Corning (GLW) is up 14% year to date as shareholders see a better supply-and-demand landscape for the glass giant following a weak 2015. Management expects stronger demand to drive sales and offset soft pricing, but will its forecast become just another shattered promise to Wall Street?
Executives forecast a turnaround for Corning's LCD glass business at the firm's February analyst meeting. That's a big deal given that the display business accounts for about 46% of the firm's revenue. And it's especially good news since 2015 was a major disappointment for Corning.
The firm's 2015 revenues fell 4% to $9.8 billion, while earnings per share dropped two cents to $1.40. Frankly, pretty much everything went wrong for GLW in 2015. Pricing, weak volume, too much inventory and foreign currency all wrecked last year's results after Corning's revenue grew 28% in 2014.
For 2016, management told analysts in February to expect a soft first quarter based on weak end-market demand for televisions. LCD pricing has also been disappointing, but that's to be expected because the first quarter is usually the sector's toughest period. (According to market watcher DisplaySearch, LCD TV-panel prices fell 5.4% in February, slightly less than January's 6.1% decline.)
However, Corning said analysts should expect the industry to work off excess glass inventory by the first quarter's end, with inventory beginning to grow again during the second period. The firm said end-market demand should also start to pick up, too.
Management ultimately thinks TV-unit sales will rise 2% this year, while average diagonal-screen sizes will grow more than 1.5 inches. The company expects glass volume to rise 5% to 6% as a result, which would lead to a mid-single-digit increase in demand.
Based on those projections, analysts expect Corning's revenues to fall 7.6% to $2.245 billion and the company to earn just $0.28 a share during the first quarter -- but predict future improvements as the industry works off excess inventory.
Analysts expect Corning's second-quarter revenues will fall just 3.6%, followed by growth in 2016's second half. Consensus estimates call for revenue to rise 3% in the third quarter and 4% in the fourth period. Those who follow the company think this momentum will carry into 2017's first half as well.
Add it all up and the consensus is calling for Corning's revenue to drop just 0.79% this year to $9.72 billion. Given GLW's share-buyback program and better gross margins amid improved expense control, analysts also think Corning will earn $1.40 per share for 2016 as a whole, unchanged from 2015. But they believe Corning could earn as much as $1.75 a share next year.
With that kind of profit growth, GLW could easily get back to the mid-$20s from today's roughly $20.50 a share -- although of course, that's all a big "if." Corning shareholders got burned by missed forecasts in 2012, 2013 and 2015. Will 2016 just be another year of shattered promises?