Specialty glass maker Corning on Wednesday said quarterly profit fell 5%, hurt by softer-than-expected sales of fiber optic glass to its telecommunications clients, pushing its stock lower.
Corning blamed a labor strike at a European telecoms customer for the weakness, which it said was compounded by slower sales to Verizon Communications for its high-speed fiber network.
Shares of Corning fell 6.5% as the drop in its telecoms segment sales overshadowed strength in areas such as glass for flat-screen televisions.
Corning, the largest maker of glass for liquid crystal display televisions, said second-quarter sales climbed 12.7% to $1.42 billion. That fell short of analysts' average forecast of $1.44 billion, according to Reuters Estimates.
"Compared to what the Street was expecting for revenue, we were a little lighter than expected, all due to the European telecoms strike," Corning Chief Financial Officer Jim Flaws told Reuters. He said the strike was over and the affected company has started ordering again.
Corning's second-quarter net income fell to $489 million, or 30 cents a share, from $514 million, or 32 cents per share, a year earlier.
Excluding special charges related to asbestos litigation and gains from the sale of its European submarine cabling business, earnings was 34 cents a share. On that basis, analysts' average forecast was 32 cents a share, according to Reuters Estimates.
Corning also issued third-quarter earnings and sales forecasts largely within the range of analysts' estimates.
Morgan Keegan & Co. analyst Simon Leopold said it was hard to draw any conclusions on Verizon's fiber spending from Corning's earnings, as the U.S. telecoms company's purchases from individual vendors were volatile.
"If Verizon's holding spending steady and one vendor receives more money, another vendor might receive less. In a given quarter we might see volatility in market share among vendors. That tends to even out as we look over the course of four quarters," he said.
Leopold added that Verizon's spending on its high-speed network known as FiOS was still high, although the company may be shifting more toward connecting customers rather than simply building out the network.
While Corning shares fell $1.58 to $24.61, the stock is still up almost 40% this year and last week hit its highest level in 14 months, as the company is expected to benefit from the growing popularity of LCD televisions.
"We believe the weaker-than-expected sales performance in telecoms was event-driven rather than the beginning of a market trend," Flaws said on a conference call.
While telecommunications segment sales, which include optical fiber, cable and hardware, fell 7% in the quarter, sales in its display technologies business rose 32%, with strong demand for glass used for LCD products.
Volume in the display technologies segment was up 58% from a year earlier. Corning said some of the volume strength may have been the result of an earlier-than-expected build in the LCD industry supply chain, but it forecast that third-quarter glass volume would remain strong.
Overall, the company said it expects third-quarter sales of $1.525 billion to $1.575 billion, and earnings of 34 cents to 37 cents a share before special items.
Analysts expect earnings of 36 cents per share on sales of $1.559 billion.