Corning; display technologies down in 2Q 2006

Corning Incorporated announced on 25 July 2006 sales of USD 1.26 billion and net income of USD 514 million, or USD 0.32 per share for the 2Q 2006. The figures include net special gains of USD 93 milli…

Corning Incorporated announced on 25 July 2006 sales of USD 1.26 billion and net income of USD 514 million, or USD 0.32 per share for the 2Q 2006. The figures include net special gains of USD 93 million, or USD 0.06 per share. Excluding these net special gains, Corning“s 2Q 2006 net income would have been USD 421 million, or USD 0.26 per share (non-GAAP financial measures). Wendell P. Weeks, president and chief executive officer, said, “We were pleased to meet our earnings-per-share (EPS) guidance as we overcame the impact of the 2Q panel inventory correction on our Display Technologies segment. The decline in Display Technologies“ quarterly performance was offset by strength in our Telecommunications segment and lower operating expenses”. Corning“s 2Q results included a USD 61 million gain to reflect the fall in the market value of Corning common stock contributed to the settlement of the Pittsburgh Corning Corporation asbestos litigation; a USD 10 million reduction in income tax expense from the release of the valuation allowance on certain deferred tax assets in Australia; a USD 11 million charge from Corning“s ongoing debt-reduction program; and a gain of USD 33 million in equity earnings from Dow Corning Corporation“s settlement with the US Internal Revenue Service regarding liabilities for tax years 1992 to 2003. The settlement resolves all federal tax issues related to Dow Corning“s implant settlement. Corning“s 2Q sales of USD 1.26 billion were even with 1Q sales and increased 11% over 2Q 2005 sales of USD 1.14 billion. As expected, gross margin for the 2Q 2006 was 43%, a slight decline from the previous quarter“s gross margin of 45%. Equity earnings for the 2Q were USD 256 million, including the USD 33 million tax gain from Dow Corning. First quarter equity earnings of USD 200 million included a USD 21 million impairment charge for Samsung Corning Company, Ltd. (Samsung Corning), a producer of CRT glass panels and funnels. Excluding the special items in both quarters, Corning“s 2Q equity earnings were even with the 1Q 2006. Including the USD 33 million tax gain, the firm“s 2Q equity earnings in Dow Corning were USD 104 million. Second quarter sales for Corning“s Display Technologies segment were USD 461 million, an 11% increase over 2Q 2005 sales of USD 415 million. Year-on-year LCD glass volume increased by 38% in the 2Q 2006, but this was largely offset by the change in foreign exchange rates and price declines. Sequentially, 2Q 2006 sales declined 16% from 1Q sales of USD 547 million, mainly due to volume declines of 14% and lower prices. As expected, price declines were less than those in the 1Q 2006. Second quarter volume at Samsung Corning Precision Glass Co., Ltd.(SCP) increased 52% year-on-year and 3% sequentially. Equity earnings from SCP were USD 133 million in the 2Q, compared to USD 140 million in the previous quarter, which included about USD 7 million in non-recurring gains. Total LCD glass volume, including both Corning“s wholly owned business and SCP, declined 6% sequentially in the 2Q. Net income for the Display Technologies segment was USD 344 million, down 18% from USD 417 million last quarter, but up 20% on the 2Q 2005. “The quarterly sales decline in Display Technologies was disappointing, but as we have warned in the past, supply-chain issues can occur in any given quarter. Our LCD volume decline of 6% was consistent with our 22 May 2006 guidance change,” Weeks said. Telecommunications segment sales increased 19% in the 2Q 2006 to USD 472 million versus USD 397 million in the 1Q. In the company“s Environmental Technologies segment, sales of USD 152 million were slightly lower than sales of USD 155 million in the 1Q. Corning“s Life Sciences segment sales increased USD 3 million to USD 75 million in the 2Q. Corning ended the 2Q with USD 2.48 billion in cash and short-term investments, consistent with the previous quarter. The company“s debt level declined to USD 1.5 billion compared to USD 1.8 billion at the end of the 1Q. James B. Flaws, vice chairman and chief financial officer, said, “As we continue to focus on improving the company“s overall financial health, you can expect us to opportunistically issue or refinance certain debt over the remainder of the year”. Mr. Flaws also noted that Moody“s Investor Service recently raised Corning“s overall debt rating to Baa2 with a stable outlook. Corning expects 3Q 2006 sales to be in the range of USD 1.26 billion to USD 1.33 billion, and EPS in the range of USD 0.22 to USD 0.26 before special items. Gross margin for the 3Q is expected to be in the range of 41% to 43%. The 3Q tax rate is expected to be between 15% and 20%. For its Display Technologies segment, Corning anticipates that 3Q 2006 sequential volume growth for its wholly owned business will be in the range of 5% to 15% as the supply-chain correction begins to ease and the LCD industry gears up for the holiday buying season. Samsung Corning Precision should also see sequential volume increases in the range of 5% to 15%. Corning expects 3Q price declines in its wholly owned business to be in line with the previous quarter. “As we start the 3Q, we believe there will be inventory adjustments by some panel manufacturers, while others are beginning to increase production levels,” Mr. Flaws said. “However, the long-term LCD market dynamics remain positive. We have not changed our expectation that the overall glass market volume growth will be between 40% and 50% in 2006. We believe that LCD TV penetration will reach about 20% of the global television market this year, nearly doubling that of 2005”. Corning“s Telecommunications segment 3Q sales are expected to be flat to down slightly. 3Q sales in the company“s Environmental Technologies segment are also expected to be flat. Excluding the impact of the USD 33 million 2Q tax gain at Dow Corning, 3Q 2006 equity earnings are expected to be down 5 to 10%, as stronger earnings at Dow Corning may be offset by lower earnings at SCP and non-recurring charges at Samsung Corning. Mr. Weeks said, “While our first-half 2006 performance met our expectations, we need to be cautious about the potential negative impact that economic conditions and political tensions could have on consumer sentiment. The LCD TV market is strongly weighted towards the 4Q and we need a robust retail holiday season to achieve our goals. The good news is that retail prices for LCD TVs have declined substantially and that should accelerate consumer demand”.