Corning, Inc. (GLW) reported Q3 EPS of $0.34, $0.02 better than analyst estimates of $0.32. Revenue for the quarter came in at $2.04 billion versus the consensus estimate of $2.02 billion. Why did the stock gap down? Yes it beat 3rd quarter estimates, but its ongoing guidance was pessimistic at best. The recent fall either makes the stock a bargain buy or something left on the shelf at a discount store because no one wants it.
What's causing its present problems?
Display technologies has resulted in 78% of the company's net income in 2012 so far. LCD Television sales have been continually falling. PC sales are in a recess and this also adds to its demise. It is true that Corning supplies the display glass for Apple and Samsung Galaxy, and sales have grown nicely in this segment. But when display technology drops off by $159 million and specialty materials (smartphone glass) increases to $80 million, it just cannot keep up. The company has had more segments of its business decline than positive segments can keep up with.
Corning supplies gorilla glass to a strong smartphone market, therefore a cell phone industry slow down could cause job cuts for Corning. The news just hasn't been good as of late. With a slight decrease in revenue for the quarter, the company also saw a 36% drop in profits - ouch! Lower telecommunication sales in North America and Europe lead to a 6% sequential drop in revenue and a 7% (year over year) decline. One major problem Corning is facing is the lack of growth as it anticipated. James Flaws is the vice chairman and chief financial officer for Corning and this is what he had to say:
"The weakening economy is affecting sales in many of our businesses, with several not achieving the growth expectations we set for the year. We believe these economic headwinds will persist next year."
This will surely lead to implementing more selected cost reductions like capital expenditure reduction, cutting projects and layoffs. These are not things investors want to hear if they expect stocks to increase in value.
For the glass industry as a whole, the fourth quarter could decline from low to mid single digits and the telecom industry is up less than expected only in the low single digits. Overall, with pricing displays rising, gross margin will also decrease by almost a whole point.
October was not a good month for GLW. After continually moving up from the first of August, the last half of October stole two-thirds of the gains the stock had from its move up. The drop was steep. For this reason, it cannot last. A reverse of direction was apparent, but I do not believe anyone could anticipate a drop so fast. The RSI indicator revealed a negative divergence which almost always signals weakness in the up trend in anticipation of a reversal. The MACD Histogram supported the coming reversal pattern. After the gap down the stock continued its freefall as it hugged the lower Bollinger Band. Since it has pushed through the bottom of the band continually, this is a sign that the move will not last that long. It is a short term steep move that will level out quickly. This does not mean that it will not continue in a bearish pattern, it just means it will not continue down so quickly.
It is my personal opinion that an investment in Corning right now is not the best idea. This does not mean that some time in the future the company may not be a good investment, but at this time, I believe with the bleak outlook the company has it is not a stock that is set to grow in the near future. I am sure there are better options out this at this point.