Shares of Corning Incorporated are down roughly 13% since the high-tech glass specialist released mixed second-quarter results last month. But that's not to say Corning's performance was all bad. While quarterly revenue climbed only slightly year over year to $2.52 billion, falling just short of expectations for $2.54 billion, Corning's core earnings per share climbed 12% to $0.38, beating estimates by a penny.
It doesn't help that the broader market fell particularly hard in recent weeks, effectively pulling down shares of the glass maker with it:
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Given this volatility, however, now's a perfect time for Corning investors to revisit the driving forces behind their business. To do that, let's examine five important points Corning management discussed during their most recent earnings conference call:
1. Gorilla Glass is firing on all cylinders
Corning only officially launched Gorilla Glass 4 this past November. So on one hand -- and keeping in mind Gorilla Glass 4 commands higher margins given its higher price point -- it's incredibly impressive the rugged new cover glass has already found its way into more mobile devices than any previous Gorilla Glass iteration at this point in its release cycle. On the other hand, Corning Gorilla Antimicrobial Glass has had a slower start since it was unveiled in January 2014, only to finally secure its first design win last month with a spot in China-based ZTE's AXON flagship smartphone. But even then, it's no surprise that first win came in China, where a growing middle class and increasing demand for higher-end smartphones is causing Gorilla Glass sales to skyrocket.
2. Strength in Optical Communications was no fluke
For perspective, Corning's Optical Communications segment led all others in terms of growth in Q2, with revenue up 17% year over year to $800 million. For that, Corning credited strength in hyperscale data centers, as well as its acquisitions of TR Manufacturing in January and Samsung's Fiber Optics business in March.To be fair, Flaws elaborated while overall capital expenditures in the telecom market have grown by just 2% over the past year, optical CapEx within that period simultaneously grew by 5%. And thanks to Corning's strategic positioning in recent years, its own optical solutions growth has more than doubled even that solid clip.
3. With LCD glass, less is more
It's no mystery Corning's core Display Technologies segment has suffered through an extended period of LCD glass price declines. And while those declines have continually moderated, it's important to know some of the negative pricing effect here is due to Corning's conscious decision to compel customers with thinner, cheaper versions of its LCD glass. This not only helps Corning's customers reduce the prices and thickness of their own LCD televisions, but also increases Corning's margins and frees up manufacturing capacity.
4. Corning continues to increase investors' slice of the pie
In fact, not only did Corning accelerate its share repurchases in the second quarter, but it also authorized a new $2 billion share repurchase program just prior to its quarterly report. That program expires at the end of 2016. With $5.5 billion in cash on its balance sheet, and $380 million in free cash flow generated last quarter alone, Corning certainly has the funds to do so.
But investors should also keep in mind "only" $2 billion of Corning's cash is currently in the United States. Combined with the obligations of its dividend, which at today's share price yields around 2.9% annually, Corning might need to temporarily take on some low-cost debt if it wants to fully utilize its repurchase authorization in the near-term -- that is, at least, without incurring an unnecessary tax bill by bringing foreign cash stateside.
5. "Project Phire" already has its first order
Finally, you might recall at Corning's 2015 annual meeting in February, the company unveiled "Project Phire."Under Project Phire, Corning promised by the end of this year it would commercialize a new cover glass with the same damage resistance and drop resistance of Gorilla Glass 4, but also with the same extraordinary scratch resistance as sapphire. Corning hasn't officially confirmed commercialization of Phire just yet, but investors should be particularly encouraged that -- similar to the early success of Gorilla Glass 4 -- Phire has already secured its first design win. Given Weeks' mention of that design being a "wearable" device, I can't help but wonder if Corning has fulfilled my prediction of winning an expanded slot protecting a certain smart watch created by the folks in Cupertino.
Regardless of whether that turns out to be the case, however, one thing is clear based on the five points above: Corning is a solidly profitable business intent on rewarding shareholders for their patience. With multiple catalysts in the pipeline from its burgeoning Gorilla Glass products to Optical Communications, moderating LCD glass price declines, ongoing dividends and share repurchases, and the promise of emerging products like Phire down the road, I think Corning investors have every reason to be excited for the future.
The article 5 Things Corning Incorporated Management Wants You to Know originally appeared on Fool.com.
Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Corning. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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