Earlier this week, Corning stock rose to a new 52-week-high after the glass makersignificantly exceeded expectations with its fourth-quarter earnings. Core sales climbed 30% year over year to $2.6 billion, which led to even more impressive 55% growth in adjusted earnings to $0.45 per share. By contrast, analysts had only modeled earnings of $0.38 per share on sales of $2.5 billion.
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After each quarterly announcement, Corning CFO Jim Flaws talks with analysts to offer insight into the company's results and whatto expect going forward. Here are five of the most important things he said during this quarter's call:
Corning is firing on (almost) all cylinders
The successful integration of CPM largely drove the 69% increase in core sales for Corning's Display Technologies segment, and synergies from that acquisition (more on that below) helped earnings rise by 26% despite continued LCD glass price declines. Meanwhile, manufacturing efficiency improvements in Optical Communications helped a modest 12% increase in revenue translate to a 64% jump in earnings there, while Environmental sales and earnings each rose 5%. Finally, Dow Corning sales jumped 40%, resulting in a near-tripling in core gross equity earnings.
So which segments still need work?
First, Life Sciences sales and earnings increased just 2% and 5%, respectively. But this wasn't entirely unexpected as Corning management repeatedly noted throughout 2014 that Life Sciences wouldn't grow much given low levels of National Institutes of Health spending.
Next, Specialty Materials earnings fell 13% year over year despite a 12% increase in revenue. To its credit, however, Corning management insisted Specialty exceeded expectations, and noted the decline in earnings was due to a single accounts receivable write-off from an unidentified customer. Without that write-off, Specialty earnings would have risen 8%.
Synergies for Corning Precision Materials are ahead of schedule
Early last year, Corning completed its acquisition of the 43% stake in CPM it didn't already own. Previously, that stake was held bySamsung as part of an unconsolidated equity venture between the two companies.
For perspective, only three months ago Flaws stated the integration was going well, and that management felt "very good about getting $90 million or more in pre-tax synergies this year." The quarter before that, management outlined long-term goalsof reaching $170 million in synergies by 2016, then ultimately a $210 million run rate by 2017. Needless to say, it bodes well for long-term investors that Corning exceeded the $100 million mark by the end of 2014.
Gorilla Glass 4 has superior pricing power
Corning says Gorilla Glass 4 not only endures sharp contact with rough surfaces up to twice as well as competitive glasses, but also significantly outperforms Gorilla Glass 3 in check-depth tests. This enables Gorilla Glass 4 to be 27% thinner while still offering superior damage resistance. It makes sense, then, that Corning can charge a premium for Gorilla Glass 4 for customers striving to build ever-thinner devices without sacrificing durability.
That's great for Corning's Specialty Materials segment, which has suffered in past quarters as prices for Gorilla Glass have steadily declined.
Display Technologies will continue delivering in 2015
With sales last quarter of $1.1 billion, or 42% of overall revenue, we can't ignore the massive impact Display Technologies has on Corning's results. It's encouraging, then, to know nearly all of the company's volume for 2015 is represented by under-contract customers. Flaws said increases in TV unit sales and average screen size should continue this year; Corning's preliminary 2015 forecast calls for the glass market at retail to rise in the high single-digits, assales of larger ultra HD sets should at least double to roughly 25 million units.
Capital returns are only just starting
Corning generated almost $4 billion in free cash flow in 2014, and ended the yearwith more than $6.1 billion in cash and short-term investments. Naturally, it can't use all that money on R&D, so it makes sense to reward patient shareholders with dividends and -- assuming the price is right -- share repurchases. Even so, I've seen some investors balk at the fact that Corning's latest repurchase authorization isn't as large as the $2 billion program it completed last year. But I personally prefer the solace of having the option to put that money to work wherever I please with a growing dividend -- which now yields a healthy 2%.
In the end, as Corning steadily grows its top and bottom lines, it seems safe to expect it will continuereturning capital to shareholders for the foreseeable future.
The article 5 Things Corning Incorporated's CFO Wants You to Know originally appeared on Fool.com.
Steve Symington has no position in any stocks mentioned, and wishes his old iPhone had Gorilla Glass 4 when he dropped it down the stairs recently. The Motley Fool recommends Corning. The Motley Fool owns shares of 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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