10-QPeriod: Q3 FY2011

TE Connectivity plc Quarterly Report for Q3 Ended Jun 24, 2011

Filed July 22, 2011For Securities:TEL

Summary

TE Connectivity Ltd. (TEL) reported a significant increase in net sales for the third quarter and the first nine months of fiscal year 2011, driven by organic growth across its segments and contributions from the acquisition of ADC Telecommunications. Net sales rose by 20.9% in the third quarter and 16.4% year-to-date. The company experienced strong performance in its Transportation Solutions and Network Solutions segments, with Network Solutions benefiting significantly from the ADC acquisition. Despite increased sales, gross margin as a percentage of net sales saw a slight decrease due to rising material costs, price erosion, and the impact of the earthquake in Japan. However, operating income saw an increase year-over-year, supported by higher sales volumes and cost management efforts. The company also reiterated its full-year 2011 outlook, projecting net sales between $14.3 billion and $14.4 billion and diluted earnings per share from continuing operations between $2.83 and $2.87.

Financial Highlights

57 data points
Beta

Revenue

$3.58B

30.4% Gross Margin

Net Income

$355.00M

9.9% Net Margin

EPS (Diluted)

$0.80

Total Assets

$18.03B

Cash & Equivalents

$1.21B

Free Cash Flow

$295.00M

Financial Statements
Beta
Revenue$3.58B
Cost of Revenue$2.49B
Gross Profit$1.09B
SG&A Expenses$441.00M
Operating Income$460.00M
Interest Expense$39.00M
Net Income$355.00M
EPS (Basic)$0.81
EPS (Diluted)$0.80
Shares Outstanding (Basic)437.00M
Shares Outstanding (Diluted)442.00M

Key Highlights

  • 1Net sales increased by 20.9% in Q3 FY2011 and 16.4% year-to-date, reaching $3.73 billion and $10.40 billion, respectively.
  • 2The acquisition of ADC Telecommunications, completed in December 2010, significantly contributed to the growth in the Network Solutions segment, adding $311 million in sales for Q3 and $641 million year-to-date.
  • 3Organic net sales growth was robust, at 4.9% for Q3 and 7.8% year-to-date, indicating underlying business strength.
  • 4Operating income grew to $471 million in Q3 and $1,276 million year-to-date, reflecting improved sales and cost management, despite headwinds from material costs and price erosion.
  • 5The company established a new five-year $1.5 billion senior revolving credit facility, indicating strong liquidity management.
  • 6Shareholder returns were supported by dividend payments and an ongoing share repurchase program, with approximately $564 million spent on repurchases year-to-date.

Frequently Asked Questions

The acquisition of ADC Telecommunications, completed in December 2010, significantly boosted TE Connectivity's Network Solutions segment. For the third quarter of fiscal 2011, ADC contributed $311 million in net sales and $11 million in operating income (after accounting for acquisition-related charges). Year-to-date, it contributed $641 million in net sales and an operating loss of $77 million, which included substantial restructuring and integration costs. The acquisition is a key driver for growth in the broadband connectivity market.

While gross margin in dollar terms increased due to higher net sales, the gross margin as a percentage of net sales slightly decreased in the third quarter of fiscal 2011 (to 30.2% from 31.9% in the prior year quarter). This was primarily due to increased material costs, price erosion in certain products, and negative impacts from the earthquake in Japan. These factors offset benefits from improved manufacturing productivity.

TE Connectivity's liquidity remains strong. Total debt increased slightly to $2.66 billion at the end of Q3 FY2011, up from $2.41 billion at the start of the fiscal year, partly due to the ADC acquisition. The company also entered into a new $1.5 billion senior revolving credit facility, replacing its previous agreement, and had no borrowings under this new facility as of June 24, 2011, indicating ample borrowing capacity. The company also continues to return capital to shareholders through dividends and share repurchases.

TE Connectivity expects fiscal year 2011 net sales to be between $14.3 billion and $14.4 billion, representing an 18% to 19% increase over fiscal 2010, driven by strong performance in automotive, network infrastructure, and industrial markets, along with the ADC contribution. Diluted earnings per share from continuing operations are projected to be between $2.83 and $2.87, which includes the impact of an extra week in the fiscal year. The company anticipates Q4 net sales to be between $3.9 billion and $4.0 billion, reflecting a 24% to 28% increase over the prior year's fourth quarter.