10-QPeriod: Q2 FY2012

TE Connectivity plc Quarterly Report for Q2 Ended Mar 30, 2012

Filed April 30, 2012For Securities:TEL

Summary

TE Connectivity plc (TEL) reported its financial results for the quarter and six months ended March 30, 2012. The company experienced a slight decline in net sales for both periods compared to the prior year, with organic net sales also showing a decrease. This was primarily driven by weakness in the Communications and Industrial Solutions segment, offset partially by growth in the Transportation Solutions segment. Despite lower sales, the company saw an improvement in gross margin due to better manufacturing productivity, though this was partially impacted by decreased volume and higher material costs. Operating income saw a slight decrease overall due to these factors, alongside restructuring and acquisition-related costs. The company also announced a significant subsequent event: the acquisition of Deutsch Group SAS for approximately $2.05 billion, which is expected to bolster its offerings in harsh environment connectors and key industrial markets. Concurrently, TE Connectivity is progressing with the divestiture of its Touch Solutions and TE Professional Services businesses. The financial statements reflect ongoing efforts to manage costs and streamline operations, with substantial restructuring charges noted. Investors should monitor the integration of the Deutsch acquisition and the completion of the divestitures, as well as the ongoing tax matters, which continue to present some uncertainty.

Financial Highlights

55 data points
Beta

Revenue

$3.25B

31.4% Gross Margin

Net Income

$257.00M

7.9% Net Margin

EPS (Diluted)

$0.60

Total Assets

$19.03B

Cash & Equivalents

$2.87B

Free Cash Flow

$382.00M

Financial Statements
Beta
Revenue$3.25B
Cost of Revenue$2.23B
Gross Profit$1.02B
SG&A Expenses$427.00M
Operating Income$385.00M
Interest Expense$44.00M
Net Income$257.00M
EPS (Basic)$0.60
EPS (Diluted)$0.60
Shares Outstanding (Basic)427.00M
Shares Outstanding (Diluted)431.00M

Key Highlights

  • 1Net sales for the quarter ended March 30, 2012, were $3,249 million, a decrease of 2.7% compared to $3,339 million in the prior year quarter. Organic net sales decreased by 1.3%.
  • 2For the six months ended March 30, 2012, net sales were $6,419 million, a slight decrease of 0.4% from $6,446 million in the prior year period. Organic net sales decreased by 2.2%.
  • 3Gross margin improved to 31.4% in the second quarter of fiscal 2012 from 30.2% in the prior year, driven by manufacturing productivity, despite lower volumes and higher material costs.
  • 4The company incurred $32 million in restructuring and other charges in the second quarter of fiscal 2012, compared to $11 million in the prior year quarter.
  • 5Subsequent to the quarter, TE Connectivity acquired Deutsch Group SAS for approximately $2.05 billion, significantly expanding its presence in harsh environment connectors.
  • 6The company is divesting its Touch Solutions and TE Professional Services businesses, with agreements for sale signed in April 2012.
  • 7Diluted earnings per share for the quarter were $0.60, down from $0.67 in the prior year quarter.

Frequently Asked Questions

For the third quarter of fiscal 2012, TE Connectivity expected net sales between $3.55 billion and $3.65 billion and diluted earnings per share between $0.58 and $0.62. For the full fiscal year 2012, the company projected net sales between $13.5 billion and $13.8 billion and diluted earnings per share between $2.50 and $2.60. These outlooks included the recently completed acquisition of Deutsch.

The Transportation Solutions segment showed net sales growth of 7.4% for the quarter, driven by automotive and aerospace, defense, and marine end markets. The Communications and Industrial Solutions segment experienced a significant decline in net sales of 12.2% for the quarter, attributed to weakness in industrial, consumer devices, and data communications end markets. The Network Solutions segment saw a net sales decrease of 6.2% for the quarter, impacted by reduced capital investments in telecom networks and lower project activity in subsea communications.

The acquisition of Deutsch, a leader in high-performance connectors, for approximately $2.05 billion is expected to significantly expand TE Connectivity's product portfolio and market reach, particularly in harsh environments. The divestitures of Touch Solutions and TE Professional Services are part of the company's strategy to streamline its business portfolio. The sale of TE Professional Services was agreed for $24 million, and the sale of Touch Solutions for $380 million, with expected closings by the end of the third quarter of fiscal 2012. The Touch Solutions sale may result in an income tax charge of approximately $65 million.

TE Connectivity's liquidity and capital resources appear robust. Net cash provided by continuing operating activities for the first six months of fiscal 2012 was $676 million. Free cash flow was $449 million for the same period. The company has a $1,500 million revolving credit facility with no borrowings as of March 30, 2012. Total debt increased to $3,972 million at March 30, 2012, primarily due to new senior note issuances to fund the Deutsch acquisition. The company believes its cash from operations and financing arrangements are sufficient to meet its future capital needs.