Edward A. Schlesinger
Executive Vice President & Chief Financial Officer at Corning
Thank you, Wendell. Good morning, everyone. As you just heard, we had an outstanding quarter. Year-over-year, Q3 sales grew 8% to $3.73 billion and EPS grew 20%, more than twice the rate of sales to $0.54, with operating margin expanding 160 basis points to 18.3%.
We also generated free cash flow of $553 million. Our outperformance was led by Optical Communications. Sales grew 36% year-over-year and sales in the enterprise business grew 55%, driven by continued strong adoption of our new optical connectivity products for generative AI.
We expect our momentum to continue. In the fourth quarter, we anticipate year-over-year sales growth to accelerate and EPS to again grow faster than sales with sales up about 15% to approximately $3.75 billion and EPS up approximately 40% in the range of $0.53 to $0.57.
Today, I'll provide more detail on our Q3 results and Q4 outlook as well as put them into the context of our overall Springboard plan. As a reminder, a key component of our plan is to deliver powerful incrementals. We have the capacity and technical capabilities in place to add more than $3 billion in annualized sales by the end of 2026 with minimal cash investment. And the cost and capital are already reflected in our financials. This means that we expect to grow profit significantly faster than sales, and that's exactly what we're seeing in our third quarter results. So let's dive in.
In Optical Communications, sales for the third quarter were $1.2 billion, up 36% year-over-year and net income for the quarter was $175 million, up 92% year-over-year as we delivered strong incremental profit on the higher volume.
In our enterprise business, sales were up 55% year-over-year, driven by continued strong adoption of AI-related connectivity solutions. This marks another record quarter in this business and adds to our confidence in our plan to grow enterprise at a 25% compound annual growth rate from 2023 to 2027.
We also grew year-over-year in our carrier business in the third quarter. We're encouraged by new customer agreements, including our recent announcements with AT&T and Lumen. Overall, we expect both cyclical and secular drivers in Optical Communications to sustain growth in 2025 and beyond.
Moving to Display Technologies, third quarter sales were $1 billion, consistent with the second quarter. Net income was $285 million, up 10% sequentially.
Our third quarter volume was down sequentially as panel makers began to lower their utilization rates in the quarter. We expect panel makers to continue managing their operations to maintain healthy inventory levels. As a result, we expect the glass market and our volume to decline sequentially in the fourth quarter.
Longer term, we expect the display glass market to grow at a low-single digit rate, supported by stable TV unit sales and average screen size growing about 1 inch per year.
As we shared with you at our September investor event, we are raising glass prices to ensure we can maintain stable US dollar net income. Specifically, we implemented currency-based price increases in Q3. Overall, our customers are experiencing a double-digit price increase in the second half of 2024.
In total, our price increases offset the weaker yen in our hedges and, therefore, we expect to maintain the same profitability. As a result, when we move to our new yen core rate in 2025, we do not plan to recast our 2024 financials.
As a reminder, we have the majority of our yen exposure hedged for 2025 and 2026, and we also have hedges in place beyond 2026. Our hedges are not at the 2024 core rate of JPY107, but they're much better than the current spot rate.
We expect to deliver net income of $900 million to $950 million next year and net income margin of 25%, consistent with the last five years.
Turning to Specialty Materials, sales in the third quarter were $548 million, up 9% sequentially, primarily driven by premium glass for mobile devices. Net income was $72 million, up 14% sequentially, reflecting higher volume.
In Environmental Technologies, third quarter sales were $382 million, down 11% sequentially, reflecting the continued impact of the Class 8 truck down cycle in North-America as anticipated.
Net income of $75 million was down sequentially, reflecting lower volume. We expect the heavy duty market weakness to continue and sales in Environmental to remain muted in the fourth quarter.
In Life Sciences, sales in the quarter were $244 million, up 6% year-over-year. Net income was $15 million, up 15% year-over-year.
Turning to Hemlock and Emerging Growth Businesses, sales in the third quarter were $298 million, consistent sequentially.
Finally, I'd like to touch on operating expenses. As we've told you in the past, our pay is tied directly to our financial performance. As our performance has accelerated this year, we have increased our variable compensation accruals accordingly. This leads to temporarily higher operating expenses in the back half of 2024.
With that, I'd like to shift gears and put our third quarter results and Q4 guidance in context of Springboard and update you on how we are tracking against the plan. This chart shows both our non-risk adjusted $5 billion sales plan and our $3 billion high confidence sales plan.
So how are we doing? Let me first explain the $1.84 billion dotpoint you see on the chart. Our Q3 2024 sales were $3.73 billion. Our Q4 2023 sales, which is our Springboard starting point, were $3.27 billion. So our sales were $460 million higher in Q3 2024 than in Q4 of 2023. And when you annualize that, you get to $1.84 billion. Therefore, we're currently tracking at a $1.84 billion incremental annual sales run rate against our $3 billion plus target. And that trend continues into quarter four. The additional sequential growth implied in our Q4 guidance increases our run rate in the fourth quarter to $1.9 billion.
As we shared in September, our springboard plan includes an operating margin target of 20% by the end of 2026. This target leads to an improving return profile with profitability growing significantly faster than sales. You can see this in our third quarter results where EPS grew 20% year-over-year more than twice as fast as the sales growth rate. Additionally, our operating margin was 18.3%. This represents a 200 basis point improvement from our starting point of 16.3% in Q4 2023.
Stepping back, we've made great progress against our sales and operating margin targets to date. But please remember, we're only three quarters into a 12-quarter plan. Springboard is a milestone based plan evolving through 2026.
And finally, we expect to generate significant cash flow over the Springboard timeframe because we already have the capacity and technical capabilities in place to add more than $3 billion in annualized sales by the end of 2026. For the year, we've reduced our capital expenditures to approximately $1.1 billion.
So let me spend a minute on capital allocation. Our priorities remain the same. We prioritize investing for organic growth opportunities. We believe this creates the most value for our shareholders over the long term. We also seek to maintain a strong and efficient balance sheet and we're in great shape here. We have one of the longest debt tenors in the S&P 500. Our current average debt maturity is about 23 years with only $1 billion in debt coming due over the next five years. And we have no significant debt coming due in any given year.
Finally, we expect to continue our strong track record of returning excess cash to shareholders. And because of our growing confidence in Springboard, we started to buy back shares in the second quarter and we continue to do so in the third quarter.
So as I wrap up today, I'd like to reiterate that we had an outstanding third quarter. We're tracking ahead of our Springboard plan. We expect continued strong performance in Q4 with year-over-year sales growth accelerating and EPS again growing faster than sales. And we expect to sustain our momentum in 2025 and beyond. We look forward to updating you as we continue to make progress.
With that, I'll turn it back to Ann.