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Corning (GLW) Up 4.7% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Corning (GLW). Shares have added about 4.7% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Corning due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Corning Q3 Earnings in Sync Despite Lower Revenues

Corning reported mixed third-quarter 2022 results, wherein the bottom line matched the Zacks Consensus Estimate but the top-line missed the same. The company has updated its guidance based on the challenging macroeconomic environment. Shares mostly trended down in pre-market trading owing to the muted outlook as investors probably expected a healthy growth momentum.

Net Income

On a GAAP basis, net income in the quarter was $208 million or 24 cents per share compared with $371 million or 43 cents per share in the prior-year quarter. The year-over-year decline was primarily attributable to top-line contraction. Core net income decreased to $438 million or 51 cents per share from $485 million or 56 cents per share in the year-ago quarter. The bottom line was in sync with the Zacks Consensus Estimate.

Revenues

Quarterly GAAP net sales decreased 3.5% year over year to $3,488 million as strong growth in Optical Communications, Environmental Technologies and Hemlock and Emerging Growth Businesses were more than offset by lower sales in Display Technologies and Specialty Materials. Core sales grew marginally to $3,666 million from $3,639 million. The top line missed the consensus estimate of $3,667 million.

Segment Results

Net sales in Optical Communications increased 16.4% year over year to $1,317 million as network operators increased capital spending to address the demand for 5G, broadband and the cloud. The segment’s contribution to net income was $183 million compared with $139 million in the prior-year quarter led by strong volume and price increases.

Net sales in Display Technologies were $686 million compared with $956 million in the prior-year quarter, owing to lower volume and the lowest panel maker utilization level since 2008. The segment’s net income was $134 million compared with $247 million in the year-ago quarter.

Specialty Materials’ net sales were down to $519 million from $556 million owing to soft demand in the smartphone, tablet, and notebook markets. The segment’s net income was $96 million compared with $107 million a year ago.

Environmental Technologies’ net sales were up 10.4% year over year to $425 million driven by increased volume and strong operating performance. The segment’s net income was $87 million, up from $60 million in the year-earlier quarter.

Net sales in Life Sciences improved to $312 million from $305 million as lower demand for COVID-related products was more than offset by growth in research and bioproduction. The segment’s net income declined to $43 million from $45 million a year ago. The decline was due to COVID-related lockdown restrictions in China, which adversely impacted output.

In Hemlock and Emerging Growth Businesses, net sales increased 33% year over year to $407 million. Demand for Hemlock’s solar materials grew while sales of semiconductor materials remained strong. Automotive Glass Solutions and Corning Pharmaceutical Technologies also contributed to growth. The segment’s net income was $18 million against a net loss of $5 million a year ago.

Other Details

Cost of sales increased 5.7% year over year to $2,426 million. Gross profit declined to $1,062 million from $1,321 million on lower revenues. Operating income was $292 million compared with $552 million a year ago.

Cash Flow & Liquidity

During third-quarter 2022, Corning generated $706 million of cash from operating activities compared with $895 million in the year-ago quarter, bringing the respective tallies for the first nine months of the year to $1,998 million and $2,389 million. Free cash flow decreased to $255 million in the quarter from $497 million in the prior year.

As of Sep 30, 2022, the company had $1,630 million in cash and cash equivalents with $6,525 million of long-term debt.

Outlook

Corning expects macroeconomic challenges to continue impact its fourth-quarter sales. For the fourth quarter, the company expects core sales in the range of $3.45 billion to $3.65 billion with core earnings per share of 41 cents to 47 cents.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -21.13% due to these changes.

VGM Scores

At this time, Corning has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Corning has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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