10-QPeriod: Q2 FY2010

TE Connectivity plc Quarterly Report for Q2 Ended Mar 26, 2010

Filed April 29, 2010For Securities:TEL

Summary

TE Connectivity plc (TEL) reported a significant turnaround in its financial performance for the quarter ending March 26, 2010, compared to the prior year period. Net sales surged by 26.5% year-over-year, indicating a strong recovery in demand across its key segments, particularly Electronic Components. This revenue growth, combined with effective cost management and benefits from restructuring initiatives, led to a substantial increase in operating income, shifting from a significant loss in the prior year to a healthy profit. Key drivers of this improvement include robust organic sales growth, especially in the automotive sector, and positive impacts from foreign currency exchange rates. The company also demonstrated improved gross margins and managed selling, general, and administrative expenses effectively. While the Subsea Communications segment experienced a decline in sales due to project completion, the overall financial picture reflects a company benefiting from recovering end markets and successful operational adjustments. Investors should note the company's strategic acquisition of Sensitive Object and its ongoing manufacturing simplification plans as indicators of future growth initiatives.

Financial Highlights

54 data points
Beta

Revenue

$2.96B

32.4% Gross Margin

Net Income

$304.00M

10.3% Net Margin

EPS (Diluted)

$0.66

Total Assets

$16.55B

Cash & Equivalents

$1.84B

Free Cash Flow

$419.00M

Financial Statements
Beta
Revenue$2.96B
Cost of Revenue$2.00B
Gross Profit$958.00M
SG&A Expenses$406.00M
Operating Income$398.00M
Interest Expense$38.00M
Net Income$304.00M
EPS (Basic)$0.67
EPS (Diluted)$0.66
Shares Outstanding (Basic)457.00M
Shares Outstanding (Diluted)461.00M

Key Highlights

  • 1Net sales increased by 26.5% to $2,957 million in the second quarter of fiscal 2010 compared to the prior year period, driven by strong growth in the Electronic Components segment.
  • 2Operating income turned positive, reaching $398 million in the quarter, a significant improvement from the operating loss of $3,797 million in the same period last year.
  • 3Gross margin percentage improved substantially to 32.4% from 22.8% year-over-year, reflecting higher sales and cost reductions.
  • 4Organic net sales grew by 23.0% in the second quarter, indicating strong underlying business performance, particularly in the automotive sector.
  • 5The company successfully managed selling, general, and administrative expenses as a percentage of sales, decreasing to 13.7% from 14.1%.
  • 6Acquisition of Sensitive Object for approximately $67 million to bolster the Touch Systems business within the Specialty Products segment.
  • 7Significant reduction in restructuring and other charges, from $189 million to $12 million year-over-year for the quarter.

Frequently Asked Questions

The primary driver of the significant increase in net sales was robust growth in the Electronic Components segment, which saw a 55.0% increase year-over-year. This growth was broad-based across multiple end markets, with a particularly strong performance in the automotive sector.

The return to profitability was driven by a combination of factors: a significant increase in net sales, improved gross margins due to higher sales and cost reductions, and effective management of operating expenses. Benefits from restructuring actions implemented in the prior year also contributed to improved operational efficiency.

The Subsea Communications segment experienced a decline in net sales of 32.7% year-over-year for the quarter. This was attributed to the completion of large projects in the prior year and lower project activity in the current period. The company expects lower project revenue in this segment for the remainder of fiscal 2010.

The company is involved in several legal matters, including pre-separation litigation, investigations, and a significant contract dispute with the State of New York related to its former Wireless Systems business. While the company believes its current provisions are adequate, the ultimate resolution of these matters is uncertain and could potentially have a material adverse effect on its financial results.