NEW YORK - Specialty glass maker Corning Inc said the decline in third-quarter glass output may be smaller than expected due to improving demand, but profit margins have been hurt by an earthquake in Japan.

Corning, the largest maker of glass for liquid crystal display screens, said it expects volume at its wholly owned business to be down less than 5 percent in the third quarter from the second quarter.

It previously expected a decline of 5 percent to 10 percent.

Since late May the company has been more and more optimistic about glass demand this year due to signs of recovery in corporate spending on technology and robust growth in sales of LCD TVs.

The supply chain for displays is expanding in preparation for what we now believe will be a stronger fourth quarter than we previously thought, Chief Executive Wendell Weeks said in comments prepared for an investor conference on Thursday.

But the company also noted that as a result of an earthquake in Japan last month that forced it to shut down a factory in Shizuoka, its gross margin will be hurt by about 2 percentage points in the third quarter.

The company expects the rebuild at Shizuoka to result in $22 million in incremental accelerated depreciation charges in the third quarter.

Weeks said the restart of the Shizuoka plant is on track, with some output resuming this month and more planned in October. He said Corning would ease some of the effect from the disruption by restarting production units in Taiwan earlier than anticipated.

Weeks said fourth-quarter margins would bounce back to second-quarter levels. The company said it expects worldwide glass demand in the fourth quarter to be as strong as in the third quarter. Weeks said LCD TV demand continues to be robust.

Corning shares were up 10 cents to $15.91 in early trading on the New York Stock Exchange. (Reporting by Franklin Paul, editing by Gerald E. McCormick and John Wallace)

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