Corning (GLW)

Q2 2011 Earnings Call

July 27, 2011 8:30 am ET

Executives

Kenneth Sofio -

James Flaws - Vice Chairman, Chief Financial Officer, Member of Finance Committee and Member of Executive Committee

Analysts

Mark Sue - RBC Capital Markets, LLC

Nikos Theodosopoulos - UBS Investment Bank

Wamsi Mohan - BofA Merrill Lynch

Rod Hall - JP Morgan Chase & Co

Jim Suva - Citigroup Inc

Vijay Rakesh - Sterne Agee & Leach Inc.

George Notter - Jefferies & Company, Inc.

Christopher Muse - Barclays Capital

John Roberts - Buckingham Research Group, Inc.

Erin Riley - Goldman Sachs Group Inc.

Ajit Pai - Stifel, Nicolaus & Co., Inc.

Brendan Furlong - Miller Tabak + Co., LLC

Presentation

Operator

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Previous Statements by GLW
» Corning Management Discusses Q1 2011 Results - Earnings Call Transcript
» Corning CEO Discusses Q3 2010 Results - Earnings Call Transcript
» Corning Q2 2010 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by, and welcome to the Corning Incorporated Second Quarter 2011 Earnings Results. [Operator Instructions] And as a reminder, today's call is being recorded. With that being said, it's my pleasure to turn the conference on to Mr. Ken Sofio, Vice President of Investor Relations. Please go ahead.

Kenneth Sofio

Thank you. Good morning. This morning, Jim Flaws, Vice Chairman and CFO, will have some prepared remarks before we go to the Q&A. Those remarks do contain forward-looking statements under the Private Securities Litigation Reform Act of 1995. Those statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, and these risks are all detailed in the company's SEC reports. Jim?

James Flaws

Thanks, Ken. Good morning, everyone. Hopefully, you had a chance to read the press release we issued this morning on our second quarter results. If you haven't, a copy can be found on our Investor Relations website.

We had a very good quarter, with sales at $2 billion, up 17% year-over-year, with EPS of $0.48. The quarter met our expectations. We did slightly better on volume in a wholly-owned display business than we had expected. We were delighted with the broad-based sales growth in all our other segments. This sales performance resulted in very good profitability. I'll come back to the quarter in a minute, but I'd like to switch gears and talk about the macro market outlook changes that we have adopted.

I'm going to start by highlighting 2 key forecast changes. First, we are lowering our 2011 LCD glass market forecast to 3.3 billion to 3.4 billion square feet. Our previous range was 3.5 billion to 3.7 billion square feet. The display industry has behaved -- been behaving more cautiously in recent weeks, driven primarily by weaker retail expectations for the second half. We've seen most of the major television brands reduce their sales forecast over the past month. So part of the reason for our lower glass forecast is because the industry appears to be expecting lower retail demand for televisions. The supply chain appears to be preparing for a more muted second half by building less inventory in quarter 2 and by panel makers continuing to run at lower utilization rates or, in some cases, lowering them further. In general, it appears the supply chain is waiting a little longer to build inventory for the seasonal fall of the fourth quarter. There is some good news in this behavior as early inventory builds have led to correction issues in the past.

Second, we're now forecasting Gorilla Glass sales this year to be about $800 million. We previously believed that Gorilla had the potential to generate $1 billion of sales in 2011, but that was always predicated on significant demand for TV cover glass. We do not have any specific retail value yet for Sony televisions. But today, there are only been a limited number of TV models with Gorilla Glass available and most of them are on higher price sets. As a result, we're now expecting to sell only about $50 million in TV cover glass this year versus our original expectations of closer to $200 million. The remainder of our Gorilla Glass business, which is for handhelds and IT products continues to grow robustly. We anticipate sales for those -- just those products to be $750 million this year, which would be triple last year's sales.

For those investors wondering if -- still are plan to reach $10 billion of sales by 2014, the answer is yes. We just completed our annual long-term planning meetings and our conclusion was the $10 billion sales target is well intact. I also have an update on our 2012 CapEx plans and some exciting news on photovoltaic glass, but I will save them for the outlook section.

I'd like to review our second quarter results in more detail. Q2's sales were $2 billion, an increase of 4% over Q1, but more impressively was the 17% increase over the second quarter of last year, which -- with the exception of display, which is down slightly versus last year, each segment sales increased significantly over last year. Our second quarter gross margins, 44.3%, down from the 45.4%, but higher than we had anticipated due to stronger-than-expected display volume. SG&A was $284 million or 14% of sales and in line with expectations, increase in SG&A from the first quarter reflects our annual merit increases, which for most employees, occurred in April. And RD&E was $172 million or about 8.5% of sales. Equity earnings were $428 million, an increase of 8% over the first quarter. Other income was $43 million in Q2 versus $27 million in Q1, the increase is due to the non-repeat of certain expense items from quarter 1. Net profit after tax, excluding special items, was $758 million, up slightly first quarter. Earnings per share, excluding special items, were $0.48 in Q2, up slightly from Q1. Both net profit after tax and earnings per share, excluding special items, are non-GAAP measures. Please see the reconciliation to GAAP on our website. The impact of movements in exchange rates from Q1 to Q2 was not material to our results.

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