Following a fifth consecutive year of increased sales and profitability in 2007, Corning Incorporated's strong innovation portfolio has the company excited about its future growth prospects, Wendell P. Weeks, chairman and chief executive officer, will tell analysts and investors today. "Our strategy is to grow through global innovation," he will say.
Weeks and other Corning executives will review 2007 performance, detail the company's 2008 outlook and discuss Corning's growing portfolio of new business opportunities at the company's annual investor meeting beginning at 9 a.m. today at the Mandarin Oriental Hotel in New York.
"Last year was a year of outstanding execution for Corning," Weeks will remark in his opening comments. "We had record earnings per share, excluding special items, of $1.41*, gross margins at 47%, and operating cash flow of more than $2 billion."
"Innovation will continue to drive the company's long-term growth, as it has throughout the company's past," Weeks will tell investors. He will remind the audience of the company's extensive innovation portfolio, noting, "a number of emerging technologies are on the verge of commercialization."
Corning's Growth Opportunities
Consumer demand for LCD TVs will be the primary driver behind an anticipated 25% to 30% increase in total LCD glass demand in 2008, Peter F. Volanakis, president and chief operating officer, will tell investors. "We expect a compound volume growth rate of 25% through 2009 as overall glass demand grows by more than 450 million square feet each year."
*These are non-GAAP financial measures. The reconciliation between GAAP and non-GAAP measures is provided in the tables following this news release, as well as on the company's investor relations website.
In addressing anticipated 2008 LCD glass market dynamics, Volanakis will reiterate the company's expectations for a tightened supply-and-demand balance, moderate price declines and less significant fluctuations in quarter-to-quarter glass demand patterns. "For Corning," he will say, "2008 is expected to be yet another year of process improvement, cost reduction and excellent gross margins in the display segment."
Volanakis will tell investors, "We expect LCD TV penetration to be 60% of the global television market by 2009." LCD televisions were 38% of the market in 2007. This year LCD will surpass CRT for the first time as the dominant TV technology. The combination of a faster-than-expected decline in CRT-based televisions, a rapid increase in LCD TV penetration and increased popularity of larger-size LCD TVs is expected to result in worldwide glass demand of approximately 2.7 billion square feet by 2009, Volanakis will conclude.
He will explain that the company is also exploring a number of new market factors that could provide significantly greater LCD glass market demand in the future. (See related Corning news release for more details.)
"We are anticipating another year of strong sales growth and improved operating performance," Thomas R. Hinman, senior vice president and general manager, Corning Diesel Technologies, will tell investors. "Overall, we expect that our diesel product sales will grow by more than 25% this year, but this is dependent on the U.S. economy." Last year Corning's diesel product sales were $249 million.
Globally, the market for heavy-duty (trucks, buses, etc.) diesel products sales could be in the range of $500 million to $600 million in 2008. "New emissions regulations taking effect over the next several years in the United States, Europe and Japan should provide a significant longer-term market opportunity for our heavy-duty diesel particulate filter and substrate products," he will tell investors.
"We also expect this year to be one of substantial progress for Corning's light-duty (passenger vehicles) diesel business," he will also say. "Our DuraTrap® Aluminum Titanate and Advanced Cordierite filter solutions are quickly gaining hold with engine manufacturers. We expect to expand our share of the European market for platforms beyond 2009 that must meet EU 5 regulations." The diesel passenger market today is primarily a European opportunity, but there are a number of new diesel vehicles being introduced into the North American market, which could bring about some modest growth opportunities, he will note. Hinman will say that the global market opportunity for light-duty diesel product sales this year will be between $750 million and $850 million.
Larry Aiello, president and chief executive officer, Corning Cable Systems, will tell investors that the conversion to HDTV, increased subscription rates for high-speed Internet service and increasing entertainment options may all combine to dramatically increase fiber-to-the-home and fiber-to-the node penetration rates in the U.S., Europe and Asia. Aiello will also say that Corning's newest telecommunications innovation, ClearCurve™, is an ideal solution for providing optical fiber-based service to multi-dwelling units (MDUs). This revolutionary, bend-insensitive technology could provide Corning with revenue potential in the range of $90 to $200 per household.
Aiello will describe a growing opportunity for Corning's telecommunications business in private networks, which currently represents about 25% of Corning's total segment sales. "We believe this market is growing at about 10% annually as companies move toward higher bandwidth systems for improved local network speeds and more centralized applications. More and more data center managers are replacing their older, copper-based systems with optical fiber solutions. The optical fiber solutions are more efficient, offer significantly improved performance and reduce cooling costs," Aiello will explain.
Noting that 2008 will mark the 100th anniversary of a formalized research and development organization at Corning, Dr. Joseph A. Miller, executive vice president and chief technology officer, will review the company's emerging technology portfolio. "We are continuing to make substantial progress on four exciting new technology applications," Miller will tell investors. The company is currently prototyping a green laser in handheld devices for micro-projection; microreactor technology for specialty chemicals; carbon-based substrates to reduce mercury emissions for coal-fired power plants; and silicon-on-glass technology for organic light-emitting diode (OLED) applications.
"Additionally, we have developed an optical-quality glass that is highly scratch resistant and durable and retains its optical characteristics after extended use. This glass, which we have named Gorilla™ glass, is now commercially available and being used as a cover glass for several touch screen applications," he will explain. (See Corning's separate release on its emerging technologies for further details.)
"Although we are not recession-proof, we have not seen any signs of a slowdown in our businesses, except in our heavy-duty diesel business, which has been impacted by a decline in the U.S. trucking industry," James B. Flaws, vice chairman and chief financial officer, will tell investors. "We are not ignoring the possibility of a potential slowing of the economy, and we are monitoring all of our businesses closely."
Corning will reaffirm its first-quarter guidance of sales in the range of $1.59 billion to $1.62 billion and earnings per share, excluding special items*, of $0.41 to $0.43.
Corning will also tell investors that beginning with its 2008 first-quarter financial report, the company will add a fifth reporting segment, Specialty Materials, and will increase transparency about how much the company is investing in its innovation portfolio.
Flaws will also tell investors that, due to improved profitability in its U.S.-based operations in 2007, it is now possible that Corning may release its valuation allowance on its U.S. deferred tax assets in mid-2008. This is earlier than the company's previous expectation of 2009. Corning's effective tax rate would increase by about 10 percentage points if this happens, but it would have no impact on cash taxes paid. "Investors should note that on a pro forma basis, EPS growth would remain unchanged as a result of this potential change," Flaws will add.
"Last year was a record year for Corning in many respects and we believe that we are off to a strong start this year. Some of our recent technology innovations are beginning to generate sales and we are very excited about many others in our emerging technologies portfolio. Corning is positioned for success well into the next decade," Flaws will conclude.