Corning (GLW - Analyst Report) has reported fourth-quarter core earnings of 45 cents, ahead of the Zacks Consensus Estimate of 38 cents. The results were driven by consolidation of CPM and a slightly lower tax rate, with record sales in the Display segment and Optical Communications, Environmental, Dow Corning’s equity earnings also growing.

Revenue

Reported revenue of $2.40 billion, grew 5.4% sequentially, 19.9% year over year, but still missed the Zacks Consensus Estimate by 3.8%.

The Display Technologies segment generated around 39% of total revenue. Segment revenue was down 8.2% sequentially and up 50.3% year over year. LCD glass volumes increased mid-single digits, surpassing expectations due to growing demand for large-screen TVs. Glass price declines moderated further.

Optical Communications (28% of revenue) was down 3.2% sequentially and up 11.7% from the year-ago quarter. The better-than-expected revenue came from higher FTTH sales in North America.

The Environmental Technologies segment generated around 10% of revenue, down 11.3% sequentially but up 5.0% year over year. Year-end inventory adjustments at customers led to weaker-than-expected revenue, but heavy-duty diesel sales in the U.S. remained strong.

Specialty Materials generated 13% of revenue, down 2.4% sequentially and up 11.9% year over year. Sales came ahead of expectations, driven by increased demand for the new Gorilla Glass.

The Life Sciences business accounted for around 9% of revenue. The business was flat sequentially and up 2.4% from a year ago.

Margins

The gross margin was 48.3%, up 519 bps sequentially and 874 bps from last year.

The operating expenses of $599 million were up 12.2% sequentially and 22.7% year over year. Both R&D and SG&A increased as a percentage of sales from both the previous and year-ago quarters.

Specifically, R&D increased a respective 94 bps and 35 bps from the two periods while SG&A increased 270 bps and 30 bps, respectively and was related to the CPM consolidation. As a result, the operating margin expanded 129 bps sequentially and 816 bps from the year-ago quarter.

Net Income

Corning’s core net earnings were $630 million, or 26.2% of sales compared to $549 million or 21.6% in the previous quarter and $410 million, or 20.4% in the year-ago quarter. Net income on a GAAP basis was $988 million ($0.70 a share) compared to $1.01 billion ($0.72) in the previous quarter and $421 million ($0.30 a share) in the Dec quarter of 2013.

Balance Sheet and Cash Flow

Inventories were down 0.4% during the quarter, with inventory turns going from 4.4X to 3.8X. DSOs went down from 58 to around 57. Corning ended the quarter with $6.07 billion in cash and short term investments, down $36 million during the quarter. However, the company has a huge debt balance. Including long-term liabilities and short term debt, the net debt position was $55 million at the end of the quarter, which did however decline significantly from the net debt balance of $178 million at the beginning of the quarter.

Cash generated from operations was $1.11 billion, with the main uses of cash being $336 million on capex, $228 million on acquisitions, $183 million on share repurchases and $152 million on dividends.

Guidance

The first and second quarters are seasonally slower for the glass business, although Corning is expected to grow sales from the respective year-ago quarters. Price declines will again moderate in the quarter. Optical Communications sales are expected to grow more than 10% year over year, Environmental to be consistent (up 5% excluding currency), Specialty Materials to grow 10% and Life Sciences to be consistent. The gross margin is expected to be 43%, R&D will be 8% of sales and SG&A 13% of sales. Other income will be a net expense of $40 million.

The effective tax rate for the year is expected to be 18% and full-year capex $1.3-1.4 billion.

Recommendation

Corning’s fourth-quarter earnings were ahead of expectations, sending shares up. All except the Environmental segment exceeded expectations and integration of CPM is also yielding desired results.

Currency remains a major headwind however because of the strengthening dollar versus the yen, but Corning has new hedge contracts in place that are expected to protect its results. Management has said that 100% of 2015 earnings, 80% of 2016 earnings and 70% of 2017 earnings have been hedged under the new program.

The company is also returning cash to investors both as share repurchases and dividends, increasing the dividend by 20% last December and authorizing a new share repurchase program of $1.5 billion.

Corning shares carry a Zacks Rank #2 (Buy). Similar-ranked technology stocks that may also be worth considering include Adobe (ADBE - Analyst Report), Analog Devices (ADI - Analyst Report) and Axcelis (ACLS - Snapshot Report).