01—Abstract
Summary
Summary of the 10-K filed November 13, 2023. Cited figures are marked; the original filing is the authoritative source.
TE Connectivity's fiscal 2023 (ended September 29, 2023) was a year of mixed performance: net sales fell 1.5% to $16.034 billiona, but organic sales grew 1.0% as pricing actions added $607 million.
The decline was driven by a 26.3% drop in Communications Solutions, which fell on inventory corrections in data and devices and appliances, while Transportation Solutions grew 4.0% on automotive strength and Industrial Solutions grew 1.4%. Profitability weakened: gross margin slipped to 31.5% from 32.2%, and operating income fell 16% to $2.304 billionb, largely because restructuring charges rose to $340 million. Diluted EPS from continuing operations was $6.01, down from $7.47, and net income was $1.910 billion.
Cash generation and capital returns remained strong. Operating cash flow rose to $3.132 billionc, up $664 million, mainly from working capital improvements. The company returned about $1.67 billion to shareholders through $725 million in dividends and $946 million in buybacks, and it ended the year with $735 million left under its repurchase authorization.
Total debt was roughly flat at $4.2 billiond, and the company cited covenant compliance with no restrictive covenants. Investors should weigh several risks and forward items. The company disclosed ongoing voluntary disclosures of possible U.S. trade-control violations to BIS and DDTC, with a possible DOJ inquiry and fines that are not yet estimable.
Its tax position includes a $7.4 billion valuation allowance against $10.2 billion of gross deferred tax assets. Management guided fiscal 2024 Q1 sales to about $3.85 billion and EPS to about $1.59, and it is completing the Schaffner acquisition for roughly $350 million.
02—Key points
Key Highlights
- Net sales declined 1.5% to $16.03B, but organic growth was +1.0%, with pricing adding $607M and FX translation a 2.6% headwind.
- Communications Solutions sales fell 26.3% on inventory corrections in data/devices and appliances, while Transportation Solutions grew 4.0% (automotive organic +10.2%).
- Gross margin contracted to 31.5% (from 32.2%) and operating income fell 16% to $2.30B, with restructuring and other charges rising to $340M.
- Diluted EPS from continuing operations fell to $6.01 from $7.47; effective tax rate rose to 16.0% from 11.2%.
- Operating cash flow increased 27% to $3.13B, and shareholder returns totaled roughly $1.67B (dividends $725M, buybacks $946M).
- Open U.S. trade-controls investigations (BIS/DDTC, possible DOJ involvement) carry potential fines not yet reasonably estimable.
- FY2024 outlook: Q1 sales ~$3.85B and diluted EPS ~$1.59; pending ~$350M Schaffner acquisition expected to close in Q1 FY2024.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2023, TE Connectivity plc kept $0.12.
- Revenue$16.03B100.0%
- Cost of revenue−$10.98B68.5%
- Gross profit$5.05B31.5%
- Operating costs−$2.75B17.2%
- Operating income$2.30B14.4%
- Interest, other & tax−$394.0M2.5%
- Net income$1.91B11.9%
Where FY2023 revenue went
$16.03B- Cost of revenue: $10.98B, 68% of revenue
- Net income: $1.91B, 12% of revenue
- R&D: $593.0M, 3.7% of revenue
- SG&A: $1.67B, 10% of revenue
- Other operating costs: $488.0M, 3.0% of revenue
- Interest, other & tax: $394.0M, 2.5% of revenue
Kept 12% as net incomeInterest, other & tax $394.0M · 2.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2023filed November 13, 2023Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $16.03B$16.28B | −1.5% |
| Cost of Revenue | $10.98B$11.04B | −0.5% |
| Gross Profit | $5.05B$5.24B | −3.6% |
| R&D Expenses | $593.00M$610.00M | −2.8% |
| SG&A Expenses | $1.67B$1.58B | +5.4% |
| Operating Income | $2.30B$2.76B | −16.4% |
| Interest Expense | $80.00M$66.00M | +21.2% |
| Net Income | $1.91B$2.43B | −21.3% |
| EPS (Basic) | $6.06$7.52 | −19.4% |
| EPS (Diluted) | $6.03$7.47 | −19.3% |
| Shares Outstanding (Basic) | 315.00M323.00M | −2.5% |
| Shares Outstanding (Diluted) | 317.00M325.00M | −2.5% |
05—Questions
Frequently Asked Questions
Why did TE Connectivity's revenue decline in fiscal 2023 despite growth in two of its three segments?
Communications Solutions sales fell 26.3% due to customer inventory corrections and market declines in data and devices (down 27.2% organically) and appliances (down 21.8%). That drop more than offset growth in Transportation Solutions (+4.0%) and Industrial Solutions (+1.4%). Currency translation also reduced reported sales by about 2.6%, though pricing actions helped offset volume weakness.
How much did profitability deteriorate, and what drove it?
Operating income fell about 16% to $2.30B, and operating margin dropped to 14.4% from 16.9%. The main drivers were lower volume in Communications Solutions, higher material and operating costs, FX translation, and restructuring and other charges rising to $340M from $141M. Fiscal 2022 also included an extra week, which flatters the prior-year comparison.
Is the company's balance sheet and cash flow strong enough to support dividends and buybacks?
Yes, based on the filing. Operating cash flow was $3.13B, capex was $732M, and the company paid $725M in dividends and repurchased $946M of shares. Total debt was about $4.2B, with no borrowings under its $1.5B revolver. The company said it was in compliance with all debt covenants. Share repurchase authorization remaining was $735M, and the 2023 dividend was $2.36 per share, payable in four installments.
What are the most significant legal or regulatory risks disclosed?
The company disclosed voluntary disclosures of apparent U.S. trade-control violations to the BIS and DDTC, with ongoing investigations and contact from the DOJ. Fines or penalties may be imposed, but the company has not reasonably estimated them, though it has reserved some amounts. It also faces potential exposure from global minimum tax rules (expected to affect fiscal 2025) and a Swiss-law framework that limits some capital-management flexibility.
What should investors expect in the near term?
Management guided fiscal Q1 2024 net sales to about $3.85B, roughly flat with the prior-year quarter, with increases in Transportation and Industrial offset by Communications declines. Diluted EPS from continuing operations is expected around $1.59. Restructuring charges are expected to be about $100M in fiscal 2024, with total spending of about $175M, and capex is planned at about 5% of net sales.
06—Continue