Corning Incorporated announced on 19 July 2004 that it made 2Q 2004 sales of USD 971 million and net income of USD 108 million, or USD 0.07 per share. Net income includes net after-tax charges of USD …
Corning Incorporated announced on 19 July 2004 that it made 2Q 2004 sales of USD 971 million and net income of USD 108 million, or USD 0.07 per share. Net income includes net after-tax charges of USD 61 million, or USD 0.04 per share. “We clearly exceeded our expectations for the quarter,” James R. Houghton, chairman and chief executive officer, said. “We saw very strong performance in our Telecommunications and Display Technologies segments. In addition, this was our sixth quarter of sequential revenue growth,” he said. Corning“s 2Q net after-tax charges of USD 61 million, or USD 0.04 per share, include: A USD 47 million charge (USD 45 million after-tax) to reflect the increase in the market value of Corning common stock to be contributed to settle the asbestos litigation related to Pittsburgh Corning Corporation. A USD 34 million gain (USD 14 million after-tax and minority interest) from restructuring activities, primarily related to the sale of Corning Asahi Video Products Company assets. A USD 9 million charge (USD 9 million after-tax) related to Corning“s ongoing debt reduction program. Charges totaling USD 21 million in equity earnings related to restructuring actions at Dow Corning Corporation and adjustments to interest liabilities recorded on its emergence from bankruptcy. 2Q Operating Results The company“s 2Q sales of USD 971 million increased 15% over 1Q sales of USD 844 million. The sales improvement was boosted by seasonal increases in the Telecommunications segment and continued growth in the Display Technologies segment. Corning“s net income of USD 108 million almost doubled compared to 1Q net income of USD 55 million. The net income increase was primarily the result of higher sales in the company“s Telecommunications and Display Technologies segments. In addition, equity earnings from Dow Corning Corporation and Samsung Corning Precision Glass Co., Ltd. were strong in the quarter. Segment Results Display Technologies segment sales grew 20% to USD 277 million compared to 1Q sales of USD 230 million. This increase reflects 22% volume growth in liquid crystal display (LCD) glass and stable prices. Volume growth in the 2Q was particularly strong in Taiwan. Segment net income increased 14% to USD 135 million compared to USD 118 million in the previous quarter. Telecommunications segment sales were USD 392 million and net loss was USD 21 million for the quarter, compared to 1Q sales of USD 312 million and net loss of USD 43 million. The improved quarterly performance was driven primarily by sequential fiber and cable volume gains in North America and Europe, and strong demand for the company“s hardware and equipment products in part due to Verizon“s fiber-to-the-premises build-out. Fiber volume increased 31% sequentially and price declines were moderate. Corning also said that the recent anti-dumping preliminary determination in China is beginning to have an impact on fiber exported to China. The company is continuing to cooperate with the Chinese Ministry of Commerce to reach a final determination. Both Environmental Technologies and Life Sciences segment sales and earnings were about even with the 1Q results. The Environmental Technologies segment had sales of USD 141 million for the 2Q. The company said sales of its diesel products increased sequentially and its automotive product sales were down slightly from a record 1Q performance. In the Life Sciences segment, 2Q sales were USD 79 million, keeping pace with stronger-than-expected 1Q sales. Cash Flow/Liquidity Update Corning ended the quarter with approximately USD 1.6 billion in cash and short-term investments compared to USD 1.5 billion in the 1Q. The increase was primarily due to strong operating cash flow, which more than offset the company“s capital spending. Corning“s debt-to-capital ratio was 31.2% at the end of the 2Q versus 33.1% in the 1Q. 3Q Outlook Corning said that it expects 3Q sales to be in the range of USD 950 million to USD 1 billion, with earnings per share in the range of USD 0.10 to USD 0.12 before special items. The estimate is a non-GAAP financial measure (see end note) and excludes the previously announced charge of approximately USD 25 million pretax for the sale of the company“s frequency control business and other potential gains and charges. Corning expects that its gross margins will be in the range of 36% to 37% and foreign exchange rates will remain stable. Corning is increasing its estimate of capital spending for the year to USD 950 million to USD 1 billion. This increase reflects the company“s intent to keep up with the strong growth in the LCD market, as well as the faster-than-anticipated cash outflows for its construction projects in Taiwan. In the Telecommunications segment, Corning expects that sequential fiber volume will decrease between 10% and 15% in the 3Q and pricing declines will remain moderate. The company said that it expects seasonal gains in fiber volume in North America and Europe to be offset by declines in China as a result of the recent anti-dumping preliminary ruling. Corning also expects to continue to see strong hardware and equipment sales in the quarter. Corning expects that its Display Technologies segment will have another strong quarter. Sequential volume is expected to increase approximately 10% for the quarter and is being limited by the company“s ability to bring on new capacity. Pricing is expected to remain stable. “We believe that we will remain sold out of LCD manufacturing capacity throughout the year,” James B. Flaws, vice chairman and chief financial officer, said. “And we are adding capacity to meet the industry“s demand for larger generation state-of-the-market LCD substrates,” he said. Flaws also said that Corning is pleased with the improving performance of the company“s Telecommunications segment, but that it is too early to see a recovery trend in the market. “We are encouraged by the sales we are experiencing for the fiber-to-the-premises build-outs,” he added. Flaws remarked that, “We are making excellent progress on our key business priorities, and we believe we can sustain this momentum into the 3Q. It feels good to us right now. We see positive trends across many of our businesses, and we are looking forward to the 3Q.” Non-GAAP financial measure Corning“s earnings estimate for the 3Q is a non-GAAP financial measure as it excludes any potential gains or losses arising from previously announced restructuring actions; previously announced loss on the sale of the frequency control business; any further adjustments to the asbestos settlement reserve required by movement in Corning“s stock price; and income from discontinued operations. The company says it believes presenting earnings estimates that exclude these items is helpful in understanding its operating results.