- Corning to Reopen NC Fiber Plant; Reports Q1 Profits
CORNING, N.Y., April 25, 2007 -- Corning's first-quarter profit rose 27 percent, exceeding expectations despite decreased display sales, the company announced today. It also said it plans to reopen a portion of its Concord, N.C., optical fiber manufacturing facility and that it will take approximately six to nine months to restart fiber manufacturing. Production will be paced to meet market demand, the company said.
Wendell P. Weeks, president and CEO, announced first-quarter sales of $1.31 billion and net income of $327 million, or $0.20 per share. "We are off to an excellent start this year," he said. "We are encouraged that Display Technologies performed as expected and that our new pricing strategy appears to be working. We continue to see progress in our telecommunications segment, and momentum is building for our diesel products."
First-quarter sales of $1.31 billion increased 4 percent over last year’s first-quarter sales of $1.26 billion. Sales declined 5 percent when compared to fourth-quarter 2006 sales of $1.37 billion. Gross margin of 45 percent for the first quarter was even with the first quarter of 2006 and was slightly higher than the 44 percent in the fourth quarter of last year.
The first-quarter results included a $110 million non-cash, pretax and after-tax charge, primarily reflecting the increase in market value of Corning common stock to be contributed to settle the asbestos litigation related to the Pittsburgh Corning Corp.; and a $15 million pretax and after-tax charge related to the retirement of long-term debt.
First-quarter telecommunications segment sales were $439 million, an increase of 11 percent over first-quarter sales of $397 million last year and 9 percent over fourth-quarter sales of $404 million. Corning said it experienced higher demand than anticipated in the first quarter across most of its telecommunications product lines, including optical fiber, cable and hardware and equipment.
Eric S. Musser, vice president and general manager of Corning Optical Fiber, said, "The optical fiber market has witnessed volume growth of greater than 15 percent in each of the last two years. Over 80 percent of worldwide fiber demand now comes from the access and metro segments, and we expect to see continued market growth. The partial startup of our Concord facility will ensure that we have adequate capacity to capture this expanding market opportunity."
Another factor in the decision to partially reopen Concord is demand for Corning semiconductor materials products. In addition to optical fiber, Corning manufactures high-purity fused silica for semiconductor lithography applications at its Wilmington, N.C., facility. Corning said its semiconductor business is growing at double-digit rates, resulting in the need for increased specialty glass capacity in Wilmington. This demand has displaced some of Wilmington’s fiber making capacity, the company said.
James R. Steiner, senior vice president and general manager of Corning Specialty Materials, said, “The manufacturing process at the Wilmington facility produces innovative specialty glass for challenging microlithography applications. The lithographic industry is expected to show continued growth with higher semiconductor content in consumer electronics."
First-quarter sales for Corning’s display technologies segment were $524 million, down 4 percent from the first quarter of 2006, when Corning’s sales of $547 million were impacted by the panel makers’ inventory buildup. First-quarter sales declined 15 percent from the seasonally high 2006 fourth-quarter sales of $619 million as volume declined 12 percent. Sequential price declines were consistent with the company’s guidance of 1 percent to 2 percent.
Weeks said diesel sales have increased 65 percent over the same period last year. “We are beginning to see the ramp-up of sales in the diesel products business due to the new US 2007 emissions regulations for heavy-duty engines,” he said, adding that this trend should continue into the second half of this year. Last week, Corning announced it would begin equipping select European-market diesel passenger cars for Hyundai-Kia Motors with the company’s DuraTrap AT filters.
Corning's equity earnings for the first quarter were $216 million, compared to $272 million in the fourth quarter of 2006, which included $28 million of net nonrecurring gains at Samsung Corning Co. Ltd. Samsung Corning is Corning’s 50-percent owned equity venture in Korea which manufactures glass panels and funnels for cathode ray tubes for televisions and computer monitors. First-quarter equity earnings include $92 million from Dow Corning Corp., a 10-percent sequential increase, and lower earnings from Samsung Corning Precision Glass Co. Ltd. (SCP).
Equity earnings from Samsung Corning Precision were $113 million in the first quarter, compared to $147 million in the fourth quarter last year. Samsung Corning Precision’s results reflect sequential volume declines of 5 percent and price reductions in the upper single digits. Samsung Corning Precision is Corning’s 50-percent owned equity venture in Korea which manufactures LCD glass substrates.
The environmental technologies segment had sales of $179 million, a 15-percent increase on both a year-over-year and sequential basis as both automotive and diesel product sales increased. Corning’s life sciences segment had first-quarter sales of $76 million, a 6-percent increase over $72 million for the same period a year ago.
First-quarter results include special charges totaling $125 million, or $0.08 per share. Excluding these charges, Corning’s first-quarter net income would have been $452 million, or $0.28 per share. The company’s first-quarter results exceeded its guidance for earnings per share of $0.24 to $0.27.
Corning ended the first quarter with $2.9 billion in cash and short-term investments, down from $3.2 billion at the end of the fourth quarter last year. The company said it used $246 million to repay debt during the first quarter, reducing its overall debt level to $1.5 billion.
James B. Flaws, vice chairman and chief financial officer, said the company was encouraged by Moody’s Investor Services’ recent announcement that it is considering a possible upgrade to Corning’s debt ratings, currently at Baa2 with a stable outlook. As is normal for the first quarter, Corning’s free cash flow was slightly negative, “but we expect to achieve our goal of more than $400 million of positive free cash flow for the year,” Flaws said.
He said second-quarter sales are expected to be in the range of $1.40 to $1.45 billion and EPS in the range of $0.30 to $0.33 before special items. The gross margin percentage for the second quarter is expected to be 45 to 47 percent. Corning said it expects its second-quarter corporate tax rate to be between 15 and 18 percent.
The company said it expects second-quarter sequential LCD volume growth to be in the range of 8 to 12 percent and that it is continuing its new pricing strategy in the second quarter. As a result, its price decline guidance for its wholly owned business is unchanged from its first quarter guidance. Corning said its SCP price declines are expected to be similar to its wholly owned business.
"We believe that the second-quarter volume growth will be driven by the consumer electronics industry’s seasonal buildup in anticipation of the traditionally stronger second half of the year," Flaws said. He added that Corning is continuing transition its customers to its Eagle XG glass.
"We now believe that this year’s worldwide LCD TV penetration rate will increase from our original estimate of 33 percent to 36 percent of the color television market," he said. "In total, we expect approximately 73 million LCD televisions to be sold in 2007." Corning’s previous estimate was 68 million LCD TVs.
Flaws said Corning has also increased its estimate for worldwide glass volume in 2007. "The increase in expected LCD television penetration and average screen size has prompted us to raise our expectation of LCD glass volume growth for 2007. We now expect that total glass volume will grow in a range of 35 percent to 40 percent over last year."
The company estimates that the Taiwan and Japan markets will grow at the upper end of this range, while Korea will likely grow at a lower rate. Corning’s previous estimate was market growth in the "mid-30 percent" range.
Corning said its telecommunications segment second-quarter sequential sales growth is expected to be 10 to 15 percent, driven primarily by continued growth in fiber and cable and hardware and equipment products. Second-quarter sales in the company’s environmental technologies segment are expected to increase about 5 percent sequentially, primarily due to expected increases in the company’s diesel products sales. Sales for the life sciences segment should be up about 5 percent sequentially, Corning said.
Equity earnings for the second quarter are expected to increase about 5 percent compared to the first quarter, it said.
Flaws said, "We are pleased with the company’s first quarter performance and believe we are well positioned for the remainder of 2007. The growing penetration rate of LCD televisions and consumers’ desire for larger screen sizes should be favorable for our display technologies segment. We are also delighted to see more consistent growth in the telecommunications industry. Finally, global regulations to improve emissions standards have provided us with tremendous opportunities in the heavy-duty and light-duty vehicle markets. Together, these factors give us strong reason to be optimistic about our performance in the second quarter."
Flaws and Peter F. Volanakis, chief operating officer, will meet with investors at the Merrill Lynch Tech Gathering May 1 in New York City. Corning's annual meeting of shareholders will be held Thursday at 11 a.m. at the Corning Museum of Glass auditorium in Corning, N.Y.
For more information, visit: www.corning.com
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