Corning Incorporated (NYSE: GLW) announced stellar fourth-quarter 2017 results on Tuesday, meeting or exceeding expectations for each of its various operating segments. But Corning's bottom line didn't reflect as much at first glance.
Let's take a closer look at what drove Corning over the past few months, as well as what investors can expect as it kicks off the new year.
Continue Reading Below
Corning's headline numbers
To start, Corning's core sales for the quarter climbed 7.4% year over year to $2.739 billion, which was well above investors' expectations for $2.65 billion.
Based on generally accepted accounting principles (GAAP), Corning incurred a massive quarterly net loss of $1.412 billion, or $1.66 per share. But that includes a negative-$1.8 billion adjustment related to the late December enactment of the Tax Cuts and Jobs Act of 2017. Excluding that one-time, non-cash item, Corning delivered core earnings of $485 million, or $0.49 per share -- comfortably above expectations for $0.47 per share.
Corning also recently passed the halfway mark of its four-year strategic and capital allocation framework, which was announced in late 2015 and calls for returning over $12.5 billion to shareholders through dividends and repurchases, while investing $10 billion in future growth opportunities. Corning has returned over $9 billion to investors through dividends (which have increased 29%) and repurchases so far under the former goal, reducing its outstanding share count by 30%.
As for the latter investments, Corning highlighted progress in its market-access platforms, including a $1 billion-plus contract with Verizon to advance its next-gen networks, two large acquisitions within its optical communications segment, the first commercial sales from its gas particulate filter business in the third quarter, and the advancement of new technologies like Gorilla Glass protective cover glass, Iris Glass for displays, and Valor Glass for pharmaceutical packaging.
Corning's segment results
Digging deeper into each of Corning's businesses, display technologies core sales fell 6% year over year to $847 million, with volume up slightly from last quarter and continued improvement in LCD glass prices helping price declines moderate to a single-digit percentage. Display Technologies core earnings fell 20%, as expected, to $221 million.
At optical communications, sales grew 13% year over year to $928 million, bringing full-year optical sales growth to a better-than-expected 18%. For that, Corning can thank a combination of strength from both enterprise and carrier businesses, as well as incremental contributions from acquisitions. Optical segment core earnings declined 3% to $84 million.
Next, Corning's Environmental Technologies sales climbed 19% year over year to $291 million, above guidance for growth in the low-teens percentage range, thanks to worldwide growth in the automotive market. Corning's results here were helped by improvements in North America and the heavy-duty diesel truck market for ceramic substrates, as well as winning the majority of platforms awarded to date with its new gasoline particulate filter business. Environmental core earnings grew 12% to $73 million.
Corning's life sciences segment -- which provides laboratory equipment and the like -- also saw sales increase 9% year over year to $225 million, above expectations for mid-single-digit growth and outpacing the broader market. Life sciences core earnings climbed 18% to $20 million.
Finally, specialty materials sales jumped 17% to $393 million, helped by original equipment manufacturers' increasing adoption of Gorilla Glass on the backs of devices. Corning has also advanced its automotive variant for Gorilla Glass to 35 platform wins, up from 25 last quarter. Specialty materials segment core earnings increased 12% to $73 million.
Keep in mind that Corning does not provide specific quarterly guidance for consolidated revenue or earnings. But the company did provide some color on each of its segments' expected performance, as well as its longer-term targets for the overall business.
First, Corning's expects total company sales for 2018 to be approximately $11 billion -- up from $10.514 billion in 2017 and above consensus estimates for $10.68 billion.
Within that, Corning believes it will see continued improvement in LCD glass price declines to a mid-single-digit percentage range, which should be offset by a similar increase in overall LCD glass market growth. Corning further predicts that its volume within Display Technologies will grow faster than the overall market as the company begins to ramp up production at the world's first Gen 10.5 glass substrate facility.
Next, optical communications sales should rise by roughly 10% in 2018, excluding contributions from Corning's recent $900 million acquisition of 3M's communications markets division. And at environmental technologies, sales are expected to continue climbing in the high-single-digit percentage range, driven by continued strength in auto sales, improving heavy-duty diesel markets, and the ongoing success of the gas particulate filter line. Meanwhile, life sciences growth won't be far behind, with 2018 sales expected to climb in the mid-single-digit range.
Last but not least, Corning is taking a more conservative view for its specialty materials segment, saying only that sales are expected to increase from last year. To start, however, Corning believes that specialty materials sales will decline around 10% year over year in the first quarter, primarily as sales in late 2017 benefited from brands that were aggressively building to support their respective launch cycles. For the full year of 2018, the specific rate and pace of specialty materials growth will depend on how quickly customers adopt Corning's newest innovations.
Perspective is in order
I should note that shares were already up nearly 30% over the past year leading up to this report, so it's not terribly surprising to see that Corning stock pulled back after the report, as some skittish investors take profits off the table.
But that timing issue in specialty materials notwithstanding, this was an exceedingly impressive showing from Corning. And I think long-term investors should have nothing to worry about.
10 stocks we like better than CorningWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Corning wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of January 2, 2018
Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Verizon Communications. The Motley Fool recommends 3M and Corning. The Motley Fool has a disclosure policy.
Continue Reading Below