Corning Incorporated

Ladies and gentlemen, welcome to the Corning Incorporated Quarter 3 2018 Earnings Call. As a reminder, today's conference is being recorded. It is now my pleasure to turn the conference over to Ann Nicholson, Division Vice President of Investor Relations. Please go ahead.

Thank you, Tani, and good morning. Welcome to Corning's Fourth Quarter 2018 Earnings Call. With me today are Wendell Weeks, Chairman and Chief Executive Officer, Tony Trippany, Executive Vice President and Chief Financial Officer, and Jeff Evenson, Executive Vice President and Chief Strategy Officer. I'd like to remind you that today's remarks contain forward-looking statements that fall within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements involve risks, uncertainties, and other factors that could cause actual results to differ materially. These factors are detailed in the company's financial reports. You should also note that we will be discussing our consolidated results using core performance measures unless we specifically indicate our comments relate to GAAP data. Our core performance measures are non-GAAP measures used by management to analyze the business. A reconciliation of core results for the comparable GAAP value can be found in the investor relations section of our website at Corning.com. You may also access core results on our website with downloadable financials in the Interactive Analyst Center. Supporting slides are being shown live on our webcast. We encourage you to follow along. They're also available on our website for downloading. And now I'll turn the call over to Wendell.

Thank you, Ann, and good morning, everyone. This morning we reported a very strong finish to an excellent 2018 financial For the fourth quarter, sales were $3.1 billion, up 15% year-over-year. Net income was $539 million, up 18% year-over-year. And EPS was 59 cents, up 28% year-over-year. For the full year, sales were $11.4 billion, and EPS was $1.78 million. both up 11% from 2017. We also delivered on our goal to improve gross margin to 42% in the second half, a significant increase over last year and the first half of 2018. All of our businesses produced year-over-year sales growth in 2018. Highlights include optical communications sales up 18% for the second consecutive year. Environmental sales up 17% as the adoption of gasoline particulate filters accelerated. Specialty material sales up 5% following an exceptional 2017 growth of 25%. Display sales up 4% as we ramped our new Gen 10.5 facility, and annual price declines reached the important milestone of mid-single digits in the second half, and full-year pricing was the best in more than a decade. Life science sales up 8% as we continue to outpace market growth. For the past three years, we have invested for growth through our strategy and capital allocation framework. The significant benefits of these investments are evident in our financial performance. In 2018, we built new capacity. launched new products, grew sales by more than $1 billion, and extended our leadership position in all businesses. We exited the year with strong execution, expanded margins, and great momentum. We expect our momentum to continue into 2019 and beyond. We expect strong year-over-year growth in the first quarter and additional growth in subsequent quarters. In total, we anticipate another strong year for Corning. We also feel confident that we're well-positioned for long-term growth. Important trends such as 5G, smart cars, connected homes, and augmented reality are converging around Corning's unique capabilities. These interconnected ecosystems require technologies that have been our fundamental strengths for decades. Our proprietary manufacturing processes and deep expertise in glass technology ceramics, and optical physics are more relevant than ever. Overall, we're excited about 2019 and our future opportunities, as Tony will describe in more detail in just a few minutes. Now let's turn to the strategy and capital allocation framework. Under the framework, We target generating $26 to $30 billion in cash through 2019. We plan to return more than $12.5 billion to our shareholders through repurchases and dividends and to invest $10 billion to extend our leadership and deliver growth. As we've discussed with you numerous times, We have continued to make great progress toward the framework goals we announced in October 2015. As we enter the final year of our plan, we expect to meet our stated goals. Our cash generation is on target, and through the end of 2018, we have returned $11.8 billion to shareholders. we increased dividends per share by 50% since the framework began. Investments in RD&E, capital expenditures, and acquisitions also remain on track to our four-year plan, totaling $8.2 billion through the end of 2018. As outlined in our framework, Corning is best in the world in three core technologies, four manufacturing and engineering platforms, and five market access platforms. Our capabilities are interrelated and reinforcing. We focus 80% of our resources on opportunities that use capabilities in at least two of these three categories. This increases our probability of success, reduces the cost of innovation, creates stronger competitive advantages, and, most importantly, delights our customers. Now I'll turn to progress in each of our market access platforms, starting with optical communications. Our performance in optical communications continues to be outstanding, and we expect to surpass our goal of $5 billion in 2020 sales with further growth beyond. We remain the world leader in passive optical solutions and the only true end-to-end supplier of integrated solutions. 2018 was an excellent year for our optical communications business. Recognition of the value created by our solutions and co-innovation approach continues to grow. We secured additional multi-year contracts with industry leaders in the carrier and data center segments, which will add significant sales and profits in 2019 and beyond. This committed demand supports our additional investment in manufacturing capacity. Another highlight of the year was completing the acquisition of 3M's Communications Markets Division. In addition to bringing us a talented group of employees, it extends our market reach and access to global customers while expanding our portfolio in rapidly growing optical solutions markets. Next, we achieve product milestones that demonstrate our long track record of innovation and industry expertise. Our pre-connectorized fiber-to-the-home solutions have passed more than 45 million homes around the world. We introduced products in 2018 such as extreme density cable tailored for next-generation hyperscale data center architectures, as well as a fiber that offers significant advantages for high-throughput transmissions. All products continue to reduce network cost and increase the speed of installations. And we earned industry accolades in multiple customer segments, including data centers and access networks. Interestingly, beyond the hardware solutions, we've also developed software tools that speed up installation. For example, FiberPath helps accelerate typical installations from weeks to just days. Bruce Furlong, Bell's Vice President of Deployment and Access, described the benefits this way. Quote, the efficiency and accuracy of the FiberPath solution has contributed to the rapid expansion of Bell's broadband network and our fast-growing five TV and Internet services. End quote. Our investments in capacity clearly paid off in the second half of 2018 with strong sales growth and even greater growth in profitability. As we turn to 2019, committed demand supports additional investments and will lead to additional growth. Overall, we expect to continue to grow more than twice as fast as the communications infrastructure market. Now let's turn to mobile consumer electronics, where we are the world leader in glass for smartphones, tablets, and emerging categories like wearables and augmented reality devices. Our goal has been to double mobile consumer electronics sales over the next several years despite a maturing smartphone market. And we've been making significant progress toward that goal. Here's how. First, we're capturing more value per device. We extended our leadership in the cover glass market with the launch of Gorilla Glass 6 in July. Leading OEMs are continuing to design our premium glasses into their devices. We expect more than 10 new models with Gorilla Glass 6 to launch throughout this year. We're not only benefiting from adoption of our premium glasses, but also from more glass on each phone. Glass back penetration on smartphones doubled from 15% in 2017 to 30% in 2018, and we expect continued growth in 2019. we're also significantly expanding our presence in the aftermarket. As announced this month, we will collaborate with OtterBox, the number one selling smartphone case brand in the U.S., to introduce the Amplify line of glass screen protectors. This will offer extra protection for consumers and add a third piece of our glass to devices. Second, we are winning in new and emerging device categories. We launched Corning Gorilla Glass DX and DX Plus in July, which provide enhanced anti-reflective optics and scratch resistance for wearables. These new glass composites are continuing to gain traction in the wearable market with several launches slated during the first half. We're also partnering with leading consumer electronics makers on augmented reality devices and precise 3D sensing technology. For example, at CES, we announced an agreement with Wave Optics to help enable sleek augmented reality wearables. The ultra-flat, high-index glass that Corning supplies coupled with our proprietary laser processing and characterization tools enable optimized image quality, and fleet device form factors. So overall, we're off to a great start to meet our goal to double sales in mobile consumer electronics. A quick fun fact. Since 2016, smartphone unit sales have been relatively flat. We, however, grew our sales in this space 30% due to our innovations. We'll continue to innovate for our customers, and you'll continue to see more Corning in your devices. Turning to automotive market access platforms. Our materials expertise is helping to propel the auto industry into a new era of cleaner cars with enhanced cockpit functionality, connectivity, and design. Our objectives are to build on our base business with the gasoline particulate filter opportunity and to launch an automotive glass business. 2018 was an exciting year. for both objectives. Our gasoline-particularly filtered technology makes cars significantly cleaner. We exceeded $50 million in GPF sales in 2018 as European regulations took effect, and we expect more than $150 million in 2019 GPF sales. China will be the next to introduce TPS with initial filter sales this year as OEMs prepare for the first phase of China's six regulations in mid 2020. We are ramping dedicated capacity in China to support a robust pipeline of business resulting from upcoming Chinese regulations. Next, we experienced strong pull for Gorilla Glass for automotive in 2018. We are capitalizing on long-term industry trends that are driving demand for technical glass. At CES, automakers confirmed the trend towards larger, longer, shaped, and more integrated displays. We also saw a strong pull for Corning's industry-first auto-grade glass solutions for automotive interiors, launched exclusively with customers at CES. These new solutions are making it easier and more affordable for automakers to bring curved and flat displays to markets. In total, we've been awarded more than 55 platforms to date globally. Demand is materializing faster than we expected, and we are accelerating our investments accordingly. In our life science vessels platform, we continue to make strong progress on the path to a new long-term multibillion-dollar franchise. Valor glass substantially reduces particle contamination breaks and cracks while significantly increasing throughput. Valor helps protect patients and improve pharmaceutical manufacturing. Key customers are advancing towards the FDA certification required for the use of Valor. We continue to make progress with our development partners, Merck and Pfizer, and shipments are increasing to other major pharmaceutical manufacturers to support their individual drug regulatory filings. Total shipments of ValorGlass increased fourfold compared to 2017, indicating growing progress towards certification across more pharmaceutical companies. In parallel, We're supporting customers by scaling up our production capabilities on pace with market adoption. We brought new capacity online in 2018 and expanded our range of products. We're also progressing with the construction of the new high-volume manufacturing facility in North Carolina that we announced in April. Finally, Industry pull remains favorable. Regulatory concerns about the need for improved glass packaging were highlighted in the lead story of the January PDA letter, reinforcing the need for new solutions such as ValorGlass. In addition, ValorGlass was named one of the top six pharmaceutical and medical packaging developments in 2018 by Packaging Digest. We continue to believe Valor has the potential to power Corning's growth for the next decade and beyond. We remain closely engaged with the FDA and support its efforts to address this important public health issue. We look forward to being able to share additional updates soon. In display. We're delivering stable returns. During 2018, we extended our global leadership by successfully ramping the world's first Gen 10.5 glass plant. This accomplishment allowed us to grow volume faster than the overall market. Also, the display glass pricing environment continues to improve. We reached the important milestone of mid-single-digit year-over-year price declines in the second half of 2018. In fact, 2018 was the best pricing environment in more than a decade. We expect the pricing environment to improve further in 2019 and reach mid-single-digit declines for the full year. We're off to a great start with first quarter price declines expected to be significantly better than quarter one 2018 and the best quarter one in a decade. Display will continue to execute its proven strategy to deliver stable returns. So we continue to make significant progress across all our market access platforms. Ultimately, we remain on track to fully achieve our strategy and capital allocation framework goals. In 2018, we leveraged our investments to meet increased demand from our customers, grow sales, and significantly improve profitability in the second half, just as we said we would. Looking ahead, we are confident in our ability to deliver sustained performance. We have multiple businesses driving our growth. Our capabilities are becoming increasingly vital to important trends. Our relationships with industry-leading customers are opening new opportunities, and our strategic investments are paying off. We're not only succeeding at building a bigger company, we're building a stronger, more resilient one. We look forward to outlining the next phase of our strategic framework in the coming months. Now let me turn the call over to Tony for a review of our results and outlook.