Corning Incorporated (GLW)
Q1 2010 Earnings Call Transcript
April 28, 2010 8:30 a.m. ET

Executives

Kenneth C. Sofio – Vice President, Investor Relations
Wendell P. Weeks – Chief Executive Officer
James B. Flaws – Vice Chairman and Chief Financial Officer

Analysts

CJ Muse – Barclays Capital
Nikos Theodosopoulos – UBS
Simona Jankowski – Goldman Sachs
George Notter – Jefferies & Company
Kevin Dinin – Citigroup
Steven Fox – CLSA
Mark Sue – RBC Capital Markets
John Roberts – Buckingham Research
Yair Reiner – Oppenheimer
Carter Shoop – Deutsche Bank
Ajit Pai – Thomas Weisel Partners
Jeffrey Evenson – Sanford C. Bernstein
Paul Bonenfant – Morgan Keegan
Andrew Abrams – Avian Research
Wamsi Mohan – Bank of America/Merrill Lynch

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Corning Incorporated Quarter 1 2010 results. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. If you should require assistance during the call, please press star then zero and as a reminder this conference is being recorded. I would now like to turn the conference over our host, Ken Sofio, Division Vice President of Investor Relations. Please go ahead.

Kenneth C. Sofio


Thank you. Good morning. Welcome to Corning''s fourth quarter conference call. Jim Flaws, Vice Chairman and CFO will lead the discussion. Wendell Weeks, Chairman and CEO, will join for the Q&A. Today''s remarks do contain forward-looking statements under the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause results to differ materially. These risks are detailed in the company’s SEC reports. Jim?

James B. Flaws

Thanks, Ken. Good morning, everyone. This morning, we released our results for the first quarter which can be found on our Investor Relations website. We have posted accompanying slides online as well.

In summary, we''re very pleased with our first quarter results as they exceeded our most optimistic expectations. Before I get into details, I want to walk you through the key points we''ll be covering this morning.

Number one, our first quarter performance was outstanding. Earnings per share were $0.52, up $0.08 or 18% from Q4 earnings per share excluding special items of $0.44. Q1 EPS was also up significantly from last year, which was just $0.10. We''re clearly pleased with the progress the company has made since that time.

Second, we had significant improvement in our gross margin in the first quarter. Quarter one gross margin was 47%, up from 42% in Q4 and 27% a year-ago. The improvement was better than we expected and was driven by very strong manufacturing performance and higher volumes in our display segment. I''ll have more on gross margin and display performance in a few minutes.

Third, our first quarter earnings benefited from a much lower tax rate than we had previously forecast. Our effective tax rate was 2% in Q1 versus our expectation of 10%. We expect 2% to be the effective tax rate for the rest of 2010. The benefit of the lower tax rate versus our original expectation was worth roughly $0.04 per share in Q1. I''ll talk more on the drivers behind the lower tax rate in a moment.

Fourth, we had significant free cash flow in the first quarter. Free cash flow was $472 million while we''ve been successful in generating substantial free cash flow on an annual basis. Since 2004, our first quarter free cash flow is usually negative, this quarter was the first time in the last 10 years that we changed that pattern.

Fifth, retail sales of LCD televisions and IT products during the first quarter were stronger than our forecast. As a result, we''re raising our 2010 unit forecast for all LCD product lines. We''re also increasing our glass market forecast from the previous range of 2.8 billion square feet to 3 billion square feet to 2.9 billion square feet to 3.1 billion square feet. This represents glass volume growth of between 18% and 27% over last year versus our previous estimate of 14% to 22%.

Sixth, we expect LCD glass volumes at our wholly-owned business and SCP to be up in the mid single-digits, sequentially in the second quarter, separately and in the aggregate. Glass prices are expected to decline slightly.