Corning Incorporated (GLW)
Q4 2009 Earnings Call Transcript
January 26, 2010 8:30 p.m. ET

Executives

Ken Sofio - Vice President of Investor Relations
James B. Flaws - Vice Chairman and Chief Financial Officer
Wendell P. Weeks – Chairman and Chief Executive Officer

Analysts

Mark Sue - RBC Capital Markets
Brian White - Ticonderoga Securities
Simona Jankowski - Goldman Sachs
Steven Fox - CLSA
Jim Suva - Citigroup
CJ Muse - Barclays Capital
Jeff Evenson - Sanford Bernstein
Carter Shoop - Deutsche Bank
Nikos Theodosopoulos - UBS
Brendan Furlong - Miller Tabak
George Notter - Jefferies & Company
John Roberts - Buckingham Research
Yair Reiner - Oppenheimer
Paul Bonenfant - Morgan Keegan
Ajit Pai - Thomas Weisel
Wamsi Mohan - Banc of America/Merrill Lynch

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Corning Incorporated Fourth Quarter Results Conference Call. For the conference today, all participants are in a listen-only mode. However there will be an opportunity for your questions and instructions will be given at that time. If you need any assistance during the call, please press star then zero. As a reminder today''s call is being recorded. With that being said, I''ll turn the conference over to the division Vice President of Investor Relations, Mr. Ken Sofio. Please go ahead, sir.

Ken Sofio

Thank you. Good morning. Welcome to Corning''s fourth quarter conference call. Jim Flaws, Vice Chairman and CFO, will lead discussion, Wendell Weeks, Chairman and CEO will join us for the Q&A and (inaudible) marks do contain forward-looking statement under the private security Litigation Reform Act of 1995. These statements involve a number of risks uncertainties and other factors that could cause our actual results to differ materially. These risks are detailed in our SEC reports. Jim?

James B. Flaws

Thanks, Ken. Good morning, everyone. This morning we released our results for the fourth quarter which can be found on our Investor Relations website. We have posted the company''s slides online as well. In summary, we''re very pleased with our fourth quarter results.

Before I get into the details, I want to walk you through the key points we''ll be covering this morning. First our fourth quarter sales, gross margin and profitability were all higher in the third quarter. A stronger Yen helped, but we also benefited from higher volumes in Display and Environmental. In fact, Q4 was our most profitable quarter all year. In addition, equity earnings, free cash flow were both all-time records for the company.

Second, based on our models, we believe the LCD supply chain inventories at the end of the fourth quarter are in good shape heading into quarter one. Third, retail sales of LCD televisions remain strong worldwide throughout the fourth quarter. Based on the strength of Q4 glass demand, we believe the 2009 glass market reached 2.4 billion square feet versus our most recent estimate of 2.3 billion square feet.

Demand was driven by LCD television sales, which were also stronger than we had forecasted. We now estimate the total number of LCD TVs sold in 2009 was 141 million versus our most recent estimate of 132 million. Lastly, looking ahead to the first quarter, we expect glass volume at our wholly-owned business to be up between 8% and 12% sequentially. SCP glass volume will be flat to up slightly quarter to quarter. In total, we expect the glass market to be up in Q1 versus our original expectations of slightly lower seasonal demand.

We believe the supply chain will need to expand in the first quarter, to back fill for the stronger Q1 demand and to support a much larger end market this year. We''re still finalizing our end market and glass market forecast for 2010, but they will both likely be higher than our previous estimates. We''ll discuss both and our thoughts about Q2 at the investor meeting next week.

So let''s turn to the details. Fourth quarter sales were $1.53 billion, a 4% increase from the third quarter. Our Q4 sales benefited by changes in the exchange rates by about $33 million. Moving down the income statement, gross margin was 42.4% in Q4 compared to 40.5% in Q3. We were very pleased with our gross margin performance in the quarter. Part of the improvement was the result of better manufacturing and higher volumes in our environmental business.

Gross margin also benefited from the non-repeat of $22 million in one-time accelerated depreciation charges taken in the third quarter due to Shizuoka''s earthquake. We did have one-time charges in Q4 from the Taichung power outage, but they were much less.

SG&A was $244 million or 16% of sales in Q4 as expected. R&D was $145 million in Q4 or about 9% of sales. Other income was $64 million in Q4 compared to $48 million in Q3. Equity earnings were $461 million in the fourth quarter compared to $418 million in Q3. Equity earnings included a special item totaling $29 million, rated primarily to a tax valuation gain at Dow Corning.

Our Q4 tax rate was 5% and consistent with the last quarter, but higher than we had expected. The primary reason it was higher is actually a good thing. We made more money in the United States than we thought we would during the quarter.