Corning (GLW, Financial) is focusing on four key areas for growth. First, carry the continued healthy momentum in display technologies. Second, assemble Corning precision materials and work on its synergy plan. Third, focus on increasing the gross sales and profits of other segments and finally, return cash to shareholders.
The end market retail for the display segment is performing robustly, and the company is witnessing expansion in volume in cost performance.
There’s continued integration of CPM in Corning. There’s solid continued growth in environmental optical communications in fact better than its plan. But only the cover glass market is growing slowly. The company is keen on returning significant cash to shareholders through its stock repurchase program.
During the quarter, Corning accomplished $1.25 billion of accelerated stock repurchase and also bought about $200 million of shares through the open market operations. The company still has nearly $400 million of stock repurchase left in its current program and expect to continue share repurchases in third quarter as well.
A look at the end market
The price declines during the second quarter were less than the first quarter and in line with the expectations. The LCD glass market expanded sequentially in the high single digits, better than the expectations for the quarter primarily due to increased sales for the World Cup. Corning maintains its high expectations for the TV unit sales for the entire year and is increasing the size forecast for its TV screen.
The second quarter volumes increased sequentially. Volume growth for Corning exceeded the market growth with the share recovery at one of the key customers in Korea. Corning has considerably improved the performance during the second quarter and has started witnessing share recovery for this account. In addition, the share growth is believed to expand for this account during the third quarter.
The management expects the company’s full year volume growth to match the market growth along with year-over-year stability of its shares worldwide.
The supply chain inventory is believed to be solid. The company has started building its supply chain inventory with the inventory seen to expand by nearly 1 week on a sequential basis during the second quarter.
The second quarter sales for the company’s optical communication segment expanded 14% as compared to the previous year and better than the expectations. The fiber-to-home solutions illustrated higher sales than expected in North America and EMEA.
How are the other segments doing?
In the Environmental segment, the second quarter sales increased 25% against last year and exceeding the expectations. The new and improved regulations in China and Europe resulted in a 38% increase in total diesel sales coupled with increased activity of truck building in North America that led to solid heavy duty diesel sales. The diesel sales for Light duty vehicles also increased compared to the previous year.
In Life Sciences segment, the second quarter sales increased slightly from the last year and met the company’s expectations for the quarter.
Corning has maintained its expectations for LCD retail and glass markets for the entire year with retail market forecast to rise in the mid- to high single digits range. The LCD TV units are expected to grow in the lower to mid-single digits range.
There’s continued trend of consumers buying larger televisions. The increased affordability of the consumers makes Corning believe that average screen size would rise 3% in 2015. In addition, the growth in the screen size is expected to remain strong with the ultra-high definition television gaining popularity, which are believed to support large sized televisions.
For Specialty Materials segment, sales for the third quarter are believed to increase by approximately10% against the second quarter primarily driven by significant Gorilla Glass volume. The launch of the new models of Smartphones are believed to push Gorilla Glass volumes and hence, resulting in progressive sales in gross margin growth.
In general, the cover glass market is expected to grow 14% in volume, better than the earlier expectation of 10% at a level of supply chain consumption. Also, the shipment level volume is forecast to grow by 20% on year-over-year basis.
Corning is keen on investing into research and development to propel its future growth. The company is advancing on the development of new glass substrates for superior-performance displays to boost consumer viewing experiences, enhanced diesel emissions filters and substrates, and progress in fiber-to-the-home and futuristic data-center network solutions. Further, Corning is continuously developing its wireless communications, and plans to launch a new, next-generation of its superior-quality Gorilla Glass by the year-end.
Samsung Electronics Co Ltd (SSUN, Financial), which is believed to be a key customer of Corning, reported feeble handset sales during the second quarter primarily due to reducing market growth and rising price competition.
Apple Inc. (AAPL, Financial) is also believed to shift from using Gorilla glass to GT Advanced Technologies' Sapphire glass for its next iPhone.
The core sales for display technologies business of Corning, which is believed to manufacture LCD panels for Sony Corp (SNE, Financial), LG and Lenovo Group, and comprises greater than 25 percent of the company's revenue, grew 62 percent.
Conclusion
Corning looks like a good option to invest in from several angles. The company is moving ahead rapidly with its growth, and this is good enough reason for investors to buy this stock for the long run.
