10-QPeriod: Q2 FY2011

TE Connectivity plc Quarterly Report for Q2 Ended Mar 25, 2011

Filed April 26, 2011For Securities:TEL

Summary

TE Connectivity Ltd. (TEL) reported its financial results for the quarterly period ending March 25, 2011. The company saw a significant increase in net sales, driven by organic growth and the recent acquisition of ADC Telecommunications, Inc. Despite some cost pressures like increased material costs and price erosion, operating income saw a modest increase year-over-year. The company also provided an optimistic outlook for the full fiscal year, projecting solid sales growth and earnings per share, though it acknowledged potential impacts from the Japan earthquake and tsunami. Key developments include the company's name change from Tyco Electronics Ltd. to TE Connectivity Ltd. and the ongoing integration of ADC, which is expected to yield cost savings. Management highlighted improvements in key end markets such as automotive and industrial, while noting some softness in consumer-focused segments. The company continued its share repurchase program and declared dividends, demonstrating a commitment to returning capital to shareholders.

Financial Highlights

56 data points
Beta

Revenue

$3.34B

30.2% Gross Margin

Net Income

$299.00M

9.0% Net Margin

EPS (Diluted)

$0.67

Total Assets

$18.08B

Cash & Equivalents

$1.24B

Free Cash Flow

$447.00M

Financial Statements
Beta
Revenue$3.34B
Cost of Revenue$2.33B
Gross Profit$1.01B
SG&A Expenses$431.00M
Operating Income$392.00M
Interest Expense$43.00M
Net Income$299.00M
EPS (Basic)$0.67
EPS (Diluted)$0.67
Shares Outstanding (Basic)443.00M
Shares Outstanding (Diluted)449.00M

Key Highlights

  • 1Net sales increased by 17.4% to $3,472 million in the second quarter of fiscal 2011 compared to the prior year period.
  • 2The acquisition of ADC Telecommunications, Inc. contributed $279 million in net sales in the current quarter and is expected to generate significant synergies.
  • 3Operating income for the quarter was $405 million, a slight increase from $398 million in the prior year, despite increased costs and integration expenses.
  • 4The company reaffirmed its full fiscal year 2011 outlook, expecting net sales to increase by 16% to 18% and diluted EPS from continuing operations to be between $2.73 and $2.85.
  • 5Restructuring charges and acquisition/integration costs totaled $52 million for the six months ended March 25, 2011, reflecting ongoing integration and efficiency initiatives.
  • 6Cash provided by operating activities was $711 million for the six months ended March 25, 2011, though down from $830 million in the prior year due to working capital changes.
  • 7The company completed the tender offer and merger for ADC, acquiring 100% of the outstanding shares for approximately $717 million in cash.

Frequently Asked Questions

The acquisition of ADC Telecommunications, Inc. (ADC), completed in December 2010, significantly boosted TE Connectivity's net sales, contributing $279 million in the quarter ended March 25, 2011. The integration of ADC is ongoing, with associated restructuring and integration costs of $52 million for the six months ended March 25, 2011. Management expects ADC to contribute to accelerated growth in the broadband connectivity market and anticipates realizing cost savings and synergies.

TE Connectivity reported a robust increase in net sales, up 17.4% to $3,472 million in the second quarter of fiscal 2011 compared to the same period in fiscal 2010. This growth was driven by a combination of organic sales increases of 7.4% and the contribution from the ADC acquisition. Key segments like Transportation Solutions and Communications and Industrial Solutions showed strong performance. Positive currency translations also contributed to the net sales increase.

TE Connectivity provided an optimistic outlook for fiscal year 2011, projecting net sales to increase by 16% to 18% over fiscal 2010 levels, reaching between $14.0 billion and $14.3 billion. Diluted earnings per share from continuing operations are expected to be in the range of $2.73 to $2.85. The company anticipates stronger performance in the third and fourth quarters, though it noted potential negative impacts from the Japan earthquake and tsunami on sales and EPS.

The company faced challenges including price erosion, which negatively impacted net sales by $67 million in the quarter, and increases in material costs. Additionally, charges related to the amortization of acquisition accounting-related fair value adjustments (primarily for inventories and customer order backlog) and restructuring/integration costs associated with the ADC acquisition put pressure on margins. The company also noted potential disruptions from the Japan earthquake and tsunami, estimating a negative impact on sales and EPS.