Corning Incorporated (GLW) Earnings Call Transcript & Summary

Good afternoon. Thank you for joining Corning's Annual Meeting of Shareholders. Please welcome Corning's Chairman of the Board and Chief Executive Officer, Wendell Weeks.

Good morning, and welcome to Corning Incorporated's 2021 Annual Meeting of Shareholders. I'm Wendell Weeks, Chairman of the Board of Directors and Chief Executive Officer. With me here today are Linda Jolly, Vice President and Secretary of the Corporation; and Lewis Steverson, Executive Vice President and Chief Legal and Administrative Officer. Thank you for joining us today. In light of the ongoing public health crisis caused by the coronavirus pandemic, we're holding a virtual meeting again this year. We hope everyone is remaining safe and healthy. As is our custom, where we will conduct the business portion of this meeting first, and then answer questions at the end. [Operator Instructions] While we may not have time to answer every question, we will address any unanswered questions on our Investor Relations website after the meeting. In keeping with the digital approach to this year's meeting, it is now shortly after 12 noon Eastern Standard time on April 29. At this meeting, is officially called to order. Now I would like to introduce the other members of the Board at today's meeting. Mr. Donald Blair, Retired Executive Vice President and Chief Financial Officer of Nike; Mr. Leslie Brun, Chairman and Chief Executive Officer of Sarr Group; Dr. Stephanie Burns, Retired Chairman, President and Chief Executive Officer of Dow Corning Corporation; our Lead Director, Mr. Richard Clark, Retired Chairman, Chief Executive Officer and President of Merck; Mr. Robert Cummings, Retired Vice Chairman of Investment Banking at JPMorgan; Mr. Roger W. Ferguson, Jr., Retired President and Chief Executive Officer of TIAA; Ms. Deborah Henretta, Retired Group President of Global e-business at Procter & Gamble Company; Dr. Daniel Huttenlocher, Dean of MIT's Stephen A. Schwarzman College of Computing; Mr. Kurt Landgraf, Retired President of Washington College; Mr. Kevin Martin, Vice President, U.S. Public policy at Facebook; Dr. Deborah Rieman, Retired Executive Chairman of Metamarkets Group; Mr. Hansel Tookes, Retired Chairman and Chief Executive Officer of Raytheon Aircraft; and Dr. Mark Wrighton, Professor and Chancellor Americas at Washington University in St. Louis. We're also joined today by representatives of Pricewaterhousecoopers, our independent public accounting firm. And finally, the company has appointed Broadridge Financial Services to act as inspector of election. Ms. Linda Pascale has taken the oath of inspector of election, and she will be tabulating the vote for today's meeting. After the formal meeting is adjourned, I'll make some brief remarks about your company. And then we'll have time for a few questions. Just to note, any votes cast during today's meeting will not be included in this morning's preliminary vote totals, but they will be included in the official vote reflected in Corning's SEC filing. And I'll now ask Ms. Jolly to report on our quorum and other matters.

The Board of Directors fixed March 1, 2021, as the record date for this meeting. The shareholder list shows that as of the record date, there were 769,164,000 shares of common stock outstanding and entitled to vote at this meeting. A list of shareholders is available for inspection on the web portal. The inspector of election has determined that 648,857,683 shares outstanding and entitled to vote are represented in person or by proxy at this meeting. This is 84% of the shares entitled to vote and represents a quorum for purposes of this meeting. This meeting is being held pursuant to the notice of meeting and proxy statement filed with the Securities and Exchange Commission on March 18, 2021, as supplemented.

Thank you. Now I will present the matters to be voted upon. Please note that we'll give shareholders an opportunity to comment on the proposals after all proposals have been presented. The proposals will be presented in the order outlined in the proxy statement. Proposal 1 is the election of 14 directors' nominees to a 1-year term. Proposal 2 is the advisory vote to approve the compensation of our executive officers as described in the proxy statement. Now it's a nonbinding vote, although the compensation committee and the Board will certainly take the results of the vote into account when making future compensation decisions. Proposal 3 is the ratification of the Audit committee's appointment of Pricewaterhousecoopers as Corning's independent registered public accounting firm for 2021. And Proposal 4 is the approval of the company's 2021 long-term incentive plan. Now if any shareholder would like to make a comment regarding any of the proposals, please submit your comment through the web portal. The polls are now open. Any shareholder who has not voted or wishes to change their vote, may do so by clicking on the voting button on the web portal and following the instructions there. Shareholders who have already voted do not need to take any further action. [Voting]

Now that everyone has had the opportunity to vote, I declare the polls for Corning Incorporated 2021 Annual Meeting of Shareholders closed. Ms. Jolly, do we have the preliminary voting results?

We do. We've been informed by the inspector of election that the preliminary vote report shows the 14 director nominees have been duly elected. The compensation of the named Executive officers has been approved by advisory vote the appointment of Pricewaterhousecoopers as the company's independent registered public accounting firm for 2021 has been ratified, and the 2021 long-term incentive plan has been approved. We will report the final vote results in a Form 8-K to be filed with the SEC in the next few days.

Thank you, Ma'am, Secretary. There being no further business to come before the meeting Corning Incorporated's 2021 Annual Meeting of Shareholders is now adjourned. Now that concludes the formal portion of Corning Incorporated's 2021 annual meeting of shareholders. Now what I'd like to do is talk to you about how your company is doing. Today's remarks, of course, will include some forward-looking statements, and actual results may differ materially. You can find detailed risk factors in our most recent 10-K and also on Corning's website. You should also be aware that we use certain non-GAAP financial measures. And performance indicators to assess Corning's financial and operating performance. And you can find a reconciliation between GAAP and non-GAAP measures on our website. No question, 2020 was an incredibly difficult year. We faced the pandemic, economic uncertainty and social unrest. Yet as Corning has demonstrated time and time again, it is during a crisis that our true character is revealed. For 170 years, whatever challenges have come our way, we persevered and emerged stronger. It's my pleasure to report that Corning is financially healthy. Our businesses are growing. And we are capturing exciting new opportunities to apply our unique expertise to solve tough technology challenges. Most importantly, we continue to lift the values that make Corning's such a special company. Today, I'll summarize our 2021 performance and provide an update on our innovation programs and then address your questions. So let's begin with our financial results in 2020. Our core net sales for the year totaled $11.5 billion. Core earnings per share were $1.39. We generated strong free cash flow. And we maintained a healthy balance sheet. We're extremely pleased with these results given that Corning's financials were impacted by the pandemic and the global economic turmoil experienced during the year. We're also particularly proud of the story behind the numbers. From the outset of the pandemic, 3 priorities guided our response. We supported our employees and our communities. We acted swiftly to safeguard our people and facilities around the world. We implemented new protocols for workplace access, health checks and contact tracing and we demonstrated the importance of unity, stepping up to support vital human resources, services and relief efforts in our communities. We distributed food, donated medical supplies and dispensed personal protective equipment. At the same time, we delivered for our customers. Our employees worked diligently to keep essential operations running smoothly. And we continue to collaborate with industry leaders, solving tough technology programs and delivering due to the world materials and manufacturing processes. And of course, throughout this challenging period, we kept our company strong. We made aggressive adjustments to align our cost and operating plan with lower actual and anticipated sales. Throughout 2020, we improved our balance sheet, generated significant free cash flow and advanced important growth initiatives. And we grew in the second half closing out the year with a quarter of record sales. Taking a step back, I would like to highlight how Corning is all in, fully committed to the global effort to end this human health crisis. We're doing our best to make a difference with what we have to offer. We stepped up to play a critical role by applying our expertise, resources and technologies to address the challenges of the pandemic, and we continue to do so this year. In 2020, we deployed our Life Sciences capabilities to combat the virus by supplying technologies to help our customers develop treatments, provide testing and accelerate vaccine production. In addition, Valor Glass is the strongest and highest-quality pharmaceutical glass ever produced. Valor vials enable faster filling and capping speeds that are especially beneficial during a pandemic when every hour counts, and every dose delivered makes a difference. Our scientists also developed Guardiant, a novel antimicrobial paint additive using our breakthrough in Glass ceramics technology. Corning Guardian kills 99.9% of harmful germs, including the virus that causes COVID-19. Our advanced flow reactor teams in China and France designed, built, shipped and deployed production scale manufacturing within days of a customer's request to produce antimicrobial sprays. Instead of the weeks or months, it would normally take. And our employees around the world came up with innovative ways to secure a personal protective equipment to help safeguard their fellow employees as well as frontline hospital workers. I am grateful to all employees for rising to the myriad of challenges we confronted together last year. Now we can't be certain how the recovery from the pandemic and the related recession we'll ultimately play out. But we are confident that our execution in 2020 and our continued market leadership leave us well positioned for growth. We've certainly come a long way since I addressed you last April. And as Corning's performance improved, we honored our commitment to rewarding shareholders in February. We increased the quarterly dividend by 9% to [Audio Gap] and its great news for Corning, that Samsung retained a 9% long-term ownership stake in our company. We see their investment as validation of Corning's innovation road map and the [Audio Gap] On Tuesday, we reported a strong start to what we expect to be an outstanding year. Core sales were $3.3 billion, up 29% year-over-year. Core EPS grew 125% year-over-year to $0.45. All 5 of our segments delivered double-digit sales and net income growth year-over-year. With sales growth rates ranging from 15% for display to 38% for environmental. No question, we are in a strong position. And our capabilities are vital to progress on multiple fronts. Now what we do, the way we do it, it isn't easy. It takes time and requires expertise, proprietary equipment, large-scale manufacturing and ongoing investment. But we believe the results speak for themselves. And we take pride in our company's long and distinguished record of deploying our core capability to enable life-changing innovations that improve lives. Our products clean the air, we read. They connect people to information and each other, provide the window through which we assess information and entertainment and they help facilitate the discovery and delivery of vital medicines. The relevance of our portfolio puts Corning at the heart of ongoing innovation with industry leaders. This provides an especially powerful value creation lever in times of economic uncertainty because we aren't exclusively relying on people buying more stuff. We're putting more Corning into the products that people are already buying. Our 5 market access platforms, mobile consumer electronics, optical communications, automotive, Life Sciences and Display, allow us to reapply and reuse assets and capabilities, develop for customers in 1 market ecosystem to serve customers and another. And as we apply our portfolio to add value to our customers' product, we often create new opportunities to drive more of our content into our markets. Let's look at how our strategy is playing out across our market access platforms. In Life Sciences, demand is growing based on COVID-19 vaccines and diagnostics. And we're becoming increasingly relevant as we help the industry move for cell and gene-based therapies. That shift translates into more of our content per drug sold. We're also making significant strides towards building a Valor Glass franchise, addressing a multibillion-dollar content opportunity in the pharmaceutical packaging market. To date, the company has shipped enough Valor vials for hundreds of millions of doses of COVID-19 vaccines. And we expanded our agreement with the U.S. government to boost capacity for vials to $261 million. In mobile consumer electronics, we're capturing significant growth by increasing the value we offer on each device. We've grown specialty sales every year from 2016 to today, despite smartphone unit sales being roughly flat or down each year. Over that 5-year period, we've added more than $750 million in sales on a base of more than $1 billion. Fast company recently recognized our achievements in the space, the most innovative company in consumer electronics for 2021. In optical communications, we remain the unquestioned technology and market leader. We consistently create new products and extend our lead by delivering solutions that help our customers realize their network visions faster, better and cheaper. Simultaneously, we're driving significant productivity improvements to increase capacity and lower our cost. We are energized by our outlook in optical. Demand on the network is growing. Our customers are making encouraging announcement on capital investments for 5G and hyperscale data center deployments as well as for fiber to the home networks. And importantly, we're seeing orders and sales increase. At the same time, multiple governments are now asserting broadband as a basic right. The White House is calling for more than $120 billion to bring high-speed Internet to every American. And the European Commission is calling for EUR 135 billion to support a similar rollout of broadband services. Turning to Display. Retail demand is strong, and demand for large-sized TV continues to grow. 75-inch sets were up more than 60% for the full year. Large TVs are most efficiently made on the largest fabs. Corning is well positioned to drive more of our content into the market in 2021 with our market-leading Gen 10.5 plants. And automotive. Our Environmental technology segment continues to outperform its underlying markets, driven by more Corning content across both our automotive and diesel businesses. Since 2017, our auto sales are up more than 40%. While global car sales are down 20%. We're seeing strong year-over-year growth in gasoline particulate filter sales as adoption continues in Europe and China. And our Automotive Glass Solutions business is building solid momentum. We were thrilled to see the recent World Premier event for the all-electric, EQS for Mercedes. Its hyper screen features a gorilla glass cover almost 5 feet wide. Stepping back. The long view is that we are moving toward a world with nearly infinite and ubiquitous bandwidth. With large life like displays, where cars are autonomous and connected. Where medicines are individualized, effective and safe. And where we can do more right from our mobile devices, protected by covered materials that can withstand even greater abuse. Across our market access platforms was with some final thoughts. Many years from now, when we look back in 2020, I believe many of us will recall a tumultuous time fraught with risk and uncertainty. At Corning, we fought people around the world came together to demonstrate the values that truly differentiate us. Our employees have shown an incredible willingness to sacrifice. So that we could deliver for our communities, for our customers and for each other, all around the world, doing what we can with what we have where we are. Clearly, together, we're stronger than any challenge we face. And I want to thank our shareholders for being on this journey with us. We're working hard every day to maintain your trust and reward your confidence in us. Thank you. Now we would like to open things up for shareholder questions and comments. Now please note, we'll attempt to answer as many questions as time allows. And any questions that we do not get to will be addressed on our company's website. Lewis, have we received any shareholder questions?

Yes, we have. This is time, we see two questions. The first. Mr. Chairman, the Carpenter Pension Funds hold a collective ownership position of 341,200 shares of the company's common stock. As long-term investors, we believe the executive compensation plan should be designed to drive the successful execution of the company's long-term strategic business plan. The company engages in periodic share repurchases. As the new long-term incentive plan is approved, could you discuss the interplay between Board decisions to repurchase shares and the burn rate and dilution associated with annual equity compensation grants?

Well, first, thank you for your ownership and confidence in us. The way we think about these is really pretty separately. We manage, the first deal with the dilution that comes from compensation. For that, we very carefully monitor the overhang that is created. And you'll see when you take a look of the statistics, just how well we do on that metric, and we'll be happy to include that on the website as well. On the other hand, we look at share repurchases as a real capital allocation decision. And what we seek to do is we will do those in an opportunistic manner where we can see great opportunities for value creation by being able to buy the stock when we view it is deeply depressed. So that's how we tend to look at it. And a little wider is what we do fundamentally with our capital is to invest in growth. And then we take to look at any excess capital that we've created. And the excess free cash flow that we've created. To say, how do we return that best to our shareholders, either through the dividend or through share repurchases.

Great. Thanks. We have one more question. I'm a long-time shareholder and fan of Corning. I'm wondering what is the next Steve Jobs/Apple call, which led the creation of Gorilla Glass that might move the needle for Corning? Thank you.

Well, thank you for your long-term ownership. And actually, that's such an excellent question because it shows that you understand sort of how our innovation, or co-innovation process with our customers works. And how much were inspired by that interaction with our customers, especially the ones that have a clear vision for where they want to take the world going forward. We're actually engaged in a number of those type of dialogues sort of as we speak. I think one of the most interesting areas to look at. So we have them across our market access platforms is in automotive. There's an industry that's going to go through more change over the next decade, and that industry has changed in the last 50. And there's many different points of view on what is the best way to take transportation going forward. And we're engaged on multiple vectors that we look at and say, could create on the order of $100 of Corning content per vehicle, up basically in order of magnitude from our content that we have per vehicle today. So that type of dialogue is super exciting in that space, but it's actually going on in optical communications as well in Display, in Mobile Consumer Electronics as well as, especially this past year in Life Sciences. So we feel really good about the way our innovation model is positioned and our engagement with our customers.

That's it.

So that concludes the Q&A portion of the meeting. Thank you again for joining us today. On behalf of Corning Incorporated, I wish you and yours, good health and safety.