Business Context and Reporting Period
Company: Corning Incorporated (NYSE: GLW)
Filing Type: Form 8-K (Current Report)
Reporting Period: First Quarter ended March 31, 2009
Report Date: April 27, 2009
Corning reported first-quarter results amidst high economic uncertainty. The company highlighted continued strength in LCD TV sales and an earlier-than-anticipated end to the display supply chain contraction. Management noted that the company has resized its cost structure to align with projected annual sales of $5 billion.
Key Financial Metrics
| Metric | Q1 2009 | Q4 2008 | Q1 2008 |
|---|---|---|---|
| Net Sales | $989 million | $1,084 million | $1,617 million |
| Gross Margin | 27% | 28% | 52% |
| GAAP Net Income | $14 million | $249 million | $1,029 million |
| Non-GAAP Net Income | $150 million | $208 million | $702 million |
| GAAP EPS | $0.01 | $0.16 | $0.64 |
| Non-GAAP EPS | $0.10 | $0.13 | $0.44 |
| Operating Cash Flow | $264 million | $380 million | $295 million |
| Cash & Equivalents | $1,780 million | $1,873 million | N/A |
| Total Debt | $1,664 million | $1,605 million | N/A |
Note: Total Debt calculated as Current portion of long-term debt ($68M) + Long-term debt ($1,596M).
Material Changes vs. Prior Periods
- Revenue Decline: Net sales decreased 9% sequentially and 39% year-over-year. The decline was driven by significant price reductions in the Display Technologies segment and weakness in the Environmental Technologies segment due to the global automotive downturn.
- Profitability Impact: GAAP net income dropped 94% sequentially and 99% year-over-year. This was primarily due to $165 million in corporate restructuring charges and a $4 million asbestos litigation charge.
- Non-GAAP Performance: Excluding special items, Non-GAAP EPS was $0.10, down 23% sequentially but significantly better than the GAAP result. Non-GAAP net income decreased 28% sequentially.
- Segment Performance:
- Display Technologies: Sales down 8% sequentially; LCD glass volume increased 4% sequentially (including joint venture SCP), though wholly owned volume was down 1%.
- Telecommunications: Sales down 5% sequentially; strong demand in China offset by weakness in North America.
- Environmental Technologies: Sales down 14% sequentially, mirroring automotive industry difficulties.
- Equity Earnings: Total equity earnings were $195 million, down significantly from $288 million in Q4 2008, largely due to a $29 million restructuring charge at Dow Corning Corporation.
Guidance, Outlook, and Risks
- Q2 Outlook: Management expects strong growth in the display segment with sequential volume increases of >50% at wholly owned businesses and >25% at SCP. They anticipate relighting several glass melting tanks sooner than planned.
- Market Estimates: Corning increased its 2009 LCD glass market estimate to 2.1–2.2 billion square feet (from 2 billion), driven by stronger LCD TV demand (now expected to grow 18% vs. 9% previously).
- Financial Expectations: While no specific sales or earnings guidance was provided for Q2, management expects significant sequential improvement in sales, gross margin, and earnings before special items. Price declines in Q2 are expected to be more moderate than in Q1.
- Restructuring: The company has completed fixed cost reduction programs. Management stated that if growth does not continue into the second half of the year, further corporate-wide restructuring actions will be considered.
- Risks: Key risks include global economic conditions, financial market instability, currency fluctuations, product demand, and the ongoing asbestos litigation settlement negotiations.
Investor Verification Checklist
- Restructuring Charges: Verify the $165 million pretax restructuring charge and its impact on future cost structures.
- Asbestos Liability: Review the status of the Amended PCC Plan and the $4 million charge recorded for liability adjustments.
- Volume vs. Price: Confirm the divergence between rising LCD glass volumes and significant price declines in the Display Technologies segment.
- Equity Method Investments: Assess the impact of Dow Corning's restructuring charges ($29 million) on Corning's equity earnings.
- Liquidity Position: Monitor cash flow generation given the $276 million in capital expenditures and the reduction in cash and equivalents to $1.78 billion.