Corning (GLW) Q3 2026 earnings call transcript

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 Flesinger, 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 a half a billion dollars 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 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 planned 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 three 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 four, 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 one 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 three-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 three years of Springboard, from our starting point through quarter four, 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 two 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 non-trivial responsibility of meeting challenging performance standards and 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 de-risk 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 longstanding, 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 2030-40 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 continued 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 billion Since that time we quadrupled enterprise sales to a 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 Moore 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 96 cents to a dollar. 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 up front 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 up front, 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 nine months of the year, that amount was $639 million. This line includes upfront cash we receive 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 nine 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 FRAC 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.

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, you know, 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.

Thanks.

Yeah, 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. And 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.

Thanks for the question, Asiya. What she's referring to, 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 document that's filed this last week, which is Anthropics S1. And you see a number of interesting things in that. My three 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, Sia, is a continued press from our customers to do more and more.

And as a result, what you see us doing when we're doing these multi-year agreements is asking those customers. Our customers are primarily the major hyperscalers given our longstanding 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 as here?

That's a great question, Asiya. So for those of you who don't follow this closely, what I see is asking about scale-up is, Ted, our demand is primarily driven by what's called scale-out, connecting those GPUs out down the rows 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 of architectures are in copper. If that was 100% optical scale up, you increase to 165 hours per GPU. So that's an enfold increase.

And so the question then becomes, how fast is that going to happen? What percent of the GPUs will be connected by optical scale up? And given its strong leverage on our financials, because obviously a 10 times increase in demand per 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, and will that be delayed. this is just classic technology development. We continue to be quite convicted that this accelerates in 2028.

Thanks, Safia.

So we started so early. It's why you've been able to see our revenues seem to increase so smoothly because we started on the capacity early. You are correct that especially our newest high-density products are surprising 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 two to four more times fiber in the same conduit.

And at the same time, Gen AI is why we develop 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 longstanding 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 ads. This will tend to shift our allocations, 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?

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 US-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. And, you know, 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, you know, depending on our ability to, you know, inflect up on our productivity, that'll really drive the profitability aspect of the business.

Things are tight. And so as you see our revenue increasing, certainly as bringing on our new capacity is part and parcel of that. And 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 three years to 19% from 27 throughout the end of our springboard planning period. And so it'll 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. It allows us to get more revenue per element of capacity. Did that answer your question, Mark?

Yeah, thanks, Mark. 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 billion dollar business by the end of the decade will 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.

So on the customer funding, what I would say is not all of our capital is, you know, for optical or towards our growth. Some of it is maintenance of business. So if I sort of exclude that part, the maintenance of business part, the majority of our capital is funded by the long-term agreements that we've signed. And that'll kind of, over the long term, that'll kind of even out. It may not match exactly in any given quarter. We generally would get cash before we're spending the capital. The cash flow question, which I tried to explain today a little bit, but maybe I'll elaborate a little bit more, I think is really the important one. So for us, what we are seeking to do is as we grow and invest to continue to increase our free cash flow through the planning cycle.

You saw that, you know, you've been seeing that in 2026, clearly year to date, we're in a great position. And even as we return that cash, We expect to be able to continue to grow our free cash flow nicely because we will be generating a nice return, a nice level of profit and cash on the volume we're selling. And then, therefore, we're returning a portion of that via that incremental operating cash flow. So it sort of smooths out our cash flow, reduces the volatility over time, and it allows us to grow free cash flow as we continue to grow sales. So that's how you should think about it.

Yes. So first of all, on the timing, we're implementing those increases now. They should begin to take place in the fourth quarter, but I don't think you should expect that to be a significant impact in the quarter. They're really geared around 2027 and beyond. As you know, the yen has been weak and there are other input costs where we're seeing some level of inflation. we shared back in May that we had sort of de-risked our long-term plan and taken the yen to 150.

We continue to hedge, and we hope to do better than that in our hedging, but that's sort of why we're making these price increases. We're not disclosing the specific amount of the increase, but you can think of it as similar to what we've done the last few times we've done it.

I think that's actually a great question, George. In terms of the percent of the market that we see exposure to Chinese fiber, that has been dropping, actually. Now, that's due to a lot of different things, not the least of which is more and more of the fiber is being consumed in pretty complicated connectivity of product sets, where the degree of integration is high. and once it becomes integrated, its shipping costs become a lot higher, right? And the tariff costs become a lot higher. So it's not quite as easy as shipping reels of fiber around because you have so much of the value sitting in connectivity.

Now, that being said, we always, we compete in China against the Chinese players and what we always count on for the long term is we're the highest quality, lowest cost, biggest producer in the world and we continue to expand those advantages.

So for now, we're not seeing it as a significant competitive pressure, but we're always preparing for the moment when that could happen.

Yeah, and Matt, just want to make sure I caught your first question. And specifically, are you asking about the content of the sales growth, like where it's coming from in the fourth quarter?

Gotcha. Yeah, I think for sure, you know, we expect to have a really robust quarter in optical communications. That will drive the lion's share of our growth year over year. as we shared the AI data center component of our enterprise business grew 100%. I think we really are seeing very strong demand, and that's going to drive a lot of the growth. I think solar will continue to also drive growth as we bring capacity on, and then that should start to impact our earnings as we improve our productivity. Again, I think of that as slow and steady, but it'll certainly be a growth driver.

So probably pretty similar dynamics to what you saw in the third quarter. You know, and on the ATM, I think of it as housekeeping for us. We have a shelf registration for debt. This is very much like a shelf registration for equity. So we have no intention of doing anything at this time, but it allows us to use this as a tool if we ever need to do that in the future. As you know, what's important to us is having a very strong balance sheet. We invest over long cycles in innovation, and we are growing a lot now, and obviously we're adding capacity. But there are a lot of technology opportunities for us, and we want to make sure that no matter what happens in the external environment, we can continue to invest through any kind of cycle.

So we always do things that help improve our balance sheet, and this is just a housekeeping thing for us to have on the shelf.

Yeah, I think in general, currently solar is below our corporate operating margin, so it's creating a drag. As we improve productivity, that profitability will improve, and I think it'll be slow and steady. And, you know, we feel great about the business overall. And the Section 232 ruling is also very favorable to the pricing environment, which is a nice impact in general to margins.

I don't know, you know, I think you should just think about it as continuing to help our overall corporate average as it improves. You know, if we continue to move that number up, it's certainly possible that solar, you know, gets there. but I think if we get above 20% in solar, it will significantly improve our overall corporate average.

It's a positive sort of question in that will our corporate average improve faster than we can, the ultimate level of profitability we can deliver in solar? That would be a really good problem to have, both of them racing for increased profitability.

Well, I'm not chuckling. So we're fans of LEO, of low-Earth orbit. A, because we have some content on those. But B, you are right on the right area, which is now we'll be able to connect people, especially in more sparsely created areas or sparsely populated areas, as well as any sort of spots in the network that you can easily reach with a shared architecture. That's going to increase the bandwidth as they go more and more into data centers. That becomes a big driver for our product as well. And as you quite rightly point out, the data has to land in a network and that data as it lands is certainly fiber optics. So in general, we are very positive on Leo and we think you're looking at it right.

And I think about the frenemy part. I think they're an important part of the mosaic, and we like customers.

No, no plans, John. We do our best to hedge the majority of our exposure in any given quarter. That moves around a little bit depending on what happens in the quarter. But, you know, the goal is to, you know, be as hedged up, if you will, as we can be practically.

Thank you for joining us. Before we close, I want to let everyone know that we will be attending the UBS Global Technology and AI Conference on December 1st. Additionally, we'll be scheduling management visits to investor offices in select cities.

Finally, a web replay of today's call will be available on our site starting later this morning. Once again, thank you all for joining us. Operator, that concludes our call.