Corning Beats
Corning (GLW) reported 2Q results that were slightly ahead of consensus ($3.4b) at $3.5b in sales, up 6.4% q/q and up 36.7% y/y, with EPS (core) of $0.53, against consensus of $0.52. Display sales grew 8.7% q/q and 24.6% y/y against an easy compare, while Net Income grew 16.4% q/q and 63.2% y/y, the best results since 2014, and margins grew from 24.7% last quarter to 26.4% in 2Q, against 20.2% in 2Q last year. Specialty Materials grew sales by 7.1% q/q and 15.8% y/y, however Net Income declined by 11.0% q/q and 10.0% y/y, and margins declined from 20.2% last quarter to 16.8% in 2Q, against 21.6% in 2Q last year. New product spending for the Specialty Materials division was given as the culprit for the lower margins, with no specific timetable for when that would be alleviated.
Guidance was tepid, at 3Q sales of $3.5 - $3.7b, against $3.55 consensus (GAAP), while EPS guidance was $0.54 to $0.59, against consensus of $0.57 - $0.58., with a bit of caution concerning inflation at various points in the company as a gating factor for margins, which saw a 150bps drag from such concerns in 2Q and are expected to see the same in 3Q. While Corning has taken steps to alleviate those supply chain issues that were recognized in 2Q, they expect other potential issues in 3Q and expect that same 150 bps drag on margins again in 3Q.
While management cited the continuation of the company’s long-term goals, their near-term view in the display space, which includes specialty materials in our view, was a bit less straight forward. The company raised glass pricing in 2Q and will do so again in 3Q to cover material cost inflation, but was unable to point to glass pricing in the shorter-term. Glass pricing has been extremely favorable to Corning for the last few quarters, especially in 2021, but it seemed that they were more cautious on how glass pricing would play out for the remainder of the year and 2022. We expect this is a function of the uncertainty over TV panel prices that we have mentioned previously, coupled with shortages that have plagued the CE space.
With ~70% of the glass market based on TV panel surface area, Corning relies on average panel size increases to grow the glass market in display, but has had the added bonus of stable or increasing glass prices in recent quarters. If panel prices flatten or decline, it could put some pressure on glass pricing, although the glass market has few participants and high capital costs, which insulates glass suppliers from panel price volatility more than most in the display supply chain. All in, we believe Corning was being cautiously optimistic concerning the remainder of the year, at least in the display space, which we believe is the right approach. If we were directly in the display supply chain, we would want to be the low-cost producer in a market served by few suppliers, no matter what the circumstances with panel pricing. That’s where Corning is.
Guidance was tepid, at 3Q sales of $3.5 - $3.7b, against $3.55 consensus (GAAP), while EPS guidance was $0.54 to $0.59, against consensus of $0.57 - $0.58., with a bit of caution concerning inflation at various points in the company as a gating factor for margins, which saw a 150bps drag from such concerns in 2Q and are expected to see the same in 3Q. While Corning has taken steps to alleviate those supply chain issues that were recognized in 2Q, they expect other potential issues in 3Q and expect that same 150 bps drag on margins again in 3Q.
While management cited the continuation of the company’s long-term goals, their near-term view in the display space, which includes specialty materials in our view, was a bit less straight forward. The company raised glass pricing in 2Q and will do so again in 3Q to cover material cost inflation, but was unable to point to glass pricing in the shorter-term. Glass pricing has been extremely favorable to Corning for the last few quarters, especially in 2021, but it seemed that they were more cautious on how glass pricing would play out for the remainder of the year and 2022. We expect this is a function of the uncertainty over TV panel prices that we have mentioned previously, coupled with shortages that have plagued the CE space.
With ~70% of the glass market based on TV panel surface area, Corning relies on average panel size increases to grow the glass market in display, but has had the added bonus of stable or increasing glass prices in recent quarters. If panel prices flatten or decline, it could put some pressure on glass pricing, although the glass market has few participants and high capital costs, which insulates glass suppliers from panel price volatility more than most in the display supply chain. All in, we believe Corning was being cautiously optimistic concerning the remainder of the year, at least in the display space, which we believe is the right approach. If we were directly in the display supply chain, we would want to be the low-cost producer in a market served by few suppliers, no matter what the circumstances with panel pricing. That’s where Corning is.
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