Corning(US:GLW)2023-01-31 16:44Financial Data and Key Metrics - Q4 2022 sales were $3.6 billion, at the high end of the guided range, with EPS of $0.47 [5] - Full-year 2022 sales grew 5% to $14.8 billion, with EPS increasing 1% to $2.09 [5] - Gross margin for the year was 36%, and free cash flow was $1.24 billion [5] - Q4 gross margin was 34%, down 250 basis points sequentially, and operating margin was 14%, down 290 basis points sequentially [19] - Core earnings in Q4 were increased by $256 million due to restructuring charges and noncash mark-to-market adjustments [3] Business Line Performance - Optical Communications: Q4 sales were $1.2 billion, down $122 million sequentially, with net income of $130 million, down $53 million sequentially [20] - Display: Q4 sales grew 14% sequentially to $783 million, with net income up 28% to $171 million [22] - Specialty Materials: Q4 sales were $505 million, down 3%, with full-year sales flat at $2 billion [25] - Environmental Technologies: Q4 sales were $394 million, up 12% year-over-year, with net income up 28% to $69 million [26] - Life Sciences: Q4 sales were $294 million, down sequentially and year-over-year, impacted by lower demand for COVID-related products [26] - Hemlock and Emerging Growth Businesses: Q4 sales were $462 million, up 22% year-over-year, with full-year sales up 34% to $1.7 billion [27] Market Performance - China's COVID-related disruptions in December impacted consumer sentiment and labor availability, affecting demand for products in Display, Environmental, and Specialty Materials [9] - Panel maker utilization in Display declined in January, delaying the industry recovery by at least a quarter [29] - Automotive Glass Solutions saw strong growth in 2022, with a focus on increasing content per car to $100 [12] Strategic Direction and Industry Competition - The company is focused on long-term growth opportunities in Optical Communications, solar, and automotive, driven by secular trends like broadband, 5G, and renewable energy [11][12] - In Optical Communications, the company is in the early phases of a multiyear build cycle driven by broadband, 5G densification, and cloud computing [11] - The company is leveraging the Inflation Reduction Act to grow its solar business and contribute to a sustainable U.S.-based solar supply chain [11] - In Display, the company expects to emerge from the industry correction with strengthened customer relationships and refreshed manufacturing capabilities [11] Management Commentary on Operating Environment and Future Outlook - The company expects Q1 2023 sales to decline more than normal seasonality, but margins to increase sequentially due to recent pricing and productivity actions [8] - Management anticipates sequential sales growth in Q2 and year-over-year growth in the second half of 2023 [10] - The company is confident in its ability to deliver durable, multiyear growth with improved margins and cash generation [16] Other Important Information - The company has hedged most of its foreign currency exposure for 2023 and 2024, with a core rate of 107 yen [30] - Capital expenditures for 2023 are expected to be consistent with 2022 levels [29] - The company plans to recommend a dividend increase from $1.08 to $1.12 per share [32] Q&A Summary Question: Impact of yen hedging on 2023 and 2024 [34] - The company has hedged most of its yen exposure for 2023 and 2024, with a core rate of 107 yen [35] Question: Corning's role in bendable and augmented reality [34] - The company is investing in innovations for bendable displays and augmented reality, with new products expected in the coming years [37][38] Question: Sequential growth in EPS and margin improvement [39] - Margins are expected to improve sequentially in Q1, with a significant increase in profitability despite a lower tax rate [40][41] Question: Growth in Automotive Glass Solutions [42] - The company is seeing strong growth in exterior automotive glass, driven by trends in electric vehicles and laminated technologies [44] Question: Display industry recovery and TV sales outlook [45] - Panel maker utilization is expected to recover, with retail market recovery anticipated later in the year [49] Question: Long-term opportunity in Hemlock and margin potential [51] - The company aims to build a $1 billion solar business, with Hemlock's gross margin around the corporate average [52][53] Question: Productivity ratio improvements [54] - The company has taken significant actions to improve productivity and reduce costs, aiming to return to pre-pandemic operational levels [56][57] Question: New content wins in Specialty Materials [58] - The company expects new content wins to drive outperformance in 2023, depending on the success of new product launches [59] Question: Optical Communications revenue and profitability [64] - The weakness in Optical Communications was driven by multiple carriers pacing projects, with profitability impacted by inflation and lower volumes [65][66] Question: EPS trajectory and Optical Communications recovery [67] - The company expects to return to a $2 EPS run rate when revenues reach Q4 2022 levels, with Optical Communications recovery expected later in the year [68][70] Question: Free cash flow and share buybacks [71] - The company aims to improve operating cash flow by reducing inventory, with share buybacks remaining a priority after completing the Samsung preferred share conversion [72][74]