Corning stock is down more than 6% after the company reported first-quarter numbers Tuesday morning. Shares are now up 5% year to date, far below the 14% gain in the Dow Jones Industrial Average and the 21% year-to-date gain in the Apple suppliers tracked by Barron’s.
Corning (ticker: GLW) actually reported sales and earnings a little better than Wall Street expected. So what’s the problem?
As is often the case with earnings reports, it’s the outlook that does the damage. Corning cut its sales-growth forecast in its optical-communications segment—that is, fiber-optic cables—to 10%, down from the “low teens” provided by the company last quarter.
Corning also supplies glass for a variety of Apple (AAPL) consumer devices, and its results are closely tracked by investors looking for clues into smartphone demand. And though tech investors can’t blame Apple for today’s decline, it still holds some import for them.
The back story. Apple’s weak iPhone sales at the end of 2018 hurt not only Apple but also its suppliers, like Corning. The effects were felt up and down the supply chain, hurting even capital-equipment suppliers that sell machines to businesses that assemble smartphones.
What’s new. Network operators are slowing spending on everything, including 5G deployment. “Our 2019 [optical communication sales] outlook has been impacted by a major fiber to the home customer,” explained Chief Financial Officer Tony Tripeny on the earnings call.
That means the sales-growth deceleration is likely due to Verizon Communications (VZ), AT&T (T), or Sprint (S). Corning derives more than 17% of its sales from the wireless telecom giants. Optical sales in the first quarter grew 20%. Investors don’t like it when sales growth slows more than expected.
Looking ahead. The results don’t look all that bad to Barron’s, but existing shareholders seem to disagree. It is not as if Corning shares are too expensive. The stock trades for about 16 times earnings, in line with historical averages. At least the problems don’t see to be iPhone-related.
Lower capital spending would be a concern for the tech sector, which is relying on 5G to generate sales growth in coming years. Still, taking Corning’s management statements at face value, we’re mostly talking about timing.
“Our customers, the world’s leading network cloud operators, continue to deploy Corning’s optical solutions to densify their 4G, 5G, and data center networks,” said Tripeny. “We continue to outpace the competition and we’re very excited about the growth ahead of us.”
Corning stock is at $31.66, down 6.2%, in early afternoon trading.
Corning Inc. shares were trading at $31.97 per share on Tuesday afternoon, down $1.76 (-5.22%). Year-to-date, GLW has gained 6.44%, versus a 18.04% rise in the benchmark S&P 500 index during the same period.
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