007.
- Sales reached $1.69 billion, up 19% year over year from $1.4 billion in 2007.
- The firm announced a $1 billion share repurchase program.
Second Quarter Highlights
Sales reached $1.69 billion, up 19% year over year from $1.4 billion in 2007 as demand for LCD glass was strong and the combined volume at the wholly-owned business and SCP was up 8% sequentially.
- Panel makers ran at high utilizations in the low to mid 90% range and they also built some inventory in preparation for the season with a stronger second half.
- LCD televisions in the U.S. were 35% higher year-over-year in the month of June and in China, they were up to 62% year-over-year.
- Gross margin was a little over 50% as expected, with the slight decline primarily due to strong telecom sales which had a lower gross margin than the corporate average.
- Manufacturing issue impacted our corporate gross margin by approximately 50 basis points in the quarter.
Earnings were $3.2 billion or $2.01 a share, up 557% from $489 million or 30 cents a share in 2007 on sales growth and a $2.429 billion net special gain primarily related to the release of U.S. deferred tax asset valuation allowances.
- SG&A was $260 million and 15% of sales and equity earnings were $360 million compared to $304 million in the prior quarter, an increase of 18% and higher than expected.
- Increase was due to strong earnings of both SCP and Dow Corning.
- The firm ended the period with $3.5 billion in cash and short-term investments up from $3.3 billion last quarter and free cash flow was $295 million.
- The firm announced a $1 billion share repurchase program based on the strength of the current balance sheet.
Segment Highlights:
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Display Technologies segment were $809 million, a 2% sequential decline, but a 33% increase over 2007 and year-over-year glass volume increased by 26%.
- The display segment results were negatively impacted by an isolated manufacturing interruption which impacted shipments to one customer during the quarter.
- Excluding the impact of the interruption, sequential volume for the wholly owned business would have been within the original guidance of 2% to 5% growth.
The manufacturing interruption reduced sales by $24 million and net income by $16 million.
- Sales and net income were negatively impacted by the weaker-than-expected yen-to-U.S. dollar exchange rate in the quarter versus guidance.
- Normal price declines were within the anticipated range for the quarter.
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Telecommunications segment sales were $477 million, a 13% sequential increase and a 9% increase over a year ago.
- The increase was driven by strong fiber-to-the-premises demand as well as overall strength in optical fiber sales.
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Environmental Technologies segment sales were $209 million, a 6% sequential improvement and a 9% increase over a year ago.
- Diesel product sales were strong in the second quarter, offset somewhat by a decline in automotive product demand.
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Specialty Materials segment sales were $104 million, a 25% sequential increase and a 9% increase over 2007.
- The Life Sciences segment had sales of $87 million, a 7% sequential increase and a 12% increase over the prior year.
- The positive year-over-year sales comparisons in the Telecommunications, Environmental Technologies, and Life Sciences segments reflected stronger euro-to-U.S. dollar exchange rates.
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Dow Corning, equity earnings were $94 million, an increase of 18% over quarter one equity earnings of $80 million.
- The higher earnings were primarily driven by strong worldwide demand in base silicon business across all segments.
- The general health of the silicon portion of Dow Corning’s business has not been significantly impacted by the economy.
The Current Supply Chain and Retail Environment:
- Panel inventories in Taiwan grew on an average from four weeks entering the quarter to about five weeks by the end of the quarter.
- Regarding report of panel pricing, prices dropped significantly at the end of the second quarter, and these drops have continued in July.
- Due to the severity of the price declines and the length of time over which they have occurred, it''s now apparent there''s a buildup of inventory in the supply chain.
- If retail strength continues as expected, fueled by lower retail pricing, the firm expects that excess inventory in the supply chain can be worked off.
The firm entered 2008 expecting the supply chain to be tight along with the Beijing Olympics timing.
