Corning Incorporated (NYSE: GLW) announced its financial performance for the second quarter of 2023 (2Q23) today and provided an outlook for the third quarter of 2023.
Sales achieved a sequential growth but declined year-on-year, in line with management's expectations for the current sluggish terminal market.
Profits showed a sequential increase, with free cash flow reaching $310 million, reflecting effective progress in pricing and production efficiency measures. Continued improvement in performance is anticipated for the second half of the year.
Management expects the core sales for the third quarter to be approximately $3.5 billion, with core earnings per share expected to remain relatively stable or slightly higher than the second quarter.
Corning's Chairman and CEO, Wendell P. Weeks, stated, "Corning's second-quarter performance reflects ongoing progress in improving profitability and cash flow in the current weak terminal market environment. As anticipated, the core gross margin increased by one percentage point sequentially and has grown by over two percentage points since the beginning of the year. Additionally, free cash flow increased to $310 million."
Weeks added, "Despite the relatively low sales environment we are facing, we remain optimistic about further improvements in profitability and cash flow. Our 'More Corning' strategy is generating additional revenue streams. Therefore, we expect to benefit from strong operating leverage as the market recovers and sales volumes rebound."
optical communication segment performance
In the optical communication sector, demand for passive optical network products remains weak. Due to declining sales volume, second-quarter sales amounted to $1.07 billion, declining by 5% sequentially and 19% year-on-year. Net income reached $140 million, down 12% sequentially and 23% year-on-year, with improvements in production efficiency offsetting the impact of declining sales.
Within the optical communication business, operator network sales totaled $783 million, a decrease of 6% sequentially and 19% year-on-year. Enterprise network sales amounted to $283 million, declining by 3% sequentially and 18% year-on-year.
Recent highlights include supporting the "Connect All Americans" initiative to provide internet access to all unconnected citizens. In June of this year, the U.S. government announced funding for high-speed internet infrastructure deployment through the Broadband Equity Access and Deployment Program, with Corning's fiber products becoming a focus for the White House. Corning has also partnered with the city of Pharr, Texas, previously rated as having the worst internet in the U.S., to provide affordable broadband to its residents. The newly installed fiber-to-the-home network in Pharr will equip all residents with tools for work, learning, and connectivity – both now and in the future.
According to Corning's observations, significant innovative projects are underway in broadband, 5G, cloud, and advanced artificial intelligence; connection solutions are providing unprecedented economic advantages to a broader customer base; computing trends and investments in private and public infrastructure strongly support the long-term demand for optical networks.
outlook for 3Q23
The company's management anticipates core sales of approximately $3.5 billion for the third quarter, with core earnings per share expected to remain relatively stable or slightly higher than the second quarter.
Ed Schlesinger, Executive Vice President and Chief Financial Officer, stated, "In the second quarter, the 3% sequential sales growth was primarily driven by a substantial increase in display technology sales, which offset the decline in optical communication sales. We effectively executed a comprehensive plan to improve the company's profitability and cash flow. Core operating income increased 16% sequentially, and free cash flow also rose to $310 million."
Schlesinger added, "Looking ahead, while the sales environment remains uncertain, we will continue to enhance the company's profitability and cash income. Overall, we remain well-positioned to capture upward trends and, when sales rebound, leverage our strong operating leverage."