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Text: 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 fourth quarter, the largest difference between our GAAP and core results stems from restructuring charges which are primarily noncash as well as noncash mark-to-market losses associated with the company's currency hedging contracts.
With respect to mark-to-market adjustments, GAAP accounting requires earnings translation, hedge contracts, and foreign debt settling in future periods to be mark-to-market and recorded at the current value at the end of each quarter, even though these contracts will not be settled in the current quarter.
For us, this reduced GAAP earnings in Q4 by $63 million.
To be clear, this mark-to-market accounting has no impact on our cash flow.
Our currency hedges protect us economically from foreign exchange rate fluctuations and provide higher certainty for our earnings and cash flow, our ability to invest for growth, and our future shareholder distributions.
Our non-GAAP or core results provide additional transparency into operations by using a constant currency rate aligned with the economics of our underlying transactions.
We're very pleased with our hedging program and the economic certainty it provides.
We've received one $1.7 billion in cash under our hedge contracts since their inception more than five years ago.
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.
Today, we reported an outstanding finish to the year.
Each of our segments grew sales and profits year over year and we continue to progress our strategic initiatives.
For the fourth quarter, sales were $3.3 billion, up 11% sequentially, and 17% year over year.
Our operating margin expanded 500 basis points year over year to 19.4%.
Operating income grew 18% sequentially and 58% year over year.
EPS of $0.52 cents was up 21% sequentially and 13% year over year.
We generated $464 million of free cash flow in the fourth quarter, $948 million for the full year, and we finished the year with $2.7 billion in cash on our balance sheet.
It goes without saying, 2020 was an incredibly difficult year.
We joined the rest of the world to confront the pandemic, economic uncertainty, and social unrest.
Throughout the year, we focused on our customers and executed on strategic priorities while protecting our people.
For more perspective on our performance, I'll share three observations: first, we demonstrated our ability to adapt rapidly and remain resilient in the face of uncertainty; second, our more Corning content strategy clearly contributed to our growth and our performance against our end markets; and finally, throughout this difficult period, we're embracing the opportunity to make a difference wherever we are with what we had to contribute.
Now, I'll expand on my first observation.
Our decisive actions and strong operational execution have resulted in continued leadership in the capabilities that make Corning distinctive.
Like many companies, we focused on bolstering our financial strength, reducing production levels and operating costs, carefully managing inventory, reducing capital expenditures, and pausing share buybacks.
However, it's not about what we cut but what we kept.
While we adjusted production, we didn't reduce capacity keeping us positioned to meet increasing demand when the economy improved.
We continued to make strategic investments and advance major innovations with our customers to capture the growth playing out across our market-access platforms.
And we developed multifaceted programs to protect our talent and preserve our capabilities.
Our first-half actions generated significant cost savings in the second half of the year.
And as the economy started showing signs of green shoots, we effectively adjusted our operations, keeping pace as demand started to recover in many of the markets we serve.
Our results tell the story.
Our sales were down 12% in the first half as most economies were impacted by pandemic-related lockdowns.
But in the second half, we improved sales 24% over the first, while growing operating income, 122%, returning to year-over-year growth and generating very strong free cash flow.
For the year, we generated almost $1 billion of free cash flow and our balance sheet remains very strong.
We expect this strong momentum to continue heading into 2021.
We will continue to adapt and focus on execution as we have proven that our approach is working.
Turning to my second observation.
In all the industries we serve, important market trends continue to offer new challenges that Corning is just uniquely qualified to address and new opportunities to integrate more Corning content into our customers' products.
In this difficult year, we have proven that this is an especially powerful value creation letter.
We aren't relying exclusively on people buying more stuff, we're putting more Corning into the products that people are already buying.
In the fourth quarter, this strategy paid off as we grew sales year over year in every one of our businesses.
At the top were specialty materials with sales up 20% year over year, and environmental technologies up 19% year over year, both significantly outperforming their end markets.
Last quarter, I described our innovations in mobile consumer electronics.
Looking at how we're investing to create additional revenue streams and capture content opportunities.
Today, our focus on our automotive market access platform.
The auto industry is undergoing major disruptions.
Automakers are designing cleaner and safer vehicles while featuring technology that provides immersive experiences were uniquely suited to address these trends.
And for us, the opportunities are large.
In the range of $100 per car in Corning content, we're collaborating with more OEMs and we're offering more solutions to help move the industry forward.
Let's look at two of our biggest successes right now starting with our automotive glass solutions business.
We're building strong momentum.
Our advantaged solutions are enabling the very rapid shift toward in-vehicle displays that are interactive, that are integrated, and shaped.
We're collaborating with industry leaders across the auto ecosystem, including Visteon, LGE, BOE, and VIA Optronics to accelerate the adoption of our patented 3D ColdForm technology which enables lower-cost-shaped auto interiors.
Our large-scale facility in Hefei, China is now fully operational and servicing our growing demand.
And we continue to see strong adoption of our technology by auto OEMs. Our recent proof point is the new Mercedes-Benz Hyperscreen dashboard display, which features a Gorilla Glass cover nearly 5 feet wide.
Similarly, in environmental technologies, in a year when a global pandemic temporarily shut down OEM production, our proprietary gasoline particulate filter business still grew sales year over year.
When we introduced GPF, we said our technology increased our content opportunity per car by three to four times.
Like most of our innovations, it started with the customer challenge.
Europe and China are addressing fine particular pollution with new emissions regulations.
We applied our expertise in ceramic science with our advanced manufacturing capabilities and extrusion to rapidly develop filters that efficiently trap ion particulates.
And today, we're effectively helping automakers reduce these harmful emissions, meet new regulations, and produce some of the cleanest gasoline vehicles you can buy.
Demand for our GPF has grown quickly.
And with our market-leading product, we continue to win the majority of platforms awarded to date.
We're well on our way to building a $0.5 billion business.
We're actually ahead of schedule, and the content opportunity continues to grow.
We expect our GPF technology to migrate beyond Europe and China as other regions focus on improving air quality.
And many new car models will soon be required to get even closer to near-zero particulate emissions.
In response, we recently introduced our next-generation GPF, featuring enhanced filtration capabilities.
They're launching in upcoming models as automakers prepare for the next wave of regulations.
Across our markets, we see a similar content story playing out as we respond to key industry challenges with more Corning solutions.
Let me share some other accomplishments across our market-access platforms.
In life sciences, pandemic-related demand has highlighted our strength in the industry.
And we achieved major milestones toward building a significant Valor Glass franchise in 2020.
At the start of the year, we entered a long-term supply agreement to provide Valor Glass vials for a portion of the currently marketed Pfizer drug products.
Soon after, we were awarded $204 million in funding from the U.S. government to substantially expand domestic manufacturing capacity for Valor vials.
Today, we're supplying Valor Glass to several leading COVID vaccine manufacturers.
We produce millions of Valor vials and shipped enough for more than 100 million doses, supporting multiple vaccine developers.
In our life sciences segment, the global health fight is driving strong demand for our consumable products.
We're supporting the development of treatments in vaccines, as well as mass testing efforts.
We received $15 million from the U.S. government to expand domestic capacity for robotic pipette tips which are used for COVID diagnostic testing.
BioNTech recently recognized our contribution to their successful COVID vaccine development.
Turning to mobile consumer electronics.
We launched the toughest Gorilla Glass yet, Victus.
And it's already featured on six Samsung devices.
Corning also invented the world's first transparent color-free glass-ceramic which is featured on the front cover of the latest iPhone.
Apple and Corning partnered to develop and scale the manufacturing of Ceramic Shield.
It offers unparalleled durability and toughness.
I noted that specialty materials sales were up 20% year over year in Quarter 4.
They were up 18% for the full year in a smartphone market that declined 7%.
In optical communications, we returned to growth and we expect this growth to continue as customers increase spending to support growing bandwidth requirements.
In 2020, we introduced new and innovative solutions that help speed the deployment of 5G.
We launched our outdoor 5G-ready connectivity solutions, featuring compact easy-to-install terminals that can be deployed in any conceivable architecture.
Operators can actually save up to $500 per terminal location, dramatically lowering installation cost and speeding up deployment.
We're also collaborating with Verizon to enable 5G millimeter-wave indoor deployments for their enterprise customers.
We're also working with Qualcomm Technologies to deliver indoor networks that are 5G ready, easy-to-install, and affordable.
And we're collaborating with EnerSys to simplify the delivery of fiber and electrical power to small-cell wireless sites.
Retail demand for TV and IT products remains strong.
Demand for large-sized TVs continues to grow.
75-inch sets were up more than 60% for the full year.
Large TVs are most efficiently made on Gen 10.5 plants.
Corning is well-positioned to capture that growth with its Gen 10.5 plants in China including the two newest Gen 10.5 facilities in Wuhan and Guangzhou, which are now expanding production to meet customer demand.
Ramping these sites has been no small feat in the midst of a pandemic.
We are very proud of our innovative and dedicated expert engineering teams that rose to a host of unprecedented challenges to start-up tanks in both facilities.
Looking ahead, Corning's long-term growth drivers and content opportunities are strong in each of our markets.
And we believe some secular trends could accelerate as consumer lifestyles continue to change in the aftermath of the health crisis.
And that leads to my third observation.
We're living through the kind of moment that tends to bring true character to light.
At Corning, our values are evident in our actions.
We've unleashed our capabilities to help combat the virus.
And we're proud to be creating life-changing technologies that contribute to keeping people safe and help society address the challenges of the pandemic.
We also recognize, in these unprecedented times, that we have the opportunity to share resources and leadership on a range of important issues.
We've launched racial and social quality programs, and our Unity Campaign supports vital human services and emergency relief in our communities around the world.
In conclusion, on all fronts, Corning is executing well.
We're delivering outstanding results and making important progress across our strategic priorities.
I am confident that we are entering the year with solid momentum and we expect to grow in 2021.
Our more Corning strategy will continue to drive outperformance across the diverse industries that we serve.
We're not just counting on consumers buying more cars, TVs, or smartphones to grow.
And I'm excited about how we're bringing our capabilities to bear in optical and life sciences, as operators expand their networks and we continue to support vital drug and vaccine development.
We feel good about our fourth-quarter results.
On a year-over-year basis, we grew sales and earnings.
We expect to grow again in the first quarter, and we expect to grow for the full year, driven by improving markets and our more Corning strategy.
We are building a bigger, stronger company that delivers sustainable results while remaining agile in our ability to respond to changing market factors.
Now let me walk you through our fourth-quarter performance.
In the fourth quarter, we grew sales 11% sequentially and 17% year over year to $3.3 billion, exceeding expectations.
Excluding the consolidation of Hemlock Semiconductor, sales grew 11% year over year, with every segment growing sales and net income.
Specialty materials and environmental technologies deli -- delivered particularly strong year-over-year sales growth, up 20% and 19%, respectively, both outperforming their underlying markets.
Optical communications returned to year-over-year growth, and we expect that growth to continue.
Our operating margin was 19.4%.
That is an improvement of 500 basis points on a year-over-year basis.
We grew operating income 18% sequentially and 58% year over year.
EPS of $0.52 was up 21% sequentially and 13% year over year.
We generated $464 million of free cash flow in the quarter.
Cumulative free cash flow for the full year was $948 million.
We ended the year with a cash balance of $2.7 billion.
We entered 2021 in an excellent financial position.
Now let's review the business segments.
In display technologies, fourth-quarter sales were $841 million, up 2% sequentially and 6% year over year.
And net income was $217 million, up 11% sequentially and 21% year over year.
Retail demand for TV and IT products remain strong remained strong during the promotional season in Q4.
Display's full-year sales were $3.2 billion, and net income was $717 million.
Our full-year price declines in 2020 were mid-single-digits.
The glass market and our glass volume were up mid-single-digits for the year.
The retail market was more robust than the industry -- than the industry expected, resulting in panel supply being tight for the second half of 2020.
Panel makers ran at high utilizations and the industry drew down inventory to satisfy demand.
These dynamics also resulted in glass supply being tight, and more recently in shortage due to a power outage at a competitor's glass plant.
Now let's look at 2021.
We expect the TV and IT retail markets to remain strong.
We remain confident that large-size TVs will continue to grow, and we are well-positioned to capture that growth with Gen 10.5, which is the most efficient gen size for large TV manufacturing.
We expect the glass market to grow a mid-single-digit percentage in 2021.
We expect glass supply to remain tight in the upcoming quarters.
As a result of these supply/demand dynamics, we are experiencing a very favorable pricing environment.
We expect Q1 2021 glass prices to be flat with Q4 2020.
This is significantly better than the sequential declines we've seen in any other first quarter over the last decade.
Glass prices for some customers in some gen sizes may actually see a sequential increase.
We believe the following three factors will continue to drive the favorable pricing environment for the upcoming quarters: first, we expect glass supply to continue to be tight; second, our competitors continue to face profitability challenges at current pricing levels; and third, display glass manufacturing requires periodic investments in existing capacity to maintain operations.
Glass prices must support acceptable returns on these investments.
In optical communications, fourth-quarter sales were $976 million, up 8% year over year and 7% sequentially.
Our year-over-year growth can be attributed to broad improvements in demand for both carrier and enterprise customers.
Fourth-quarter core net income of $141 million was up 127% year over year, and 23% sequentially.
The improvement was driven by the incremental volume and favorable cost performance.
We have returned to growth in optical communications, and we expect that growth to continue.
Bandwidth demand is increasing and users are demanding higher performance connections.
We're seeing positive statements from customers on increasing investments in their optical networks.
Our sales and order rates are picking up, and we're ready to capture demand as it materializes.
We are confident we will grow sales in optical communications for the year.
We continue to monitor and evaluate market demand signals to determine the magnitude of growth, and we'll keep -- we'll continue to keep you updated as we go through the year.
In environmental technologies, fourth-quarter sales were $445 million, up 19% year over year and 17% sequentially, ahead of expectations as markets continue to improve and GPF adoptions continued in China.
Net income was $93 million, up 45% year over year and 35% sequentially, driven by strong operational performance globally and successful ramping of additional GPF capacity in China.
For the full year, sales were $1.4 billion and our performance was better than the underlying market.
Net income was $197 million.
While our full-year 2020 sales were certainly impacted by COVID-19, we are recovering faster than the market by increasing our content for both the automotive and diesel end markets.
Despite severely -- severely challenged markets we saw year overgrowth in GPF sales.
Strong GPF adoption continues in Europe and in China, where the China 6a regulation is being implemented nationwide this month.
We are ahead of our original timeframe to build a $500 million GPF business.
Specialty materials had an outstanding fourth quarter and a full year.
Q4 sales of $545 million were up 20% year over year, full-year sales were $1.9 billion, up 18% year over year, despite a 7% decline in the smartphone market, driven by strong demand for our premium cover materials and our other innovations.
Net income was $423 million, up 40% from 2019 on higher sales volume and strong cost performance.
The importance of computing and connectivity were amplified during the pandemic.
Our new product innovations, including Ceramic Shield and Gorilla Glass Victus, as well as our EUV products in the semiconductor market were important contributors to our strong performance.
Now before I get to our life sciences results, I'd like to note something of great importance to us.
Throughout the pandemic, our life sciences market access platform has applied its broad capabilities and full product portfolio to help the world combat the pandemic.
From our traditionally research-focused consumables to our bioproduction products to our transport media and, of course, our Valor Glass, we're playing a vital role in the development and supply of test kits and vaccines.
Now, let's look at our segment results.
Life sciences fourth-quarter sales were $274 million, up 7% year over year and 23% sequentially, driven by strong demand for COVID-related products, including bioproduction products used in clinical trials.
Net income was $42 million, up 11% year over year and 50% sequentially.
In summary, we successfully navigated a very challenging year.
We strengthened our balance sheet, established growth in the second half, and generated a free cash flow of $948 million for the year.
As we look ahead, we have strong momentum coming into 2021 and expect year-over-year growth to accelerate in the first quarter.
Specifically, we expect core sales of $3.0 billion to $3.2 billion, compared to $2.5 billion in the first quarter last year, and earnings per share of $0.40 to $0.44, which is double last year's first-quarter earnings per share at the low end of the range.
For the full year, we expect growth in sales and earnings and we anticipate generating more free cash flow in 2021 than in 2020.
And we will share more with you as the year progresses.
Let's turn to our commitment to financial stewardship and prudent capital allocation.
Our fundamental approach remains the same.
We will continue to focus our portfolio and utilize our financial strength.
We generate very strong operating cash flow, and we expect that to continue going forward.
We will continue to use our cash to grow, extend our leadership, and reward shareholders.
Our first priority for our use of cash is to invest in our growth and extend our leadership.
We do this through RD&E investments, capital spending, and strategic M&A.
Our next priority is to return excess cash to shareholders in the form of dividends and opportunistic share repurchases.
In 2021, we expect capex similar to 2020, as we have the capacity in place to meet higher sales.
Now, we'll invest more if we require capacity to support additional growth, any additional capital investment would be supported by a customer commitment.
We'll keep you updated as we go throughout the year.
Given our expected strong free cash flow generation in 2021, we expect to increase our distributions to shareholders.
That includes reinstating opportunistic share repurchases sometime this year.
In closing, we're very pleased with our strong close to 2020, highlighted by growing sales and profitability.
We continue to focus on a rich set of opportunities.
Our businesses are fundamental to the long-term growth drivers in the industries they serve, and our more Corning strategy continues to deliver sales outperformance relative to our end markets.
And I look forward to sharing our progress as the year goes on.
With that, let's move to Q&A.
Operator, we're ready for the first question.

user
q4 core earnings per share $0.52.
qtrly core sales of $3.3 billion, up 11% sequentially and 17% year over year.
in display technologies, q4 sales were $841 million, up 2% sequentially and 6% year over year.
expect year-over-year growth to accelerate in q1 of 2021.
optical communications q4 sales were $976 million, up 7% sequentially and 8% year over year.
expect core sales of $3.0 billion to $3.2 billion for q1 of 2021.
sees q1 earnings per share of $0.40 to $0.44.

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