10-QPeriod: Q2 FY2018

CORNING INC /NY Quarterly Report for Q2 Ended Jun 30, 2018

Filed July 27, 2018For Securities:GLW

Summary

Corning Inc. reported strong revenue growth for the second quarter and first half of 2018, driven primarily by its Optical Communications and Environmental Technologies segments. Net sales increased by 10% in the second quarter to $2.75 billion and by 8% in the first half to $5.25 billion compared to the prior year. The company saw significant contributions from the acquisition of 3M's Communications Market Division, which bolstered the Optical Communications segment. Despite overall revenue growth, net income saw a substantial year-over-year decrease of 72% in the first half of 2018, largely impacted by a $172 million charge related to an IRS audit settlement and other legal and tax-related items. However, the second quarter showed a robust 68% increase in net income to $738 million, benefiting from a significant gain on translated earnings contracts and favorable tax adjustments. Management anticipates continued revenue growth for the full year, with increased outlooks for several segments, underscoring confidence in its strategy and investment in core technologies.

Financial Statements
Beta

Key Highlights

  • 1Net sales increased by 10% year-over-year in Q2 2018 to $2.75 billion, and by 8% for the first half of 2018 to $5.25 billion, driven by strong performance in Optical Communications and Environmental Technologies.
  • 2Acquisition of 3M's Communications Market Division in June 2018 significantly contributed to the Optical Communications segment, adding $794 million in assets and $242 million in goodwill.
  • 3Net income saw a sharp decrease of 72% in the first six months of 2018 to $149 million, primarily due to a $172 million charge for an IRS audit settlement and other legal costs.
  • 4Q2 2018 net income significantly improved by 68% to $738 million, boosted by a $267 million increase in translated earnings contracts gains and positive tax adjustments.
  • 5The company raised its full-year 2018 segment net sales outlook to approximately $11.3 billion, reflecting optimism across various business segments.
  • 6Corning repurchased $1.49 billion of common stock in the first half of 2018 as part of its ongoing share repurchase program.
  • 7Capital expenditures increased significantly to $1.18 billion in the first half of 2018, driven by capacity expansions in Display Technologies, Optical Communications, and Environmental Technologies.

Frequently Asked Questions

The primary driver for the 72% decrease in net income for the first six months of 2018 was a $172 million additional tax expense related to a preliminary agreement with the IRS to settle income tax audits for 2013 and 2014. Other factors included a $103 million charge related to legal matters and lower net income in certain segments.

Corning acquired 3M's Communications Market Division for approximately $794 million in June 2018. This acquisition significantly boosted the Optical Communications segment, contributing to its revenue growth and adding $242 million in goodwill. The integration of this division is expected to support continued growth in this segment.

Corning raised its full-year segment net sales outlook to approximately $11.3 billion. The company anticipates continued growth in Optical Communications, high-teen percentage growth in Environmental Technologies, and mid-to-high single digit growth in Life Sciences. Display Technologies expects pricing to improve, with year-over-year declines in the mid-single digits.

Corning utilizes a variety of financial instruments, including translated earnings contracts (hedges), to mitigate the impact of foreign currency fluctuations, particularly with currencies like the Japanese yen and South Korean won. The company also reports on a 'constant currency' basis for certain segments to provide clarity on underlying operational performance.