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Corning (GLW) Up 2.8% Since Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Corning Incorporated GLW. Shares have added about 2.8% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Corning Beats on Q1 Earnings & Revenue Estimates

Corning reported first-quarter 2017 adjusted earnings of $0.39 per share, beating the Zacks Consensus Estimate by $0.04 (11.4%). Earnings surged 39.3% on a year-over-year basis but declined 22% sequentially in the reported quarter.

The year-over-year growth was driven by improvement in revenues. Adjusted revenues increased 14.5% year over year to $2.49 billion, which comfortably surpassed the Zacks Consensus Estimate of $2.36 billion. However, revenues declined 2.6% on a sequential basis.

We believe that the beat reflects strength in the company’s Optical Communications and Specialty Materials business lines. Moreover, Corning’s Strategy and Capital Allocation Framework continues to boost shareholder value. The company returned $552 million to shareholders through a combination of dividends and share buyback in the reported quarter.

Segment Details

The Display Technologies segment generated around 35.6% of total revenue. On an adjusted basis, revenues increased 2.1% from the year-ago quarter but declined 6.4% sequentially to $846 million.

The LCD glass market and Corning’s volume were up by a mid-teen percentage on a year-over-year basis. The company noted that sequential glass price declines were moderate, equalling the best first-quarter declines in the past six years.

Optical Communications generated almost 34.4% of total revenue, much better than management’s anticipated increase of at least 25%. Reported segment revenues grew 34.3% year over year and was almost flat on a sequential basis to $818 million on the back of strong demand for fiber-to-the-home market solutions in North America.

We note that the recently announced deal with Verizon reflects this strength, as U.S.-based service providers overhaul networks to improve 4G coverage and speed-up 5G deployments.

The Environmental Technologies segment generated around 11.6% of revenues. Reported segment revenues were up 4.2% year over year and 12.2% sequentially to $275 million.

Specialty Materials generated 12.6% of revenues. Reported segment revenues surged 32.2% year over year but declined 10.7% sequentially to $300 million backed by continuing strong adoption of Gorilla Glass 5.

The Life Sciences business accounted for around 8.8% of revenues. Reported revenues were up 2.9% from the year-ago quarter and 1.9% sequentially to $210 million.

Operating Details

Adjusted gross margin expanded 150 basis points (bps) from the year-ago quarter but contracted 60 bps from the previous quarter to 42.3%.

Adjusted selling, general & administrative expense (SG&A) as percentage of revenues decreased 90 bps from the year-ago quarter and 40 bps from the previous quarter to 13.4%.

Moreover, research & development expense (R&D) as percentage of revenues declined 90 bps on a year-over-year basis but increased 140 bps sequentially.

Operating margin (excluding amortization of purchased intangibles and restructuring, impairment & other charges) expanded 310 bps on a year-over-year basis and 150 bps from the previous quarter to 20.8%.

Guidance

Management expects revenues and earnings per share (EPS) to grow on a year-over-year basis in second-quarter 2017.

Corning expects glass volume to increase by mid-single digit percentage on a year-over-year basis and low-single digit percentage sequentially. The company expects sequential LCD glass price declines to be substantially less than first-quarter 2017.

Optical Communications sales are anticipated to increase 10% from the year-ago quarter in the second quarter.

Environmental Technologies sales are expected to be in line with the year-ago quarter, while Specialty Materials sales are anticipated to increase by a high-teen percentage range. The Life Sciences business will grow low-single digit percentage from the year-ago quarter.

For full-year 2017, Corning still expects mid-single digit percentage growth in glass volume, in line with the overall LCD glass market. Price is now anticipated to decline approximately 10% or possibly a lower rate.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter compared to two lower.

Corning Incorporated Price and Consensus

 

Corning Incorporated Price and Consensus | Corning Incorporated Quote

VGM Scores

At this time, the stock has a poor Growth Score of 'F', however its Momentum is doing a lot better with a 'C'. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than momentum investors.

Outlook

While estimates have been broadly trending upward for the stock, the magnitude of these revisions indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.


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