Corning Inc: Boom or Bust (Pt3: Financial Analysis)

The following table is presents the current financials for Corning Inc.

In Millions of U.S. Dollars

2012

2011

2010

2009

2008

Revenue

8.012,00

7.890,00

6.632,00

5.395,00

5.948,00

Other Revenue, Total
Total Revenue

8.012,00

7.890,00

6.632,00

5.395,00

5.948,00

Gross Profit

3.397,00

3.566,00

3.049,00

2.093,00

2.738,00

Gross Margin Adj.

42,40%

45,20%

45,97%

38,80%

46,03%

Operating Income

1.295,00

1.694,00

1.771,00

391,00

1.520,00

Operating Margin Adj.

11,31%

15,03%

18,69%

5,07%

17,89%

Interest Expense, Net Non-Operating

-111,00

-89,00

-109,00

-82,00

-59,00

Average Interest Costs

-3,21%

-3,72%

-4,70%

-4,09%

-3,68%

Equity in Affiliates

1.012,00

1.450,00

1.947,00

1.392,00

1.279,00

Participation in Company’s Profits

58,56%

51,69%

54,72%

69,25%

24,33%

Net Income Before Taxes

2.117,00

3.213,00

3.845,00

1.936,00

2.882,00

Provision for Income Taxes

389,00

408,00

287,00

-74,00

-2.375,00

Net Income

1.728,00

2.805,00

3.558,00

2.010,00

5.257,00

From this data we can notice that the Gross Margin is above 40% for the last 3 years, which reiterates our idea that the company exhibits good performance in terms of production efficiency. The consistency of the performance reveals resilience.

The operating margin adjusted, averages 13.6% for the 5 year period, which is a good performance. One significant amount of the company’s profits comes from the “Equity in Earnings of Affiliated.” This is the correspondent share of the profits from joint-ventures (JV) established with other companies in order to maximize the return from production operations. These JV are destined to provide better integration with the clients, like is an example the Samsung-Corning JV. The performance principles are generally the same as applied to Corning’s completely owned operations which should tranquilize us about the security of those ventures. The impact of those JV in the company’s profit is around 50%, which is really significant.

The figures presented in the above table suggest that Corning has a maintained a very good level of performance in terms of production, but also in terms of marketing and organization. The company is capable to produce with great efficiency and then is still able absorb the fixed costs  inherent to maintaining an organization that includes selling, marketing, administrative and research & development costs.

2012

2011

2010

2009

2008

Depreciation Reinvestment

1,81

2,54

1,18

1,12

2,76

Profit Reinvestment

1,04

0,87

0,28

0,44

0,37

The above table shows us two measures for reinvestment in the business. Depreciation reinvestment is Capital expenditures divided by Depreciation. This basically means that Corning has been reinvesting much more than what was amortized. Our guess following our view over the company’s strategy is that the company clearly is reinvesting in excess, in order to pursue growth opportunities, which bearing in mind the historical success in bringing innovations to market, is great news. The Profit reinvestment figures reveal that the company has been reinvesting a bigger part of the profits since 2010, which reinforces our view.

So far our analysis has led us to conclude that Corning’s strategy is having good results. The numbers are in accordance with what should be expected from a company with the kind of strategy that Corning has, and generally we think that the company evidences to have what is needed to have success.

To be sure we still have to see that financial situation of the company:

2012

2011

2010

2009

2008

Acid Test

3,81

3,29

3,69

2,82

1,62

Current Ratio

4,96

4,14

4,46

3,59

2,25

Leverage

1,37

1,32

1,33

1,37

1,43

Debt to Assets

11,77%

8,59%

8,98%

9,41%

8,34%

Assets to Liabilities

372,35%

411,34%

400,02%

370,22%

331,26%

Coverage of Interest

15,57

31,52

32,64

24,51

89,10

The Acid test is the coverage of the liabilities due in 1 year or less by the most liquid assets. In Corning’s case the liquid assets (cash and short term investments and receivables) cover 3,81 times the liabilities due in one year. This is extremely good.

The current ratio is similar to the acid test, the difference is that the CR also includes inventories. The result, around 4,96 is also very good.

The leverage of the company is really modest, and denotes a great deal of conservatism in terms of financial management, which is a good thing for a company so dependent on the whims of the innovation processes.

Debt to assets shows us the weight of debt in the total assets of the company, in our case it is small, as we should expect since the leverage is also very small. The assets to liabilities ratio shows us that the company has a good relation of its assets to its liabilities.

Finally the coverage of interest by the net profit is around 15.57, which is really good.

We can conclude that in terms of financial robustness the company is also very healthy. So far we have seen that the company has a good strategy, has been able to execute on it and the operations results demonstrate that the company has been successful. The balance sheet of the company is also very robust. Our conclusion is that the company is a good investment if the price of its shares is within our investment standards. That is what we will see in the 4th and final part of our Corning’s analysis.

Advertisements

One thought on “Corning Inc: Boom or Bust (Pt3: Financial Analysis)

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s