10-QPeriod: Q1 FY2010

TE Connectivity plc Quarterly Report for Q1 Ended Dec 25, 2009

Filed January 28, 2010For Securities:TEL

Summary

TE Connectivity plc (TEL) reported a significant turnaround in its financial performance for the quarter ending December 25, 2009, compared to the prior year. Net income attributable to the company swung from a loss of $37 million to a profit of $172 million. This improvement was driven by a substantial increase in net sales, which grew by 6.6% to $2.9 billion, bolstered by favorable foreign currency exchange rates and a 1.6% organic sales increase. The company also demonstrated effective cost management, leading to a significant expansion of operating income and gross margin. Operationally, the Electronic Components segment saw robust growth, particularly in the automotive market, while other segments experienced varying performance. The company continues to focus on manufacturing simplification and cost optimization, anticipating further restructuring charges to support these initiatives. TE Connectivity maintained a strong liquidity position with $1.7 billion in cash and cash equivalents and managed its debt effectively, ending the quarter with approximately $2.4 billion in total debt. Investors should note the ongoing impact of restructuring charges and potential volatility from legal and tax matters, although the company appears to be on a positive recovery trajectory.

Financial Highlights

54 data points
Beta

Revenue

$2.89B

29.1% Gross Margin

Net Income

$172.00M

5.9% Net Margin

EPS (Diluted)

$0.37

Total Assets

$16.28B

Cash & Equivalents

$1.70B

Free Cash Flow

$254.00M

Financial Statements
Beta
Revenue$2.89B
Cost of Revenue$2.05B
Gross Profit$841.00M
SG&A Expenses$368.00M
Operating Income$269.00M
Interest Expense$39.00M
Net Income$172.00M
EPS (Basic)$0.37
EPS (Diluted)$0.37
Shares Outstanding (Basic)459.00M
Shares Outstanding (Diluted)462.00M

Key Highlights

  • 1Net income attributable to Tyco Electronics Ltd. improved dramatically from a loss of $37 million in Q1 FY2009 to a profit of $172 million in Q1 FY2010.
  • 2Net sales increased by 6.6% to $2.9 billion, driven by a 1.6% organic sales increase and a favorable impact of $163 million from foreign currency exchange rates.
  • 3Gross margin expanded significantly, increasing by 240 basis points as a percentage of net sales, due to higher sales and cost reductions from restructuring efforts.
  • 4Operating income saw a substantial increase to $269 million from $83 million in the prior year's quarter, reflecting improved sales and cost efficiencies, despite ongoing restructuring charges.
  • 5The Electronic Components segment showed strong growth, particularly in the automotive market, with a 17.6% increase in net sales.
  • 6The company maintained a healthy cash position, with cash and cash equivalents totaling $1.7 billion as of December 25, 2009.
  • 7The company continued its share repurchase program, buying back approximately 750 thousand shares for $18 million in the quarter.

Frequently Asked Questions

The primary driver was a combination of increased net sales, which grew by 6.6% year-over-year, and effective cost management. Higher sales, particularly in the Electronic Components segment and positively influenced by foreign currency, combined with cost reductions from restructuring actions and improved gross margins, led to a dramatic swing from a net loss to a significant profit.

TE Connectivity is actively pursuing manufacturing simplification and cost optimization initiatives. These include plans to migrate facilities to lower-cost countries, consolidate operations, and transfer product lines. The company expects to incur approximately $275 million in restructuring charges through fiscal 2011 to support these efforts, aiming for annualized cost savings of around $100 million.

Investors should be aware of potential impacts from ongoing litigation, including securities class actions and the State of New York contract dispute, which have led to significant charges in the past and could result in future costs. Additionally, there are ongoing tax matters with the IRS and potential liabilities related to pre-separation tax issues with Tyco International and Covidien. The company also carries a liability of $339 million related to indemnifications under the Tax Sharing Agreement.

The Electronic Components segment performed strongly, with net sales up 17.6%, driven by the automotive market. Network Solutions saw a 7.5% decline in net sales. Specialty Products experienced a slight 2.5% decrease in net sales, while Undersea Telecommunications saw a significant 24.2% drop in net sales. Operating income improved across most segments, except for Network Solutions which saw a decrease.