Corning Inc. operates in an evolving industry due to which the industry goes through rapid changes. As the industry is mainly driven by consumers’ demand, the spending trends of average consumers also plays a vital role.
The display technologies industry faced a problem of oversupply as the consumer demand did not grow as much as it was forecasted by the industry expert owing to which the companies operating in this industry had to reduce their capacity in accordance with the demand. They also had to decrease the prices considerably in order to sell the excess inventory.
The continues growing environmental regulations with stricter emissions standards for personal and commercial vehicles is a major factor which can have a significant influence on the sales of environmental technologies industry. The Environmental regulation related to the manufacturing and energy generation emissions can also play an essential role in the overall industry’s growth as the industry is moving towards introducing products to reduce emissions in stationary applications.
The Telecommunications industry which is operating in a very dynamic environment is predicted to be focused on the demand for data by the customers. As devices like the tablets, smart phones and computers etc. are becoming faster and have increased capacity, more innovative infrastructure will be required in order to facilitate the transmission of large amount of data at a faster speed.
Company background
Corning Incorporated was established as a glass business in 1851 as Corning Glass Works. The present corporation was incorporated in the State of New York in December 1936. The organization changed its name to Corning Incorporated on April 28, 1989.
Corning manufactures and processes products at approximately 80 plants in 13 countries. The company is manufactures glass and ceramics and is currently operating in five segments. The Display Technologies segment manufactures glass substrates which are used in making flat panel liquid crystal displays. Its telecommunications sector produces optical fiber and cable and hardware and equipment components used in the telecommunications industry. The company also operates in the environmental Technologies sector which manufactures ceramic substrates and filters used in the automotive and diesel applications. Specialty Materials is also a high revenue generating sector which builds products that provide basic originations for glass, glass ceramics and fluoride crystals. Life Sciences is a comparatively lower revenue generating sector of Corning Inc. which produces glass and plastic lab ware, equipment, media and reagents for scientific applications.
The revenue distribution of the company for the year ended Dec 31 2011 is as follows:
Revenues
Key Financial Data
Major USA based competitors of the company are as follows
Stock price analysis
The overall stock price performance of the company has remained relatively volatile during the three year period from 2009-2011. Despite the fact the Closing Share price of the Company in the first working day of January 2009 was around $10.05, whereas, the stock price on December 30, 2011 was $12.98, representing an increase in stock price of 30%, the stock prices went through various ups and down. The Stock prices of the company shows a significant increase after the 1st quarter of the January 2009.
Despite the various variation the company was able to maintain its Stock Prices at an average of $ 14.67 during 2009. Year 2010, appears to be a very volatile year for the company. This in year the company witnessed various peaks as well as trough, however, the average stock price of the company during 2010 was around $ 18.26, showing that overall stock performance of the company was improved during 2010 as compared to 2009. However, 2011, was the most disappointing year for the company. The company managed to record the highest stock price of $23.27 during 2011, on the other hand, following the first quarter of 2011, the stock prices of the company showed a consistent decline and closed at a stock price of $ 12.98 for the same year.
Keeping in view the overall trend of the stock price movement of the company, it is difficult so that this particular stock is stable. Constant fluctuation in the stock prices during 2009 and 2010 shows that the company is not able to properly manage its image in the eyes of the investors. Furthermore, the persistent decline in the stock prices during 2010, put a significant dent in the overall performance of the company. The closing stock price for 2011 in almost in line with the closing stock price for 4 January 2009 and seems that the company has gone back three years rather than moving forward. Corning Inc. will have to work really hard in order to attend its standing in the market. Some of the reasons for the declining trend in the stock prices may be explained in the following analysis of the Company's financial performance during the same period.
Liquidity
Liquidity ratios are a basic tool which are used to evaluate an organization's capacity to pay off its short-terms debts obligations.
When compared to the industry average, Liquidity position of Corning Inc. appears to be stronger as the current and quick ratio of the company is 131% and 179% more than the industrial average. This may also point toward the fact that management of Corning Inc. has so much cash on hand and they may be doing a poor job of investing it especially when compared to the other companies as indicated by the industry average.
Liquidity position of the organization has shown a mixed trend during the three year period under review from FY 2011-09. Even though an increase of 24% was observed in the current ratio, which rose the ratio from 3.59xx in FY 2009 to 4.46xx in FY 2010, it was followed by a decline of 7% which decreased the ratio to 4.14xx. These fluctuations were due to the drastic change in the current assets which increased by 60.46% in comparison to 20.31% increase in current liabilities in FY 2010 and decreased by 2.05% in comparison to an increase of 7.8% in the current liabilities in FY 2011.
Conclusively, an overall increase of 15% was witnessed in the 3 year period. Similar trends are observed when analyzing the quick ratio and working capital of the company which decreased in FY 2011 from FY 2010 but overall increased from FY 2009 to FY 2011.
Profitability
Profitability ratios are used to assess an organization's ability to generate earnings in comparison to the expenses incurred in a specific period of time.
When compared to the industrial average figures, it is observed that Corning Inc. sales to profit ratio is on the higher side. This means that during FY 2011, the company has been able to control its expenses in a better way which resulted in achieving the 160% higher net profit margin then the industry’s average figures. On the other hand, a 33% lower return on equity then the industry indicates that the company is not the equity provided to them as efficiently as other companies in this industry stating that there is still potential for Corning Inc. to improve its profits.
Similar to the Liquidity ratios, the profitability ratios have also shown a mixed trend from FY 2009 to FY 2011. The gross and net profit margin both decreased by 2% and 34% from FY 2010 to FY 2011 after an increase of 19% and 44% from FY 2009 to FY 2010 respectively. The immense drop in NP margin can be related to the 50% increase in operating expenses which took the figure to USD 1.87 million in FY 2011 from USD 1.25 million in FY 2010. Following the same trend, Return on capital employed and return on equity both increased by 280% and 40% followed by a decrease in the returns of 13% and 28% respectively.
Aside from the net profit margin, which showed a 4% decrease in the 3 year period under review, the gross profit margin, return on capital employed and return on equity showed an increase of 17%, 229% and 3% respectively.
Financial risk
Financial risk ratios are used to calculate an organization’s financial leverage in order to evaluate the company's methods of financing its business or to assess its capability to fulfill its financial obligations.
In comparison to the industry, Corning Inc. is very less geared resulting in an interest coverage of 35.10xx which is 154% less than that of the industry in which the organization operates. This can be very beneficial for the company as it can easily generate finance through long term loans if required. Having a 79% lower capital gearing then the industry also raises a concern as this shows that the company is operating majorly on a more costly financial base as cost of equity is presumed to be greater than cost of debt.
After analyzing the interest coverage and capital gearing of the company we can conclude that Corning Inc. is moving towards a more equity financed structure which is supported by the 55% increase in the interest coverage ratio and a 14% decrease in the capital gearing of the company during the 3 year period under review.
Asset management (utilization)
Asset utilization ratio evaluates an organization’s management capability to utilize its assets most efficiently to generate income by calculating the total revenue earned for each dollar of assets an organization owns. This ratio explores the efficiency of an organization’s management related to the use of resources utilization of the company.
The asset utilization percentage of Corning Inc. is alarmingly lower than its industry average. A 67% lower asset utilization indicates that the management of Corning Inc. are not able to use its assets to generate sales as efficiently as other companies which are operating in the same industry. This points towards the fact that a lot of room for improvement is present here for Corning’s management to exploit and improve its revenues with the current resources available to them.
Asset utilization of Corning Inc. has shown a steady growth as it rose from 0.25xx in FY 2009 to 0.26xx and 0.28xx in FY 2010 and 2011 respectively which is an increase of 1% and 10% in the corresponding periods. This is because the company balanced its increasing asset base with an increase in its net sales which resulted in an overall increase of 12% in the 3 year period.
Valuation
Valuation ratio are used to evaluate how cheap or expensive a business is, in comparison to some profitability measures.
The 63% lower P/E ratio Corning Inc. indicates that the public has lower confidence on the organization’s future growth as compared to the rest of the companies in the industry. As discussed above, the share price of the organization has fallen around 33% even though the company’s revenue has been continuously increasing. This represent an alarming situation for the organization’s management. Also, the company’s lower dividend yield and payout ratio point outs that, in terms of dividend, shareholders of Corning Inc. are compensated less then what they can achieve in investing in another company of this industry. This low dividend payout can also be a reason of the company’s dropping share prices.
Earnings per share of Corning Inc. has been fluctuating from FY 2009 to FY 2011. EPS increased from USD 1.30 in FY 2009 to USD 2.28 in FY 2010, an increase of 75% but was followed by a decrease of 21% which took the EPS to USD 1.80 in FY 2011. Overall, a 38% EPS of Corning Inc. showed a 38% increase in the 3 year period.
The declining P/E ratio of Corning Inc. suggests that investors’ confidence is decreasing regarding the expectations for its future growth compared to the market as a whole. The P/E ratio dropped from 14.85xx in FY 2009 to 8.47xx and 7.21xx in FY 2010 and FY 2011 respectively, showing a decrease of 43% and 15% in the said periods. Conclusively, company's P/E ratio decreased by 51% from FY 2009 to FY 2011.
Dividend Yield was unchanged from FY 2009 to FY 2010, as the dividend declared by the company and the share price were nearly same in both the years but an increase of 71% was observed in FY 2011 because of the 33% decrease in the share price. Following the trends of EPS, the dividend payout ratio of the company has also shown mixed trends as it decreased by 43% from FY 2009 to FY 2010 and then increased by 46% in the following period.
DuPont Analysis
In order to provide snapshot of the Company’s performance for the current year, DuPont Analysis technique can be used. A 5 step version of the technique is used to illustrate how different aspect of the company’s financial performance namely, Profitability, Leverage contribute to the overall company’s Return on Equity.
The detailed analysis of major ratios are evaluated before. Following is the illustration of the organization’s financial performance for the FY 2011.
Summary
After analyzing and assessing the financial performance of Corning Inc. for the 3 year period from FY 2009 to FY 2011 we can conclude that:
- Corning Inc. is operating in five different segments all of which are functioning in a dynamic and rapidly growing market.
- Share price of the organization dropped rapidly during FY 2011 as it descended from its highest value in the 3 year period under review, of $ 22.63 in the month of February to a value of $ 13.23 in December.
- The company’s liquidity position although improved during the 3 year period under review, but it took a slight downturn in FY 2011.
- Corning Inc. has proved to be more profitable when compared to the industrial average, but a decreasing net profit margin for the FY 2011 also indicates that the company should control its operating expenses in order to maintain its profitability position.
- Corning Inc. majorly operates on its equity funds and has very little debt base putting the company in an advantageous position as it can raise long term loan to finance any future expansion or to explore a new investment opportunity fairly easily.
- Even though the asset utilization ratio has improved, Corning Inc. is still behind then the industry average figures which indicates that the company has room for improvement and the management of Corning Inc. should find ways to work more efficiently.
- The per share earnings of Corning Inc. has dropped in FY 2011 from its previous year even though the sales increased, this again indicates that the company is not managing its operating expenses as efficiently as it used to.
- The price to earnings ratios have also dropped every year from FY 2009 to FY 2011 indicating that the public is losing confidence on the future growth of the company.
- Corning Inc. has slightly increase its dividend to shareholders but compared to the industrial average, its dividend yield and payout ratio is still very low which can be a reason of the declining share prices as investors may have realized that they can get better returns in form of dividend by investing in other companies operating in the same industry.
References
Electronic and Other Material Types Industrial Data
- Corning Inc. financial data
http://www.mergentonline.com
- Corning Inc. industrial data
http://www.netadvantage.standardandpoors.com/NASApp/NetAdvantage/index.do
- Company Website
http://www.corning.com/index.aspx
- Other Sources
http://www.investopedia.com/#axzz2LuVEH2yv
http://moneyterms.co.uk/valuation-ratios/
http://ycharts.com/glossary/terms/asset_utilization
