Full-Year 2018 Investor Call

Transcription

1 Full-Year 2018 Investor Call Achieved 2018 core sales and 2018 EPS growth of 11% with continued growth expected in 2019 and beyond. We remain on track to fully achieve our Strategy and Capital Allocation Framework goals. January 29,

2 Forward-Looking and Cautionary Statements The statements contained in this presentation that are not historical facts or information and contain words such as will, believe, anticipate, expect, intend, plan, seek, see, would, and target and similar expressions are forward-looking statements. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and include estimates and assumptions related to economic, competitive and legislative developments. Such statements relate to future events that by their nature address matters that are, to different degrees, uncertain. These estimates are subject to change and uncertainty which are, in many instances, beyond our control. There can be no assurance that future developments will be in accordance with management s expectations. Actual results could differ materially from those expected by us, depending on the outcome of various factors. We do not undertake to update forward-looking statements. Some of the risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in or implied by the forwardlooking statements include, but are not limited to: global business, financial, economic and political conditions; tariffs and import duties; currency fluctuations between the U.S. dollar and other currencies, primarily the Japanese yen, New Taiwan dollar, euro, Chinese yuan and South Korean won; product demand and industry capacity; competitive products and pricing; availability and costs of critical components and materials; new product development and commercialization; order activity and demand from major customers; the amount and timing of our cash flows and earnings and other conditions, which may affect our ability to pay our quarterly dividend at the planned level or to repurchase shares at planned levels; possible disruption in commercial activities due to terrorist activity, cyber-attack, armed conflict, political or financial instability, natural disasters, or major health concerns; unanticipated disruption to equipment, facilities, IT systems or operations; effect of regulatory and legal developments; ability to pace capital spending to anticipated levels of customer demand; rate of technology change; ability to enforce patents and protect intellectual property and trade secrets; adverse litigation; product and components performance issues; retention of key personnel; customer ability, most notably in the Display Technologies segment, to maintain profitable operations and obtain financing to fund their ongoing operations and manufacturing expansions and pay their receivables when due; loss of significant customers; changes in tax laws and regulations including the Tax Cuts and Jobs Act of 2017; and the potential impact of legislation, government regulations, and other government action and investigations. For a complete listing of risks and other factors, please reference the risk factors and forward-looking statements described in our annual reports on Form 10-K and quarterly reports on Form 10-Q. 3 Use of Non-GAAP Financial Information Corning has included non-gaap financial measures in this presentation to supplement Corning s consolidated financial statements presented on a GAAP basis. In managing the Company and assessing our financial performance, we adjust certain measures provided by our consolidated financial statements to exclude specific items to arrive at core performance measures. These items include gains and losses on our translated earnings contracts, acquisition-related costs, certain discrete tax items, restructuring and restructuring-related charges, certain litigation-related expenses, pension mark-to-market adjustments and other items which do not reflect on-going operating results of the Company or our equity affiliates. Additionally, Corning has adopted the use of constant currency reporting for our Display Technologies and Specialty Materials segments for the Japanese yen, South Korean won, Chinese yuan and New Taiwan dollar currencies. The company believes that the use of constant currency reporting allows investors to understand our results without the volatility of currency fluctuations, and reflects the underlying economics of the translated earnings contracts used to mitigate the impact of changes in currency exchange rates on our earnings and cash flows. Corning also believes that reporting core performance measures provides investors greater transparency to the information used by our management team to make financial and operational decisions. These measures are not prepared in accordance with Generally Accepted Accounting Principles in the United States ( GAAP ). We believe investors should consider these non-gaap measures in evaluating our results as they are more indicative of our core operating performance and how management evaluates our operational results and trends. These measures are not, and should not be viewed as a substitute for, GAAP reporting measures. Definitions of these non-gaap financial measures and reconciliations of these non-gaap financial measures to the most directly comparable GAAP financial measures can be found on the Company s website by going to the Investor Relations page and clicking Financial Highlights under the Performance tab. With respect to the Company s outlook for future periods, we are not able to provide reconciliations for these non-gaap measures because the Company does not forecast the movement of foreign currencies against the U.S. dollar, or other items that do not reflect ongoing operations, nor does it forecast items that have not yet occurred or are out of the Company s control. As a result, the Company is unable to provide outlook information on a GAAP basis. 4 2

3 Full-Year 2018 Investor Call Achieved 2018 core sales and 2018 EPS growth of 11% with continued growth expected in 2019 and beyond. We remain on track to fully achieve our Strategy and Capital Allocation Framework goals. January 29, Highlights All businesses produced year-over-year sales growth in 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 Wendell Weeks, Chairman and CEO 11% increase Sales YoY 11% increase EPS YoY All Businesses YoY Sales Growth $11.4B Core Sales $1.78 Core EPS $2.8B Returned to Shareholders 6 3

4 Leadership Priorities Through 2019 Focus Portfolio and Utilize Financial Strength Focus Portfolio: Deliver strong financial performance and capital stewardship Improve ROIC Create new sales and profit streams Seek upside for cash distributions, e.g., potential transactions outside focus areas Utilize Financial Strength: Deploy $26-$30B in cash through 2019 Deliver >$12.5B to shareholders including >10% annual dividend increases Invest ~$10B in our growth and sustained leadership Target Debt/EBITDA* 2x Progress on all Strategy and Capital Allocation Framework objectives remains excellent 2018 Core sales and EPS up 11% with sales growth in every segment Display returns are stable Plan-to-date shareholder distributions of $11.8B with outstanding shares reduced ~36% Confident in ability to deliver sustained performance * Adjusted debt to adjusted EBITDA, see Corning.com for definition 7 Focused and Cohesive Portfolio Higher Success Rate, Lower Costs, Delighted Customers Focus >80% of resources on opportunities that leverage capabilities from at least two of three columns 8 4

5 Market-Access Platform Optical Communications Reach $5B in Annual Sales by Market-Access Platform Mobile Consumer Electronics Double Sales Over Next Several Years 10 5

6 Market-Access Platform Automotive Build $500M GPF Business & Create Auto Glass Business 11 Market-Access Platform Life Sciences Vessels Grow Base & Create Significant Pharmaceutical Packaging Business 12 6

7 Market-Access Platform Display Maintain Stable Returns & Win in New Display Categories Gen Progress on Strategy & Capital Allocation Framework On track to fully achieve our Framework goals. Expect to deliver both near- and long-term growth. Optical Communications Introduced significant new products for hyperscale data center and carrier environments, including RocketRibbon extreme-density cable and TXF optical fiber for 4G transmission up to 55 Tb/s per fiber Completed the acquisition of 3M s Communication Markets Division Mobile Consumer Electronics Continued adding value to mobile consumer electronic devices with the launch of Corning Gorilla Glass 6, alongside related innovations Announced plans with OtterBox to introduce Amplify line of glass screen protectors for smartphones and tablets Grew sales ~30% since 2016, despite smartphone unit sales being relatively flat Automotive Reached production milestone of 1 million GPFs and expanded investment in Hefei, China, as automakers prepare for upcoming regulations Announced a manufacturing capacity investment for Corning Gorilla Glass for Automotive Interiors in Hefei, China Life Sciences Vessels Announced a new high-volume manufacturing facility in Durham County, North Carolina to produce Corning Valor Glass Continued collaboration with Merck and Pfizer on Corning Valor Glass Display Continued ramping production of the world s first Gen 10.5 glass at new Hefei facility on schedule and in tandem with BOE s panel production Achieved most favorable glass pricing in a decade in 2018; expect pricing environment to improve further in

8 Q4 GAAP Earnings FX Hedge Accounting Recorded unrealized, non-cash, after-tax loss of $180M in Q on mark-to-market loss associated with currency-hedging contracts Translation hedges economically protect us, providing higher certainty for our earnings and cash flow, our growth investments, and our future shareholder distributions Hedge contracts settled in any given quarter substantially offset changes in earnings and cash flow due to currency fluctuations 15 Fourth-Quarter and 2018 Core Performance We had another outstanding quarter and our full-year results exceeded our expectations. In 2018, we did what we said we were going to do, which was to expand our manufacturing capacity in the first half and begin leveraging those growth investments in the second half. - Tony Tripeny, EVP and CFO 15% increase Core Sales Q4 18% increase Core Net Income Q4 28% increase Core EPS Q4 $ $11.4B Core Sales % increase YoY $ $1.7B Core Net Income 2018 $ $1.78 Core EPS % increase YoY *These are non-gaap financial measures 16 8

9 Display Technologies Q As Expected Delivering Stable Returns $899M Q4 Net Sales $240M Q4 Net Income Q4 Results & Q1 Expectations Display sales grew 6% in the fourth-quarter sequentially, volume grew more than the market as we ramped production in our Gen 10.5 plant Q4 glass price declines very moderate sequentially Q1 Display glass market and Corning volume to be down mid-single digits sequentially Q1 expect sequential price declines to be significantly better than Q and be the most favorable first-quarter price change in over a decade Full-Year 2019 Expectations Expect our full-year 2019 price declines to further improve from 2018 Expect glass market volume growth to be mid-single digit percentage, as television screen size growth continues Expect Corning glass volume to grow faster than the market, driven by the 2018 Gen 10.5 ramp up in Hefei, China 17 Optical Communications Q Sales Up 26% Net Income Up 67% >$1B Q4 Net Sales 26% increase YoY $165M Q4 Net Income 67% increase YoY Q4 Results & Q1 Expectations Net sales exceeded $1 billion for the third consecutive quarter Sales growth driven by multi-year data center and carrier projects First-quarter sales expected to grow in the low 20% range year over year as strong projects continue into the first half of 2019, including sales from recently acquired 3M Communication Markets Division Adoption of FiberPass software solution, which accelerates typical installations from weeks to days Full-Year 2019 Expectations Sales expected to increase by low-teens percentage as major projects continue in the Carrier and Data Center segments 18 9

10 Environmental Technologies Continued Strong Demand GPF Sales Ramping $319M Q4 Net Sales 10% increase YoY $42M Q4 Net Income Q4 Results & Q1 Expectations Q4 net sales up 10% YoY driven by GPF ramp Q1 expect sales to increase by mid-single digit percentage Full-Year 2019 Expectations Expect sales to increase by high-single digits over last year Expect $150M in GPF sales for the year and adding capacity to meet the growth 19 Specialty Materials Q As Expected Use of Glass Backs Doubled in 2018 $399M Q4 Net Sales $87M Q4 Net Income Q4 Results & Q1 Expectations Net sales were $399 million, up 2% over a very strong Q OEMs adopted our portfolio of premium glass Glass back penetration on smartphones doubled in 2018 Q1 expect year over year sales growth of mid-to-high single digits Full-Year 2019 Expectations Expect to grow again for the full year driven by our innovations, new glass solutions in the value segment, increased glass backs, and the launch of Amplify screen protectors. Growth rate depends on adoption rate of our innovations

11 Life Sciences Q Outpacing Overall Market Growth $238M Q4 Net Sales $29M Q4 Net Income 21% increase YoY Q4 Results & Q1 Expectations Net sales increased 6% YoY, as the business continued to outpace market growth Net income up 21%, driven by manufacturing efficiencies Q1 sales expect increase of low-to-mid single digit percentage year over year Full-Year 2019 Expectations Expect sales to increase by low-to-mid single digit percentage 21 Additional Outlook Details Gross margin expands in 2019 Somewhat impacted by continuing investments in Optical Communications Gas Particulate Filters Automotive Glass First-quarter gross margin percent up slightly year over year Down sequentially, as expected, driven by typical seasonality Expect corporate gross margin percentage to increase in subsequent quarters driven by sales growth and increased capacity utilization 2019 SG&A and RD&E at ~14% and ~8-8.5% of sales respectively 22 11

12 Framework Progress & 2019 Outlook Well-positioned and on track to complete our four-year Strategy & Capital Allocation Framework Framework Progress Since October Outlook $11.8B Returned to Shareholders toward plan of >$12.5B Another year of growth Core Sales and EPS 50% increase In Shareholder Dividends Key Milestones Customer & Product Wins, Acquisitions, and New Product Sales across all five Market-Access Platforms Achieve Framework goals Total Investing in growth 23 Q&A Session 12

13 Corning s 2019 Investor Outreach Plans Conference Plans: Feb. 12: Goldman Sachs Technology and Internet Conference 2019 Investor Meeting on Friday, June 14 Management visits to investor offices in select cities Scheduled visits to Corning locations for hosted tours Webcast business topics throughout the year 25 Appendix 13

14 2019 Guidance Summary (as of January 29, 2019) (1)(2) Ongoing Investments to Deliver Near- and Longer-Term Growth 2019 Gross Margin %: Expands over 2018 of 41.3%; somewhat muted by investments Q1 Gross Margin %: Slightly better than Q of 40.2% 2019 Operating Expenses: SG&A: ~14% of sales (Q1: ~$400M) RD&E: ~8-8.5% of sales (Q1: ~$250M) 2019 Corporate Metrics: Other income/expense: ~$250M net expense (Q1: $50-60M net expense) Gross equity earnings: ~$210M (Q1: ~$20M) Tax rate: ~21-22% for full year and Q1 Capital expenditures: Just over $2B for full year Display Technologies Full-year 2019 LCD glass market volume expected to grow mid-single digits. Corning volume expected to grow faster than the market, driven by 2018 Hefei Gen 10.5 ramp First-quarter glass volume expected to be down mid-single digit % sequentially Annual LCD glass price declines expected to improve further to mid-single digits for full-year 2019; first-quarter 2019 we expect sequential price declines to be significantly better than the first quarter of 2018 and be the most favorable first-quarter price change in over a decade Optical Communications Sales Full-year 2019 sales expected to be up low teens, as major projects continue in the Carrier and Data Center segments First-quarter 2019 sales expected to grow in the low 20 percent range year over year Environmental Technologies Sales Full-year 2019 sales expected to be up high-single digits over 2018 First-quarter 2019 sales expected to increase by mid-single digit percentage Specialty Materials Sales Expect to grow 2019 sales for the full year; rate dependent on timing and extent of new model launches and adoption of our innovations First-quarter 2019 sales growth expected to be mid-to-high single digits year over year Life Sciences Sales Full-year 2019 sales expected to be up low-to-mid single digits First-quarter 2019 sales expected to be up low-to-mid-single digits year over year (1) Corning does not forecast the movement of foreign currencies against the U.S. dollar, or other items that do not reflect ongoing operations. As a result, the company is unable to provide guidance on a GAAP basis. (2) 2018 outlook calculated using constant currency rates of 107, 1,175, RMB 6.7, and TWD 31; for consistency, 2017 results were recast using 107 and 1, Q Core Performance $ in millions, except EPS Q4 Q3 Q Core Net Sales $3,081 $3,045 $2,675 Core Gross Margin $1,297 $1,280 $1,079 Gross Margin % 42% 42% 40% Core SG&A $448 $420 $396 % of Sales 15% 14% 15% Core RD&E $258 $243 $241 % of Sales 8% 8% 9% Core Gross Equity Earnings $152 $32 $135 Core Net Profit Before Taxes $693 $595 $530 Core Earnings $539 $476 $455 Core EPS $0.59 $0.51 $0.46 Weighted-Average Shares Outstanding Core performance measures are non-gaap measures results calculated using constant currency rates of 107, 1,175, RMB 6.7, and TWD 31. For consistency, 2017 results were recast using 107 and 1,175. Definitions and reconciliations are provided on our website

15 Q Operating Performance by Segment Segment Net Sales Segment Net Income Segment Net Sales $ in millions Q Q % change Q % change Segment Net Income $ in millions Q Q % change Q % change Display Technologies $899 $852 6% $783 15% Display Technologies $240 $218 10% $206 17% Optical Communications $1,166 $1,117 4% $928 26% Optical Communications $165 $168 (2%) $99 67% Carrier Network $834 $809 3% $721 16% Environmental Technologies $42 $60 (30%) $43 (2%) Enterprise Network $332 $309 7% $207 60% Specialty Materials $87 $116 (25%) $88 (1%) Environmental Technologies $319 $331 (4%) $291 10% Life Sciences $29 $30 (3%) $24 21% Automotive $179 $182 (2%) $160 12% All Other ($57) ($72) 21% ($73) 22% Diesel $140 $149 (6%) $131 7% Total Segment Net Income $506 $520 (3%) $387 31% Specialty Materials $399 $459 (13%) $393 2% Life Sciences $238 $231 3% $225 6% All Other $60 $55 9% $55 9% Total Net Sales $3,081 $3,045 1% $2,675 15% Core performance measures are non-gaap measures results calculated using constant currency rates of 107, 1,175, RMB 6.7, and TWD 31. For consistency, 2017 results were recast using 107 and 1,175. Definitions and reconciliations are provided on our website. 29 Full-Year 2018 Core Performance $ in millions, except EPS Full-Year Full-Year Core Net Sales $11,398 $10,258 Core Gross Margin $4,710 $4,227 Gross Margin % 41% 41% Core SG&A $1,625 $1,478 % of Sales 14% 14% Core RD&E $984 $864 % of Sales 9% 8% Core Gross Equity Earnings $241 $211 Core Net Profit Before Taxes $2,130 $1,960 Core Earnings $1,673 $1,634 Core EPS $1.78 $1.60 Weighted-Average Shares Outstanding 941 1,021 Capital Expenditures $2,242 $1,804 Core performance measures are non-gaap measures results calculated using constant currency rates of 107, 1,175, RMB 6.7, and TWD 31. For consistency, 2017 results were recast using 107 and 1,175. Definitions and reconciliations are provided on our website

16 Full-Year 2018 Operating Performance by Segment Segment Net Sales $ in millions Full-Year 2018 Full-Year 2017 % change Segment Net Income $ in millions Full-Year 2018 Full-Year 2017 % change Display Technologies $3,276 $3,137 4% Display Technologies $835 $888 (6%) Optical Communications $4,192 $3,545 18% Optical Communications $592 $469 26% Carrier Network $3,084 $2,720 13% Environmental Technologies $208 $165 26% Enterprise Network $1,108 $825 34% Specialty Materials $313 $301 4% Environmental Technologies $1,289 $1,106 17% Life Sciences $117 $95 23% Automotive $719 $627 15% All Other ($281) ($259) (8%) Diesel $570 $479 19% Total Segment Net Income $1,784 $1,659 8% Specialty Materials $1,479 $1,403 5% Life Sciences $946 $879 8% All Other $216 $188 15% Total Net Sales $11,398 $10,258 11% Core performance measures are non-gaap measures results calculated using constant currency rates of 107, 1,175, RMB 6.7, and TWD 31. For consistency, 2017 results were recast using 107 and 1,175. Definitions and reconciliations are provided on our website. 31 Adjusted Operating Cash Flow Reconciliation $ in millions Q Q Full-Year Full-Year Cash flows from operating activities $939 $888 $2,919 $2,004 Realized gains on translated earnings $46 $71 $108 $270 Translation (gains) losses on cash ($4) $75 ($55) $342 Receipt of contingent consideration $196 Other $1 $4 Adjusted cash flows from operating activities $981 $1,035 $3,168 $2,620 Adjusted operating cash flow is a non-gaap measures results calculated using constant currency rates of 107, 1,175, RMB 6.7, and TWD 31. For consistency, 2017 results were recast using 107 and 1,

17 Utilize Financial Strength Capital Allocation Model Sources Uses Cash Flow from Operations ~$13-16B 1 (before RD&E investment) Growth RD&E (after-tax) Capital Expenditures M&A ~$2B $6-7B $1-3B Existing Cash at Year End 2015 Target Debt/ EBITDA 2 2x ~$4.6B ~$4-5B Total Funds Available $ 26-30B 1,3 Shareholders Expand Share Repurchase Program + Increase Dividend per Share Annually >$12.5B 1 Potential Transactions ~$4.8B 1 + ~$?B Cash Global Cash Target Level ~$2B (1) In June 2016, Corning updated its Strategy and Capital Allocation Framework to reflect the realignment of its interest in Dow Corning: eliminating ~$800M in dividends; adding $4.8B in cash; raising Total Funds Available to $26-30B; and increasing shareholder returns to more than $12.5B (2) Adjusted debt to adjusted EBITDA, see Corning.com for definitions (3) Total Funds Available range assumes benefits/risks of current hedge ratio through