Corning's 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. These are non-GAAP financial measures. These and all non-GAAP financial measures are reconciled on the company's investor relations Web site and in attachments to this news release.
Reflecting on the first-quarter performance, Wendell P. Weeks, president and chief executive officer, said, "We are off to an excellent start this year. 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."
Corning's first-quarter results included the following items: 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 Corporation; and a $15 million pretax and after-tax charge related to the retirement of long-term debt.
First-Quarter Operating Results
Corning's 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.
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 Company, 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 Corporation, a 10-percent sequential increase, and lower earnings from Samsung Corning Precision Glass Co., Ltd. (SCP).
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.
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 liquid crystal display (LCD) glass substrates.
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 experienced higher demand than anticipated in the first quarter across most of its telecommunications product lines, including optical fiber, cable and hardware and equipment. Separately, Corning announced that it would begin the partial reopening of its Concord, N.C., optical fiber plant in response to improvements in market demand.
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.
Weeks noted that diesel sales in the first quarter of this year 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 U.S. 2007 emissions regulations for heavy-duty engines," Weeks said, adding that this trend should continue into the second half of this year. Last week Corning announced that it would begin equipping select European-market diesel passenger cars for Hyundai∙Kia Motors with the company's DuraTrap® AT filters.
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.
Cash Flow/Liquidity Update
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 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 that 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. Free cash flow is a non-GAAP financial measure.
Flaws said that the company expects second-quarter sales to be in the range of $1.40 billion to $1.45 billion and EPS in the range of $0.30 to $0.33 before special items. This EPS estimate is a non-GAAP financial measure and excludes special items. The gross margin percentage for the second quarter is expected to be in the range of 45 percent to 47 percent. Corning expects that its second-quarter corporate tax rate will be between 15 percent and 18 percent.
Corning anticipates that its second-quarter sequential LCD volume growth will be in the range of 8 percent to 12 percent for its wholly owned business and SCP, both individually and in the aggregate. Corning said it is continuing its new pricing strategy in the second quarter. As a result, the company's price decline guidance for its wholly owned business is unchanged from its first quarter guidance. Corning anticipates that SCP's price declines will be similar to its wholly owned business.
Flaws said "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 also noted that Corning is continuing to transition its customers to its environmentally friendly 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. In total, we expect approximately 73 million LCD televisions to be sold in 2007," Flaws said. Corning's previous estimate was 68 million LCD televisions.
Flaws said that 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," Flaws said. 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 rate lower than the range. Corning's previous estimate was market growth in the "mid-30 percent" range.
Corning's Telecommunications segment second-quarter sequential sales growth is expected to be in the range of 10 percent 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 due primarily to expected increases in the company's diesel products sales. Sales for the Life Sciences segment should be up about 5 percent sequentially.
Equity earnings for the second quarter are expected to increase about 5 percent compared to the first quarter.
"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 concluded.
Upcoming Investor Meetings
Corning Incorporated Vice Chairman and Chief Financial Officer James B. Flaws and Chief Operating Officer Peter F. Volanakis will be meeting with investors at the Merrill Lynch Tech Gathering in New York on May 1.
Annual Shareholders Meeting
Corning will hold its annual meeting of shareholders on Thursday, April 26 beginning at 11 a.m. EDT in the Corning Museum of Glass auditorium in Corning, N.Y.
First-Quarter Conference Call Information
The company will host a first-quarter conference call on April 25 at 8:30 a.m. EDT. To access the call, dial (210) 234-0000 approximately 10-15 minutes prior to the start of the call. The password is QUARTER ONE. The leader is SOFIO. To listen to a live audio webcast of the call, go to Corning's Web site at www.corning.com/investor_relations and follow the instructions. A replay of the call will begin at approximately 10:30 a.m. EDT, and will run through 5 p.m. EDT, Wednesday, May 9. To listen, dial (402) 998-1237. No pass code is required. The audio webcast will be archived for one year following the call.