Corning, the world’s leading glass manufacturing firm, has seen its fortunes rise and fall over the past decade. Huge demand for fiber-optic cable during the telecom bubble pushed sales up rapidly, but Corning never benefited: Investments in new capacity and the end of the telecom boom caused the firm to burn cash until 2004.
More recently, rapidly growing demand for glass used in liquid crystal displays has fueled sales and another round of capacity expansion. We expect demand will prove more lasting this time around. Corning has already seen the benefits of display demand, with free cash flow hitting a record $2.8 billion in 2010. The firm has again expanded capacity aggressively in 2011 and 2012, but free cash flow remained positive throughout this investment phase, totaling $757 million in 2011 and $1.4 billion in 2012.
Management expects capital spending will drop $500 million in 2013, though it views this change as a source of cash to return to shareholders. Corning adopted a new $2 billion repurchase program and increased its dividend 11% in early 2013, following a 20% increase in late 2012. The firm doesn’t have an extensive history of using cash for acquisitions or buybacks, though.
Phone glass sales continue to ride the wave of smartphone adoption, but TV and monitor glass demand has plateaued. With additional capacity coming at both Corning and its competitors, a classic bust could develop. Even with the increased shareholder returns, Corning has set up its balance sheet to handle weakening cash flow. The firm holds $5.8 billion in cash against $2.9 billion in debt (1.2 times EBITDA). The firm also holds stakes in joint ventures that pay steady dividends and carry a book value of $4.7 billion.
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