10-QPeriod: Q2 FY2016

TE Connectivity plc Quarterly Report for Q2 Ended Mar 25, 2016

Filed April 21, 2016For Securities:TEL

Summary

TE Connectivity plc (TEL) reported its financial results for the quarter and six months ended March 24, 2016. Net sales for the quarter decreased by 4.2% year-over-year to $2.95 billion, primarily driven by declines in the Industrial Solutions and Communications Solutions segments, partly offset by growth in Transportation Solutions. The company experienced organic net sales growth in Transportation Solutions but saw declines in the other two segments. Profitability saw a significant boost from a $146 million pre-tax gain on the sale of the Circuit Protection Devices (CPD) business. Restructuring activities contributed to a net credit of $99 million in the quarter. Despite lower sales, operating income increased year-over-year to $535 million due to these positive factors. Diluted earnings per share (EPS) for the quarter was $1.03, a decrease from $1.45 in the prior year's comparable period, influenced by factors including discontinued operations and changes in tax items. The company also announced the acquisition of Creganna Medical group for approximately $900 million subsequent to the quarter end, expected to be accretive to earnings. Management provided an outlook for the third quarter and full fiscal year 2016, projecting net sales between $3.0 billion and $3.2 billion for Q3 and $12.1 billion to $12.5 billion for the full year.

Financial Highlights

55 data points
Beta

Revenue

$2.95B

32.6% Gross Margin

Net Income

$380.00M

12.9% Net Margin

EPS (Diluted)

$1.03

Total Assets

$17.84B

Cash & Equivalents

$1.15B

Free Cash Flow

$24.00M

Financial Statements
Beta
Revenue$2.95B
Cost of Revenue$1.99B
Gross Profit$962.00M
SG&A Expenses$367.00M
Operating Income$535.00M
Interest Expense$32.00M
Net Income$380.00M
EPS (Basic)$1.04
EPS (Diluted)$1.03
Shares Outstanding (Basic)364.00M
Shares Outstanding (Diluted)368.00M

Key Highlights

  • 1Net sales decreased 4.2% to $2.95 billion in Q2 Fiscal Year 2016 compared to Q2 Fiscal Year 2015, impacted by foreign currency translation and organic declines in Industrial and Communications Solutions segments.
  • 2Transportation Solutions segment showed resilience with organic net sales increasing by 3.2% in Q2 FY16, driven by the automotive and sensors end markets.
  • 3A significant pre-tax gain of $146 million was recognized from the divestiture of the Circuit Protection Devices (CPD) business, positively impacting operating income.
  • 4Operating income increased by 19.4% to $535 million in Q2 FY16, driven by the gain on divestiture and net restructuring credits, despite lower net sales.
  • 5Diluted earnings per share (EPS) for Q2 FY16 were $1.03, down from $1.45 in the prior year's quarter, partly due to discontinued operations and tax-related items.
  • 6The company completed the acquisition of Creganna Medical group for approximately $900 million after the quarter ended, which is expected to contribute to the Industrial Solutions segment.
  • 7Free cash flow increased to $402 million for the first six months of fiscal 2016 compared to $296 million in the prior year period.

Frequently Asked Questions

The primary drivers for the decrease in net sales during the quarter ended March 25, 2016, compared to the prior year, were declines in the Industrial Solutions and Communications Solutions segments. Foreign currency exchange rates also negatively impacted net sales by $75 million. While Transportation Solutions saw organic growth, it was not enough to offset the declines in the other segments.

The divestiture of the CPD business resulted in a pre-tax gain of $146 million, which significantly boosted operating income. This gain was a key factor in the increase of operating income despite the decrease in net sales.

For the third quarter of fiscal 2016, TE Connectivity expects net sales to be between $3.0 billion and $3.2 billion. Diluted earnings per share are projected to be in the range of $0.90 to $0.96.

Free cash flow increased to $402 million for the first six months of fiscal 2016 from $296 million in the same period of fiscal 2015. This increase was primarily driven by favorable changes in inventory levels and a reduction in capital expenditures compared to the prior year.