CORNING INC /NY Q3 FY2024 earnings call

Springboard Plan

• Announced strong Q3 2024 results with sales up 8% to $3.73 billion and EPS up 20% to $0.54.
• Springboard plan aims to add over $3 billion in annualized sales by end of 2026 and achieve 20% operating margin.

Optical Communications

• Enterprise portion grew 55% YOY in Q3 driven by Gen AI adoption. Introduced Gen AI products and has agreements with Lumen, AT&T, etc. Expect cyclical and secular drivers to sustain growth in 2025 and beyond.

Display Technologies

• Price increases implemented to maintain stable US dollar net income. Expect net income of $900 million to $950 million next year with 25% net income margin, maintaining position as low-cost technology and market leader in Display.

Other Highlights

• Generated strong free cash flow of $553 million in Q3. Continued share buybacks. Capital allocation focuses on organic growth, strong balance sheet, and returning excess cash to shareholders.

Optical Communications: Third quarter sales were $1.2 billion, up 36% year-over-year. Net income for the quarter was $175 million, up 92% year-over-year. Enterprise business grew 55% in Q3 versus the prior year. Display Technologies: Third quarter sales were $1 billion, consistent with the second quarter. Net income was $285 million, up 10% sequentially. Specialty Materials: Third quarter sales were $548 million, up 9% sequentially, primarily driven by premium glass for mobile devices. Environmental Technologies: Third quarter sales were $382 million, down 11% sequentially reflecting the continued impact of the Class 8 truck down cycle in North America. Life Sciences: Third quarter sales were $244 million, up 6% year-over-year. Hemlock and Emerging Growth Businesses: Third quarter sales were $298 million, consistent sequentially.

Q4 Guidance

• Anticipate year-over-year sales growth to accelerate and EPS to grow faster than sales, with sales up about 15% to approximately $3.75 billion and EPS up approximately 40% in the range of $0.53 to $0.57.

Springboard Targets

• Aim to add over $3 billion in annualized sales by end of 2026 and achieve 20% operating margin. Expect continued strong performance in 2025 and beyond with cyclical and secular drivers supporting growth in Optical Communications.

Q: For the AT&T agreement, details on incremental opportunity relative to existing business and fiber utilization. Also, on fiber utilization, whether something fundamentally changed.

A: Wendell Weeks said AT&T announcement is part of cyclical upward trend in Optical. On fiber utilization, Gen AI interconnecting data centers links are relatively full, but development of Gen AI will determine future growth.

Q: On 4Q revenue guide, unpacking expectations across segments and Lumen deal impact.

A: Ed Schlesinger said no impact from Lumen in 3Q or 4Q, and 4Q guide reflects positive momentum in Optical Communications driving above normal seasonality.

Q: Free cash flow in Q3 and perspective on future free cash flows.

A: Ed Schlesinger said Q3 free cash flow was strong due to Springboard positioning with no need for significant new capacity, expecting continued strong free cash flow.

Q: Gross margins, drivers and outlook.

A: Ed Schlesinger said gross margin improvement is due to operating leverage from Springboard, with 39% as a strong level but potential to increase.

Q: CHIPS Act award impact on Hemlock and semiconductor vs solar outlook.

A: Ed Schlesinger said CHIPS grant is an upside opportunity but not expected to impact Springboard timeline soon.

Q: Display price increases, customer response, and OpEx moderation.

A: Wendell Weeks said price increases aim to maintain stable US dollar net income, and Ed Schlesinger said OpEx temporarily elevated due to catch-up accrual for first nine months.

Q: Gross margin leverage into next year and Hemlock milestones.

A: Edward Schlesinger said 39% is a good level with opportunity to increase, and Wendell Weeks said Hemlock solar map milestones expected to be detailed around investor event in Q1 next year.

Q: CapEx reduction and future CapEx needs.

A: Edward Schlesinger said CapEx reduction due to minimal new capacity needs, with capital plans remaining modest unless significant revenue growth.

Q: Display price increases, customer leverage, and new hedge rate.

A: Wendell Weeks said price increases maintain stable US dollar net income, and said new hedge rate details to be shared later.

Q: Carrier business recovery and optical margin outlook.

A: Wendell Weeks said carrier recovery too early to call, but customer announcements are encouraging. Edward Schlesinger said optical margins can improve as capacity is filled and sales grow.