10-QPeriod: Q3 FY2015

CORNING INC /NY Quarterly Report for Q3 Ended Sep 30, 2015

Filed October 27, 2015For Securities:GLW

Summary

Corning Inc. (GLW) reported its third-quarter and nine-month results for the period ending September 29, 2015. The company experienced a significant year-over-year decline in net sales and net income, primarily attributed to macroeconomic headwinds and a strengthening U.S. dollar. Net sales decreased by 11% in the third quarter and 6% for the first nine months compared to 2014, with notable declines in the Display Technologies segment. Net income saw a substantial drop of 79% for the quarter and 25% for the nine-month period, largely due to a significant decrease in unrealized gains from foreign currency hedges and lower equity earnings from affiliates. Despite these challenges, the Optical Communications segment demonstrated resilience, with sales increasing by 7% in the third quarter and 14% year-to-date, driven by acquisitions and strong North American demand. The company maintained its focus on innovation and R&D, with spending remaining consistent as a percentage of sales. Corning also continued its capital allocation strategy, including share repurchases, and ended the quarter with a solid cash position. Management expressed confidence in the company's long-term strategy and ability to navigate market challenges.

Financial Highlights

50 data points
Beta

Revenue

$2.27B

39.3% Gross Margin

Net Income

$212.00M

9.3% Net Margin

EPS (Diluted)

$0.15

Total Assets

$28.90B

Cash & Equivalents

$4.44B

Free Cash Flow

$697.00M

Financial Statements
Beta
Revenue$2.27B
Cost of Revenue$1.38B
Gross Profit$892.00M
SG&A Expenses$307.00M
Operating Income$392.00M
Net Income$212.00M
EPS (Basic)$0.16
EPS (Diluted)$0.15
Shares Outstanding (Basic)1.21B
Shares Outstanding (Diluted)1.22B

Key Highlights

  • 1Net sales declined 11% year-over-year in Q3 2015 to $2.27 billion, and 6% for the first nine months to $6.88 billion, impacted by macroeconomic headwinds and currency fluctuations.
  • 2Net income dropped significantly: down 79% to $212 million in Q3 and down 25% to $1.115 billion for the nine months, largely due to a $631 million decrease in unrealized foreign currency hedge gains in Q3.
  • 3The Optical Communications segment was a bright spot, with Q3 sales up 7% to $747 million and nine-month sales up 14% to $2.24 billion, driven by acquisitions and North American demand.
  • 4Display Technologies segment sales saw a significant decline of 25% in Q3 and 20% year-to-date, primarily due to Japanese yen depreciation and price declines.
  • 5The company ended the quarter with $5.013 billion in cash, cash equivalents, and short-term investments, while total debt increased to $4.016 billion.
  • 6Corning repurchased 97.0 million shares of common stock for $1.955 billion during the first nine months of 2015, and announced a new $4 billion share repurchase program.
  • 7Research, Development, and Engineering (R&D) expenses remained stable at 8% of net sales for both periods, reflecting continued investment in innovation.

Frequently Asked Questions

The primary drivers for the significant decrease in net income were a substantial reduction in unrealized gains from foreign currency hedges (a decrease of $631 million in Q3 and $564 million in the first nine months) and lower equity in earnings from affiliated companies (a decrease of $56 million in Q3 and $48 million in the first nine months). Additionally, the Display Technologies segment experienced price declines and unfavorable currency impacts.

The Optical Communications segment showed strong performance, with sales increasing by 7% in the third quarter and 14% for the first nine months compared to the prior year. This growth was attributed to acquisitions and increased demand for carrier and enterprise network products in North America.

Corning actively manages its currency exposure through foreign currency hedges, particularly for translated earnings. In the MD&A, the company discusses the impact of foreign currency fluctuations on sales and net income, and explains its use of hedging strategies, including yen-denominated hedges and adjustments in management rates to align with hedging strategies. The company also provides 'core' non-GAAP measures that adjust for currency impacts to better reflect underlying operational performance.

Corning anticipates continued challenges in 2015 due to a weakening global economy, particularly in China, and a strengthening U.S. dollar. They expect sales to decline in most segments except Optical Communications, which is benefiting from acquisitions. While the Display Technologies segment faces softness in the global TV market, the company is optimistic about longer-term industry trends. The company also expects to continue its focus on innovation and strategic investments.