This summary is based on the first quarter fiscal 2008 earnings call conducted by Corning Inc. (GLW) on April 29, 2008.
Management:
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Vice Chairman and Chief Financial Officer: James B. Flaws
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Chairman and Chief Executive Officer: Wendell P. Weeks
Key Investors Issues
- Sales rose 24% to $1.62 billion from $1.31 billion in 2007.
- Income was $702 million or 44 cents a share, an increase of 55%.
- The firm purchased 3 million shares of stock for $62 million.
First Quarter Highlights
Sales were $1.62 billion, 24% higher than $1.31 billion realised a year ago as Display glass demand remains robust.
- Net income was $702 million or 44 cents a share, an increase of 55% over last year’s net income of $452 million or 28 cents a share as the firm benefited from strengthening of the Yen to US dollar exchange rate.
- This change benefited EPS by about a penny and a half and sales by about $25 million compared to the guidance.
- Gross margin was 52%, with the improvement due to excellent manufacturing performance in the Display segment.
- SG&A was $242 million and 15% of sales, while RD&E was $151 million or 9% of sales.
The firm has made significant progress negotiating a revised plan regarding the Pittsburgh Corning bankruptcy proceedings.
- Its progress and the proposed new structure have led to a gain of $327 million or 20 cents per share as the firm reduced the estimated liability from about $1 billion to $675 million.
- The firm ended the first quarter with about $3.3 billion in cash and short-term investments.
- Free cash was a negative $172 million, given that the first quarter usually includes higher working capital outflows.
Corning purchased 3 million shares of stock for $62 million.
- The firm is increasing its capital spending plan for 2008 to between $1.8 and $2 billion, up from the original estimate of $1.5 to $1.7 billion due to Display and driven by capacity additions, and precious metals price increases.
- The firm is also adding new tank capacity because demand for the Gorilla glass is growing, Gorilla is a proprietary scratch resistant glass for touch screens and other applications.
Segment Results:
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Display segment sales were $829 million, 7% higher than the prior quarter, with volume up 2% and price declines in line with previous quarters.
- Given the continued strong demand throughout the quarter, the operations ran at full capacity.
- Segment sales also benefited significantly from the strengthening Yen during the quarter.
Business had excellent manufacturing performance in the quarter which resulted in higher gross margins.
- Due to continued strong demand, the firm was unable to build glass inventory in the quarter.
- Equity earnings from SCP’s LCD glass business were $203 million, an increase of 15%, versus $177 million in the prior period, driven primarily by the favorable exchange rates, excellent manufacturing performance, and a lower tax rate.
- Net income, which includes equity earnings, were $679 million, an increase of 58% year on year, led by volume gains of 50%.
- General panel makers ran a high utilization rates, and on the retail side, US retail data for January, February, and March indicate that LCD television sales were strong throughout the quarter and significantly higher than a year ago.
Sales in China were affected by severe weather in February, but the March retail data was much higher than expectations.
- Approximately 23 million LCD televisions were shipped, up 61% as penetration of LCD television in the worldwide TV market moved from 45% in the fourth quarter to 48% in the first quarter.
- Despite the continued news about the US economy, it appears that LCD television sales were strong.
- Retail data also suggests that the notebook sales were very robust, with about 31 million shipped which was higher than expectations.
Notebooks are now 47% of all desktops sold, up from 39% a year ago, as these are now considered a disposable product.
- Through April, panel price declines have been very moderate, especially on TV and notebook panels, and some erosion in monitor panel prices in March, but that was expected.
- The firm continues to make progress on the Gen 10 facility and is on schedule to begin producing Gen 10 glass samples for Sharp later this year.
- The company should expect to see equipment orders and capacity expansion announcements from panel makers.
- This year, the Olympics are in August, so if there is excess television inventory, the industry will be heading into the traditionally stronger TV retail season.
