Corning Incorporated

Welcome to the Corning Incorporated Quarter 4 2019 Earnings Call. To be placed into the Q&A queue, please depress 1 then 0. It is my pleasure to turn the call over to Ann Nicholson, Vice President of Investor Relations. Please go ahead.

Thank you, Steve, and good morning. And welcome to Corning's Fourth Quarter 2019 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 to 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, and 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, Anne, and good morning, everyone. This morning we reported fourth quarter and full year 2019 results. For the fourth quarter, sales were $2.9 billion. Net income was $406 million. and EPS was 46 cents. For the full year, sales increased 2% to $11.7 billion. Net income was $1.6 billion, and EPS was $1.76. While our 2019 growth did not meet our long-term targets, we once again outperformed our underlying markets. We grew environmental sales 16% while car sales were down. We grew specialty material sales 8% while smartphone units were down. In life sciences, we exceeded industry growth on the strength of new products for bioprocess and advanced cell culture. In display, our glass volume grew mid-single digits while TV unit sales were down. And in optical, we outperformed the passive optical market, which declined a high single-digit percentage. Changing market and customer dynamics impacted our 2019 performance significantly. Corning entered 2019 building on two years of strong growth, And that growth continued in the first half with sales up 11% and EPS up 24% year over year. In the second half, a supply chain correction in the display industry and weakness in the optical market highlighted by capital spending reductions at two of our significant customers led to to declines in display technologies and optical communications. While we acted quickly to mitigate lower than expected second half demand in display and optical, we did not fully overcome these challenges. As a result, our second half sales were down versus 2018, and as our volume decreased, factory utilization declined, and so did our profitability. especially gross margin. We're confident that the situations in display and optical communications are temporary, and we expect the company to return to sales and profit growth in the second half. In display, we see indicators that the supply chain correction has ended, and we expect normal seasonality to resume with the majority of volume and growth in the second half. We also plan to start production at our next Gen 10.5 plants, which will support faster-than-market growth as the plants ramp. In optical, we expect year-over-year growth in the second half, driven by projects for 5G, fiber to the home, and hyperscale data center deployments. We expect these higher volumes to increase factory utilization and support higher profitability, and we expect to benefit from the recent and ongoing cost actions in optical communications and display. Tony will provide additional segment details, and I will focus on our overall progress and outlook. 2019 was challenging from a financial perspective, but we remain committed to our new strategy and growth framework introduced last year. Our new framework is the evolution of our strategy and capital allocation framework, which we successfully completed last year. Building on the strong foundation of our original framework, we made excellent progress on many strategic initiatives during the year. We made commercial and regulatory progress on Ballard. We opened a dedicated factory for our burgeoning auto interiors glass business and grew our order books significantly. Display pricing remained moderate, and we advanced several compelling innovations in Gorilla Glass and optical communications. We met or exceeded all of the goals of our 2016 to 2019 strategy and capital allocation framework, including returning more than $12.5 billion to shareholders over four years through share repurchases and a 67% dividend per share increase, all while creating a better, stronger, more resilient company. Under our new strategy and growth framework, we expect to continue capturing significant organic growth and creating additional value for shareholders. From 2020 to 2023, we expect to deliver 6% to 8% compound annual sales growth and 12% to 15% compound annual EPS growth. Expand operating margin and return on invested capital. Invest between $10 and $12 billion with a focus on organic growth. And return $8 to $10 billion to shareholders through a combination of dividend increases and opportunistic share repurchases. How do we plan to achieve these goals? We are targeting an incremental $3 to $4 billion in annual sales along with improved profitability by the end of 2023, driven primarily by our strategy to create and sell into new product categories that enhance our customers' offerings. As I've said before, we're not just counting on everybody buying more stuff. We're putting more corning into the products that people already buy. This provides a mechanism for us to grow even in challenging environments. We saw that happen during 2019 in environmental specialty materials and life sciences, as I outlined earlier. In short, a big part of corning's story over the next four years is a content story. and we expect to see it across the company. Let's look at how we advanced our strategy in each market access platform in the fourth quarter and for the full year. In optical communications, we are currently feeling the impact of capital spending reductions in both the carrier and enterprise markets. We expect recovery driven by 5G, fiber to the home, and hyperscale data center deployments. Our goals in optical communications are to advance our product portfolio and align costs with demand in the near term. We're making progress in both areas. From a product perspective, in 2019, we continued to transform the way the world connects by enabling 5G solutions with industry leaders. New collaborations with Intel and Verizon demonstrate our commitment to helping our customers increase efficiency and address the challenges of new network deployment. We also extended our leadership and data centers as Altice Portugal, the country's largest provider of telecommunication services, selected our Edge product. Edge provides the increased speed, power, and capacity needed to withstand future pressure on servers and network capabilities. Edge has been playing a vital role in our continued success in enterprise. It's been deployed in 30 countries, used in 50,000 installations, and has received 10 global awards since its introduction. Stepping back. The long-term trend in optical is strongly positive due to the benefits of photons replacing electrons in network after network. And we're uniquely situated to enable that shift. But it's not always a smooth line. As one network or segment upgrades to optics, there can be a pause before the next one begins. That pause is where we are right now. So we're aligning capacity and inventory to current market demand. We've idled equipment and reduced headcount, and we're delaying capital investments. In the long term, because of our leadership, we are positioned to continue putting more according solutions into every network that is built. We will return to growth as the inevitable optical trend continues. Turning to mobile consumer electronics, we're making significant progress on our goal of doubling sales. Since 2016, we've added $500 million in sales on a base of $1.1 billion. We grew sales 42% cumulatively. while smartphone unit sales did not grow. In 2019, we bolstered the presence of Corning content on and in mobile devices with amplified screen protectors, decorative backs, and durable solutions for wearables. Apple announced that it is awarding $250 million from its Advanced Manufacturing Fund to Corning. building on the $200 million we received from Apple's fund in 2017. Both investments support Corning's state of the art glass processes, equipment, and materials integral to the delivery of next generation consumer devices. In 2019, as one of our prominent customers noted, we took a major step forward in state-of-the-art cover glass. In 2020, we will continue to advance and introduce new glasses, and we are confident that the adoption of our technologies will enable us to our sales goal. So, stay tuned. Moving to the automotive market, our goal is to double sales by 2023. In 2019, we ramped production capacity in Hefei, China to meet committed demand for both our auto glass solutions and our gasoline particulate filter products. We are well on our way to building a $500 million plus GPF business by 2023. Sales in 2019 exceeded $250 million. And In 2019, Automotive Glass Solutions delivered the industry's first auto-grade Gorilla Glass for 2D and 3D interiors, along with Corning's patented cold-form technology. Earlier this month, we announced collaborations with industry leaders across the auto ecosystem, including Visteon, LGE, BOE, and Via Optronics. We are beginning mass production and have built an order book worth several hundred million dollars with nearly half of that book under contract. In life science vessels, we reached several exciting milestones in 2019. We exceeded $1 billion in sales in our life sciences segment as adoption of our industry-leading bioprocess in advanced cell culture products continues. driving our organic growth rate to 7%. And we continue to build momentum for ValorGlass. We signed commercial agreements with three leading pharmaceutical companies and received FDA approval for use of Corning ValorGlass as a primary package for a marketed drug product. These major milestones validate our strategy to build a long-term, multibillion-dollar franchise. as we create a new standard in pharmaceutical glass packaging. In display, our goal is to stabilize returns. The market continues to shift to large-size TVs, which are most efficiently produced by our customers on Gen 10.5 fabs. Our leadership in Gen 10.5 glass supports medium and longer term volume growth. In 2019, we continued to increase output at our first Gen 10.5 plant. In 2020, we plan to ramp additional Gen 10.5 capacity in tandem with our customers. And 2019 was a great year for display glass pricing. We saw low single-digit percentage price declines for the full year, which was even more moderate than anticipated. And we expect a moderate pricing environment again in 2020. You can see that across our markets... Our strategic investments are well aligned with major trends, and our relationships with industry-leading customers are creating new opportunities. We've got the structural steel in place. Our strategy is sound. We're advancing growth in each of our market access platforms, and we will overcome the challenges in display and optical. In 2020, three operational priorities drive our focus. Successfully ramping our next Gen 10.5 plans, aligning cost and capacity to current demand, and commercializing innovations to support our customers. Execution against these priorities will create the momentum needed to achieve our strategy and growth framework goals. Now let me turn the call over to Tony for more details.