01—Abstract
Summary
Summary of the 10-K filed November 10, 2020. Cited figures are marked; the original filing is the authoritative source.
TE Connectivity's fiscal 2020 (ended September 25, 2020) was a difficult year.
Net sales fell 9.5% to $12.17 billiona, with organic sales down 9.9%, driven by COVID-19 disruption and weakness in automotive, which is roughly 40% of company sales. Transportation Solutions, the largest segment at 56% of sales, fell 12.5%. Gross margin contracted to 30.7% from 32.7%, and operating margin fell to 4.4% from 14.7%, mainly because of a $900 million goodwill impairment on the Sensors reporting unit and $257 million of restructuring charges.
The company swung to a net loss of $241 millionb, or $(0.73) per diluted share, compared with net income of $1.84 billion in fiscal 2019. Results were also hurt by a $355 million Swiss tax reform charge and a $226 million increase in the valuation allowance on deferred tax assets, largely tied to COVID-19. Operating cash flow nonetheless remained solid at $1.99 billion from continuing operations, and the company paid $625 million in dividends.
Debt rose modestly to $4.15 billionc, and management reports compliance with all debt covenants. Looking ahead, management guides fiscal Q1 2021 net sales to about $3.2 billion, a slight increase year over year, and diluted EPS from continuing operations of about $0.83.
It expects automotive and commercial aerospace markets to remain weak, with commercial aerospace expected to fall more than 20%d in fiscal 2021. Investors should weigh the near-term recovery signals against continued cyclical and pandemic-related risks, a large tax valuation allowance that could reverse or grow, and a balance sheet that still supports the dividend.
02—Key points
Key Highlights
- Net sales declined 9.5% to $12.17 billion (organic -9.9%), with Transportation Solutions down 12.5% and Industrial Solutions down 6.1%.
- Net loss of $241 million ($(0.73) per diluted share) versus net income of $1.84 billion in fiscal 2019, driven by a $900 million goodwill impairment and higher tax expense.
- Operating margin fell to 4.4% from 14.7%; excluding impairment and restructuring, operating income was about $1.2 billion before those items, with gross margin down to 30.7% from 32.7%.
- Income tax expense of $783 million included $355 million from Swiss Tax Reform and $226 million of valuation allowance increases tied largely to COVID-19.
- Operating cash flow from continuing operations was $1.99 billion, and dividends paid totaled $625 million ($1.88 per share), supporting shareholder returns.
- Fiscal Q1 2021 guidance calls for net sales of about $3.2 billion (slight year-over-year increase) and diluted EPS from continuing operations of about $0.83.
- Acquired roughly 72% of First Sensor AG for €181 million, plus four other businesses for $135 million, expanding the Sensors business; $1.0 billion remains under the share repurchase authorization.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2020, TE Connectivity plc lost $0.02.
- Revenue$12.17B100.0%
- Cost of revenue−$8.44B69.3%
- Gross profit$3.73B30.7%
- Operating costs−$3.20B26.3%
- Operating income$537.0M4.4%
- Interest, other & tax−$778.0M6.4%
- Net income−$241.0M2.0%
Where FY2020 revenue went
$12.17B- Cost of revenue: $8.44B, 69% of revenue
- Operating income: $537.0M, 4.4% of revenue
- R&D: $539.0M, 4.4% of revenue
- SG&A: $1.39B, 11% of revenue
- Other operating costs: $1.27B, 10% of revenue
Kept 4.4% as operating incomeOperating income $537.0M · 4.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2020filed November 10, 2020Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $12.17B$13.45B | −9.5% |
| Cost of Revenue | $8.44B$9.05B | −6.8% |
| Gross Profit | $3.73B$4.39B | −15.0% |
| R&D Expenses | $539.00M$572.00M | −5.8% |
| SG&A Expenses | $1.39B$1.49B | −6.6% |
| Operating Income | $537.00M$1.98B | −72.9% |
| Interest Expense | $48.00M$68.00M | −29.4% |
| Net Income | -$241.00M$1.84B | −113.1% |
| EPS (Basic) | $-0.73$5.46 | −113.4% |
| EPS (Diluted) | $-0.73$5.42 | −113.5% |
| Shares Outstanding (Basic) | 332.00M338.00M | −1.8% |
| Shares Outstanding (Diluted) | 332.00M340.00M | −2.4% |
05—Questions
Frequently Asked Questions
Why did TE Connectivity report a net loss in fiscal 2020?
The loss reflected a $900 million goodwill impairment on the Sensors unit of Transportation Solutions, $257 million of restructuring charges, and $783 million of income tax expense. The tax expense included $355 million from Swiss Tax Reform and $226 million of valuation allowance increases, mostly tied to COVID-19's effect on expected future profits.
How much of the business depends on the automotive industry?
Approximately 40% of fiscal 2020 net sales were to automotive customers, and automotive alone was about 72% of the Transportation Solutions segment. Automotive sales fell 13.8% in the year, so the company remains highly exposed to global vehicle production cycles.
Is the dividend at risk?
The company paid $1.88 per share in fiscal 2020 and had already approved $1.92 for fiscal 2021, paid in quarterly installments. Operating cash flow of $1.99 billion covered the $625 million dividend payment. However, Swiss law limits distributions and the 10-K notes that future dividends require shareholder approval.
What does management expect for fiscal 2021?
Management expects Q1 fiscal 2021 net sales of about $3.2 billion, a slight increase from $3.17 billion a year earlier, and diluted EPS from continuing operations of about $0.83. It expects automotive production declines in the near term and a commercial aerospace market decline of more than 20% for the full year.
How strong is the balance sheet?
Total debt was $4.15 billion at fiscal year-end, with no borrowings under the $1.5 billion revolving credit facility, and the company stated it was in compliance with all debt covenants. Cash and equivalents were $945 million, and about $5.3 billion of cash and intercompany deposits was held in subsidiaries, though much is permanently reinvested abroad.
06—Continue