Corning's Momentum Begins to Accelerate

Corning (NYSE: GLW) released fourth-quarter 2016 results on Tuesday, punctuated by record Gorilla Glass volume and accelerated optical communications revenue growth. Shares of the glass technologist closed up nearly 6% as a result. Let's take a closer look at the underlying drivers of Corning's latest stellar quarter.

Corning Gorilla Glass enjoyed record volume in the fourth quarter of 2016. Image source: Corning.

Corning's headline numbers

Core sales in the fourth quarter grew 6.2% year over year, to $2.551 billion. Trending toward the bottom line, gross margin was 43% -- in line with expectations -- and translated to 24.5% growth in core earnings, to $534 million. And thanks to ambitious share repurchases over the past year, Corning's core earnings per share grew 47.1%, to $0.50. By contrast, as I noted in my earnings preview earlier this week -- and though we typically don't pay close attention to Wall Street's near-term demands -- consensus estimates were less optimistic, calling for core revenue of $2.5 billion, and core earnings of $0.44 per share.

As Corning CEO Wendell weeks added:

Weeks also confirmed Corning's ambitious Strategy and Capital Allocation Framework remains on track, as the company achieved its goal of returning $6 billion to shareholders by the end of 2016 through dividends and share repurchases. Under that framework, which was initially unveiled in late 2015,Corning reiterated plans to return over $12.5 billion to shareholders by 2019, while simultaneously investing $10 billion in the business through research, development, and engineering.

Digging deeper

Core sales from Corning's display technologies segment increased slightly from the same year-ago period, to $904 million, and display technologies core earnings climbed 18% year over year, to $276 million. Display glass industry dynamics played out as expected, with panel makers maintaining high utilization to keep up with robust demand. Glass volume was up in the low-teen percentage range year over year, while LCD glass price declines moderated for the 10th straight quarter.

Next, optical communications revenue increased 11% year over year, to $819 million. And optical core earnings jumped 85%, to $87 million, thanks to combination of improved manufacturing performance and strong growth in the North America carrier network business. Demand for fiber-to-the-home solutions remained strong.

Environmental technologies revenue fell 4% year over year, to $245 million, in line with expectations, as strong sales of light-duty substrates were offset by weakness in heavy-duty diesel products. Meanwhile, life sciences segment revenue grew 2% year over year, to $206 million, and life sciences core earnings jumped 42%, to $17 million.

Last but not least, specialty materials sales climbed a better-than-expected 22% year over year, to $336 million, thanks to record Gorilla Glass volume following the recent ramps of Gorilla Glass 5 and Gorilla Glass SR+. During the subsequent conference call, Corning CFO Tony Tripeny described "rapid adoption of Gorilla Glass 5, as OEMs used it on more devices -- a testament to our market leadership."

And thanks in part to the premium pricing that innovative products like Gorilla Glass 5 can command, specialty materials core earnings climbed 48% year over year, to $65 million.

Looking forward

Corning doesn't provide specific revenue and earnings guidance for each quarter. But during the call, management did tell investors to anticipate first-quarter 2017 LCD glass volume to climb in the mid-teen percentage range year over year within its display technologies segment. Glass price declines should also continue to moderate in the first quarter, kicking off a generally "favorable" LCD glass price environment for the coming year.

Corning also sees first-quarter growth accelerating to "at least 25%" for its optical communications segment. Full-year 2017 optical sales should increase in the low-teen percentage range over 2016, given the continuation of growth trends that began to materialize in the second half of last year.

On the other hand, Corning sees sales at environmental technologies remaining consistent or falling slightly on a year-over-year basis in the first quarter. But environmental technologies sales for the full year should be consistent to up slightly, especially given strength in the automotive market as sales of Corning's new gas particulate filters should ramp up in the second half of 2017.

Specialty materials revenue should grow in the high-teen percentage range for the first quarter. "We began to feel the benefit of Gorilla Glass 5 pricing in the fourth quarter," Tripeny stated, "and expect it to positively impact our financial performance in 2017."

At the same time, Tripeny warned the rates of growth in specialty materials depend more than anything on the timing and extent of customers deploying Gorilla Glass 5 and other novel materials in their respective electronics devices. So, much to the chagrin of analysts, growth here won't necessarily align neatly with the company's earnings calendar.

In the end, these numbers weren't exactly jaw-dropping. But given Corning's relative predictability, as well as its typical refusal of massaging its quarterly results to appease Wall Street, this was as close to a blowout earnings beat as investors could have asked from the 166-year-old company. So, given Corning's strong results and accelerating business momentum, it's no surprise to see Corning stock climbing right now.

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Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Corning. The Motley Fool has a disclosure policy.