Corning (GLW) is on a roll in 2014. The stock has appreciated more than 20% so far. Moreover, the company is also focused on delivering value to its share holders and consequently, it completed a share repurchase program of $2 billion during the previous quarter. There is more to this story, which we shall see in detail.
Starting with the numbers, net sales for the quarter improved 32% to $2.4 billion from the year-ago period of $1.81 billion. This was marginally above analysts' estimate of $2.3 billion. Its net income fell to $301 million as compared to last year’s $494 million. However, its adjusted earnings beat Wall Street expectations.
Although the profit numbers for the first quarter were disappointing, management is positive about its prospects. According to James Flaws, Corning's chief financial officer, “We expect improved results throughout the year." This can also be understood from the fact that its adjusted earnings beat the Wall Street expectations.
The way ahead
Corning is focusing on its growth strategies. Management had already discussed in the previous quarter that it plans to quickly integrate Corning Precision Materials (CPM) in Korea in order to realize synergies, gain further cost advantages, and increase its flexibility of glass supply. The company completed its acquisition of CPM in the first quarter. As a result of this acquisition, its display sales improved 55% to $1 billion.
In optical communications as well, the company performed well with improved sales numbers. Gorilla glass volumes also improved year over year, but its prices declined considerably in the first quarter. This was one of the main reasons for its profits to decline in the quarter. But, management expects the prices to improve in the second quarter.
Corning had excluded the operating results of Hemlock Semiconductor in 2013 to remove potential impact of severe unpredictability and instability in the polysilicon market. But now the polysilicon market is stabilizing and management is positive about its prospects. Moreover, Hemlock's earnings were positive in the first quarter, and its customers are entering into further contractual obligations, which drove sales and profits in both fourth quarter of last year and the previous quarter.
Corning has posted some solid numbers. It ended its first quarter with $5.6 billion in cash and short term investments. Going forward, the company expects LCD TV units to grow in the low to mid-single digits, but area growth will likely be higher. It is expected that the trend of consumers buying larger televisions will continue.
In addition to this, Corning expects ultra high definition televisions to be a high-end category in 2014. Management believes that ultra high definition would be a major driver of demand in the near future. Moreover, the decline in the prices of LCD in the second quarter will not be as significant as it was in the first quarter.
Corning has a trailing P/E of 17.52, but its forward P/E looks more impressive at 12.75. The stock is currently trading near its 52-week high and there could be more upside to the stock. Although its profits have dipped in the present quarter, but going forward, the company expects its prospects to be positive. Looking at the numbers and its future outlook, Corning seems to be a fair investment option.