Corning Incorporated (GLW) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like now to turn the conference over to Chris Keenan, Director of Investor Relations. Please go ahead.

Thank you, and good morning. Welcome to Corning's Third Quarter 2026 Earnings Call. With me today are Wendell Weeks, Chairman, Chief Executive Officer and President; and Ed Schleshinger, Executive Vice President and Chief Financial 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. These 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. For the third quarter, the difference between GAAP and core EPS principally reflects adjustments for hedged exposures along with discrete tax items. 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 are also available on our website for downloading. And with that, I'll turn the call over to Wendell.

Thank you, Chris, and good morning, everyone. Today, we announced outstanding third quarter results. Year-over-year, we grew sales 19% to $5.1 billion and grew EPS significantly faster at 36% to $0.91, both exceeding guidance. We expanded gross margin 150 basis points to 40.5%, we increased operating margin 310 basis points to 22.7%, and we improved ROIC 330 basis points to 16.7%, all while delivering $661 million of free cash flow after investing over $0.5 billion in capacity to support future growth. Overall, a great quarter. And we expect our strong performance to continue. For the fourth quarter, we expect to grow sales about 19% year-over-year to a range of $5.2 billion to $5.3 billion, and to grow EPS by about 36% year-over-year to a range of $0.96 to $1. So let's put our very strong results and outlook in the context of our Springboard journey. In May of this year, we upgraded and extended our Springboard plan to grow our annualized sales run rate to $20 billion by the end of 2026, $30 billion by the end of 2028 and $40 billion by the end of 2030. We shared that we were entering a new phase of accelerating growth. We plan for our compound annual growth rate to increase to 19% beginning in 2027 through 2030, after already growing at a robust 15% CAGR for the first 3 years of Springboard. That is a 400 basis point acceleration. In the third quarter, we already began to grow 19% year-over-year to $5.1 billion. That is an annualized run rate of $20.3 billion. And looking ahead to quarter 4, if you take the midpoint of our guidance, we'll grow 19% again to $5.25 billion. That is an annualized run rate of $21 billion. So just 1 quarter after upgrading our plan, we are exceeding our Springboard target of a $20 billion run rate by the end of 2026. And we are already demonstrating the accelerated growth rate anticipated for the next phase of our plan. Interestingly, today's earnings call actually marks the 3-year anniversary of when we introduced Springboard to all of you. So let's briefly look back on our journey and review what we've accomplished together. In the first 3 years of Springboard, from our starting point through quarter 4 2026, we will grow sales 60%, and grow EPS much faster at over 150%. And along the way, we are significantly enhancing our financial profile, nearly doubling ROIC and more than tripling full year free cash flow. Altogether, we've established a strong launch point for the next phase of Springboard. Looking ahead, we plan to double sales from $20 billion to $40 billion, grow EPS significantly faster than sales, expand ROIC, all while delivering robust free cash flow even as we continue to invest to capture growth. So if you liked the first phase of Springboard, you're going to love the next one. Importantly, we already have many of the critical customer relationships and long-term agreements in place that underpin our growth outlook. Now each relationship is unique, but they do have 2 common characteristics. The first is a focus on technology and co-innovation. We share our technology and development plans with each other. This allows us to help our customers achieve their vision. Secondly, we seek to appropriately share risks and rewards as we deliver that vision. Our customers are counting on us to provide the right products at the right time. So we take on the nontrivial responsibility of meeting challenging performance standards and in-production ramps. They take on the responsibility for how much of our products that they need because, of course, they are best positioned to make that determination. We use multiple mechanisms to achieve the appropriate balance of mutual obligations depending on the unique circumstances of our customers and their requirements of us. One example of a tool that we have used successfully in our Glass and Solar businesses and have now applied in Optical Communications is to have our customers provide upfront cash to fund our capacity. We then simply return the cash to our customers as they purchase the committed volume. This helps to both derisk our capacity investments and give our customers supply chain assurance. You can see this dynamic already at work in our financials. In the first phase of Springboard, we more than tripled our full year free cash flow while investing strongly in new capacity. Looking ahead to the new Springboard phase of accelerating growth, we are seeking to continue to increase free cash flow and improve our financial profile, even as we invest to double the size of the company. Ed will share more color on this in a few minutes. We feel blessed to have these types of foundational relationships with our customers. They extend from our long-standing model of invent, make and serve. This fundamental approach has governed us for 175 years and will continue to guide us well into the future. We invest in innovation to invent products that enable transformative technologies. We create and build manufacturing platforms to deliver higher quality and lower cost than anyone else in the world, all to serve our customers over decades-long relationships. When we get this right, our customers become enduring partners, giving us the opportunity to solve their challenges and help create their own extraordinary products that delight their customers in turn. So after 175 years, we are once again in a moment where we have the opportunity to apply our long-standing, principled approach to value creation: for our customers, for our people, for our communities and, importantly, for our shareholders. We are delighted to have you with us on that journey. Ed?

Thank you, Wendell. Good morning, everyone. We delivered an outstanding third quarter, and our results demonstrate the acceleration of growth outlined in our 20-30-40 Springboard Plan. Year-over-year in Q3, sales grew 19% to $5.1 billion, and EPS increased 36% to $0.91, both above our guided ranges. We expanded gross margin 150 basis points to 40.5%. Operating margin grew 310 basis points to 22.7%. ROIC grew 330 basis points to 16.7%. And we delivered strong free cash flow of $661 million even as we continue to invest to capture robust demand. Now moving to our segments. Our results were led by Optical Communications. Sales were $2.4 billion, up 44% year-over-year. Net income was $532 million, up 80% year-over-year, with the segment again delivering record profitability. Enterprise grew sales 84% year-over-year, with Gen AI product sales growing more than 100% year-over-year, significantly outpacing GPU unit growth. This was driven by the rapid and broader adoption of our innovations and enabled by our steady capacity additions. At the launch of Springboard, our Enterprise sales run rate was $1.4 billion. Since that time, we've quadrupled Enterprise sales to a $6 billion run rate. And keep in mind, our growth is driven by scale out. As Optical penetrates the scale-up portion of the network, our revenue opportunity will increase dramatically. In Carrier, sales grew 4% year-over-year, driven by growth in data center interconnect. During the quarter, we announced long-term customer agreements with Zayo, Verizon and AT&T to deliver fiber and connectivity solutions in support of their network expansions across broadband and data center interconnect. Collectively, these agreements serve as an excellent proof point for our long-term opportunity in Carrier, and give us confidence that our opportunity in DCI is bigger than the $1 billion target we've previously communicated. Moving to Glass Innovations. The successful execution of our More Corning strategy helped us outperform our end markets, which were significantly impacted by memory prices. Looking at the market, in the third quarter, TV units were down 4%, while notebooks and handhelds were down about 20%. Our third quarter sales were $1.5 billion, down $54 million or 3% year-over-year. Net income was $328 million, down 10% year-over-year. Looking ahead, we expect to continue executing our More Corning strategy. For example, we continue advancing our nearly 20-year partnership with Apple. By the end of 2026, all of the cover glass for iPhone, including iPhone Duo and Apple Watch sold worldwide, will be produced at our Harrodsburg, Kentucky facility. Additionally, we recently announced a price adjustment for our display glass substrates that will begin to take effect in the fourth quarter to address a weaker yen environment and rising costs such as critical materials and energy. In Automotive, our sales were up 4% year-over-year. Recovery in North American Class 8 truck market more than offset the impact from the light-duty vehicle market, which was down 3%. Net income of $67 million was down 1% year-over-year. Looking ahead, we remain focused on our More Corning content strategy. In Solar, Q3 sales were $436 million, up $117 million or 37% year-over-year. The segment reported a net loss of $7 million. We continue to ramp production at our wafer and module facilities, albeit at a slower pace than anticipated. As our productivity improves, so will our output and profitability. Demand remains strong, and the market preference for U.S.-made solar products continues to strengthen. Recent U.S. trade action under Section 232 of the Trade Expansion Act of 1962 improves the overall pricing environment and demand for Corning's Solar products. Overall, we are making solid progress building a more than $3 billion revenue stream in Solar with profitability above the corporate average. Sales in Life Sciences and Emerging Growth Businesses were up 1% year-over-year, as our Life Sciences business outperformed the end market. Net income was down $13 million year-over-year due to investments in Emerging Growth programs. Shifting to our outlook. In the fourth quarter, we expect sales to grow approximately 19% year-over-year to a range of $5.2 billion to $5.3 billion, and EPS to grow approximately 36% year-over-year to a range of $0.96 to $1. As we move to our next phase of Springboard, we have a really compelling opportunity in front of us. We plan to double the size of the company from $20 billion to $40 billion by the end of 2030. We grow organically by inventing products that enable transformative technologies, and we create and build manufacturing platforms to deliver higher quality and lower costs than anyone else in the world. Historically, this meant we invest capital upfront before the revenue and free cash flow shows up. And then we have high returns and generate strong free cash flow down the road. We have been steadily improving that model by appropriately sharing the risk and responsibility of investments with our customers. Many such long-term customer agreements underpin our growth. We use multiple mechanisms in our agreements to achieve the appropriate balance of mutual obligations, depending upon the unique circumstances of our customers and their requirements of us. One tool we use is for our customers to provide the cash upfront. And then we return that cash as they purchase the committed volume. We have successfully used this tool in our Glass and Solar businesses and are now applying it in Optical Communications. This both provides our customers with supply chain certainty while securing our revenue, returns and free cash flow. You can see this dynamic already at work in our financials. There is a line in our operating cash flow labeled Customer Deposits. For the first 9 months of the year, that amount was $639 million. This line includes upfront cash we received from our customers during the period net of the cash returned to customers from previous deposits as they purchase their committed volumes. At a macro level, this mechanism smooths the cash impact of our capacity additions, helping fund the upfront investment and then returning customer deposits from the operating cash flow generated by our profitable delivery of the committed volume. You can already see this in effect in our cash flows. We generated $2.3 billion of free cash flow over the first 9 months of this year, while we steadily invested $1.3 billion in CapEx to add capacity supporting the growth outlined in Springboard. As we've previously shared in 2026, we're planning to invest approximately $2 billion in CapEx, primarily to support the growth in Optical Communications. We plan to keep this flywheel going as we enter our new accelerating growth phase of Springboard. We seek to continue to increase free cash flow and further improve our financial profile even as we invest to double the size of the company. Given our increasing free cash flow, this takes us to capital allocation. Our philosophy is to prioritize investing in organic growth opportunities that drive significant returns. Our shareholders have validated that this creates the most value for them, and this remains a priority. We will continue to maintain a strong and efficient balance sheet. And we're in great shape. We have one of the longest debt tenors in the S&P 500. Our current average debt maturity is more than 20 years, and we have no significant debt maturity coming due in any given year. We also expect to continue our strong track record of returning excess cash to shareholders. We already have a strong dividend, and therefore, as we go forward, our primary vehicle for returning cash to shareholders will be share buybacks. Now before we move to Q&A, let me reiterate my key takeaways. We've had great success to date with Springboard. We delivered significant growth and dramatically enhanced our financial profile. We also built a strong foundation with our capabilities, manufacturing platforms and our deep customer relationships. From this foundation, our growth will accelerate. Our third quarter results and fourth quarter outlook already demonstrate the momentum we expect in the next phase of Springboard. We expect to double our sales from $20 billion to $40 billion by the end of 2030, to grow EPS much faster than sales, and to improve our financial profile even further. We expect our free cash flow to grow through the planning cycle even as we invest. In total, we're focused on creating significant value for our shareholders, and we look forward to updating you on our journey. And with that, I will turn things back over to Chris for Q&A.

Thank you, Ed. Operator, we are ready for the first question. .

[Operator Instructions] The first question comes from Josh Spector with UBS.

I wanted to ask on just the Optical margin cadence. I don't know, Ed or Wendell, when you guys feel comfortable to kind of talk about margin on a forward view at all. Clearly, your investments are picking up. Your incremental pretax margins are still in kind of a 40% or higher range. Is this something you have confidence yet to be able to talk about and give a target at some point in the near future?

So thanks for the question, Josh. So I would agree. I think we have done a really nice job as we've been growing Optical to improve our net income margin. I'll use that as sort of the vector to think about. We were in the mid-teens. We're now in the low 20s. I certainly think there is an opportunity for us to continue to improve from there. And obviously, that has driven the company's operating margin significantly. We've grown that into the low 20s as well. And again, I think we feel good about our environment. The thing I would say is we're going to be adding capacity in Optical to grow. As we've shared, we're also still building a Solar business, and that is actually still negatively impacting or dragging our margins a little bit. So I don't know that we're quite yet ready to put out a new target, but I think you should think of us as continuing to be where we're at and making progress from there as we grow.

That's helpful. If I could just follow up just in terms of corporate costs, that seems to be a thing people are nitpicking on this morning a bit. You're about $50 million lower year-on-year. That was kind of a big part of kind of why 3Q was in line. Is there something going on there between the allocations between corporate and the segments? And what's the assumption in the fourth quarter, please?

Yes, there's nothing going on. I mean we mentioned on our second quarter call, and it continues here in our third quarter, that our variable compensation expense -- so we pay for performance and we have a number of tools that we use to do that. And the compensation expense is a little above what I would consider to be normalized levels. We saw that in the second quarter. We've seen that here in the third quarter. It probably levels off. I don't necessarily think it accelerates in the fourth quarter. And then it resets as we go into the subsequent year. So I view operating expenses, which, in general, is what sits in that corporate expenses bucket, as being a leverage point for us as we grow. I think we will continue to be able to leverage our operating expenses. They will grow slower than our sales.

And our next question will come from Asiya Merchant with Citi.

Great. Just a couple of quick questions here. Wendell, you talked about at CNBC earlier this morning about Gen AI related demand. There's just been a lot of concerns in the market about the durability of this demand, whether it's financing or any other kind of various constraints that are out there. You're standing firm with your Springboard, there was a large growth factor associated with optical. Just if you can talk about how you're thinking about these various constraints and how you factor that into your Springboard?

Thanks for the question, Asiya. What she's referring to, for those of you who didn't have a chance to see CNBC this morning, is one of the things that I talked about is sort of an important -- a document has been filed this last week, which is Anthropic's S-1. And you see a number of interesting things in that, but through my -- 3 main takeaways are the tremendous growth is there. Second is the implied profitability of their inference tokens, which is that primary driver for what it is their customers use as inference, and that looks very profitable. And their comment that their number one constraint is now and will continue to be compute, and we provide the networking for that compute. What we see in our demand, Asiya, is continued press from our customers to do more and more. And as a result, what you see us doing when we're doing these multiyear agreements is asking those customers. Our customers are primarily the major hyperscalers given our long-standing relationships, help us fund and secure that capacity so that we can be assured of that demand, and we reduce any amount of risk to our shareholders. So I don't think I have gotten one call yet that has been for anything else other than more of our new products, faster and broader. Does that answer your question or did you have something deeper behind that, Asiya?

No, no, that's great. And just on the scale up, Ed, I know you talked about the scale-up opportunity being significantly greater. You guys talked about it at your Investor Day as well. Just any update, there's been just a lot of chatter around all the various events that have happened around Optical and scale up. Just any more color on how you're thinking about photonics as a MAP through 2030 and any other color for next year as well on the Photonics MAP?

That's a great question, Asiya. So for those of you who don't follow this closely, Asiya is asking about scale up is [indiscernible] our demand is primarily driven by what's called scale out, connecting those GPUs out down the road to every other GPU that sits in the cluster. That's about 16 fibers per GPU in today's architectures. 100% of the current scale up architectures are in copper. If that was 100% optical scale up, you increase to 160 fibers per GPU. So that's a 10-fold increase. And so the question then becomes how fast is that going to happen, of what percent of the GPUs will be connected by optical scale up? And given its strong leverage on our financials because, obviously, a 10x increase in demand for GPU would have a significant impact on our financials given our position, this is what drives the quite appropriate fascination with timing. So what we said in the May IR event was we expected Optical scale up to begin to accelerate in 2028. We continue to believe that strongly. We're on the inside of that ecosystem. I know people hear different things about different particular components, and will this be delayed or will that be delayed. This is just classic technology development. We continue to be quite convicted that this accelerates in 2028.

The next question comes from Meta Marshal with Morgan Stanley.

Great. Maybe Wendell, maybe expanding on that, if you could just speak to kind of the battle that you guys are having in terms of being able to fulfill Carrier versus Enterprise and maybe just how, if there is a battle there to figure out, how to make those allocations? And then maybe second for Ed. Just I believe in previous quarters, you would kind of contextualize what the Solar overhang was. Just if you were willing to lay that out?

So we've been -- we started so early that -- it's why you've been able to see our revenues, they seem to increase so smoothly because we started on the capacity early. You are correct that, especially our new and high-density products, are supplying us with the speed and breadth of their adoption, and that our traditional carrier customers now really want this product in their DCI architectures because they can fit 2 to 4 more times fiber is the same conduit. And at the same time, Gen AI is why we developed the dense products as we try to increase the amount of fibers per GPU, that also has a strong demand for those products. And so what's really causing the tension is people want that newest product, and we're still ramping that up to be the product across all of our platforms. The way we sort of sort that out is centered around the long-standing nature of the relationships, those ones that are going on for decades, we tend to prioritize those customers. And then as well, when we have to add capacity, we have a natural [ sort ] towards quality because we ask them to contribute to those capacity adds. This will tend to shift our allocation, shift the percent of our revenue that goes to those folks who have the resources to help us fund that capacity. Does that make sense to you, Meta?

Yes, that does.

So I'll take the second question, Meta. The first thing I want to point out is I think the most important thing on Solar, the most important takeaway, I think, for folks is the Section 232 ruling, which took place in the third quarter. That actually has a very nice impact on the pricing environment and also indexes to demand for U.S.-made solar products. So that's us. I think that is a really important thing. It actually continues to strengthen our view in the ability to build a more than $3 billion business with nice profitability. So I think that's important. As we said on the call, we continue to make slow, steady progress on our ability to make and sell the products that we make. So we make polysilicon, wafers and [ modules ] in the U.S. And we had sort of, I'll call it, bottomed out in the second quarter and we're around the same level here in the third quarter. So the drag, if you will, or the EPS or margin impact in the third quarter is similar to what we saw in the second quarter, and we would expect it to slowly improve from this level as we go through 2027. And then depending on our ability to inflect up on our productivity, that will really drive the profitability aspect of the business.

And the next question is going to come from Joseph Cardoso with JPMorgan.

This is Marc Vitenzon on for Joseph Cardoso. I guess the first question kind of piggybacks on the supply question with regards to accelerating top line growth from 17% in 2Q to 19% in 3Q and then high teens exiting the year and going into next year. How much of that is driven by demand versus new capacity coming online? How should we just think about the broader demand-supply dynamics there? And then I have a follow-up.

Things are tight, and so as you see our revenue increasing, certainly, is bringing on our new capacity is part and parcel of that. Hence, we have the capacity plans in place that are already well underway to support that accelerating growth that you see in the next phase of Springboard as we move from the 15% CAGR during the first 3 years to 19% from '27 to -- throughout the end of our Springboard planning period. And so it will be both. The other thing that also helps us on the revenue is basically realized price. Overall, price is going up. But more importantly, as we develop these new products, they create a lot of value for our customers. And we tend to split that value creation with our customers that allows us to get more revenue per element of capacity. Did that answer your question, Marc?

Yes, that's super helpful. And then the follow-up would be on Carrier where, historically, you framed growth around mid-single digits. This quarter, you signed Verizon and AT&T on top of Lumen and Zayo. How are you thinking about Carrier growth into 2027? Would the acceleration primarily be driven by DCI and long haul? Or is fiber-to-the-home also a substantial contributor?

Yes, Marc. For sure, data center interconnect is the bigger opportunity in the Carrier space. I would expect that to drive nice growth as we go into next year and then beyond that. As we shared, we had originally said we thought that DCI could be a $1 billion business by the end of the decade. We'll clearly exceed both the timing and the magnitude of that target. We haven't yet set a new target because I think there's a lot of activity in that space. So we'll take some time and sort of lay that out and come back and talk about it later. I would also say that fiber-to-the-home will continue to be a growth driver. I think you will see deployments certainly by the large carriers in that space. We're very well positioned for that as well.