10-QPeriod: Q2 FY2019

TE Connectivity plc Quarterly Report for Q2 Ended Mar 29, 2019

Filed April 26, 2019For Securities:TEL

Summary

TE Connectivity plc (TEL) reported net sales of $3.41 billion for the second quarter of fiscal year 2019, a decrease of 4.2% compared to the prior year's quarter. This decline was primarily driven by weaker performance in the Transportation Solutions segment, particularly in the automotive market, and a moderate decrease in Communications Solutions. However, the Industrial Solutions segment showed positive growth. For the first six months of fiscal 2019, net sales decreased by 2.0% to $6.76 billion. Operating income for the quarter declined by 14.6% year-over-year to $530 million, reflecting the lower sales and increased restructuring charges. The company's diluted earnings per share from continuing operations were $1.26 for the quarter, down from $1.38 in the prior year. The divestiture of the Subsea Communications (SubCom) business contributed $10 million in net income for the quarter, though a significant pre-tax loss on sale was incurred. Management has provided an outlook for the third quarter and full fiscal year 2019, expecting continued sales declines in certain segments and an overall revenue range of $13.55 billion to $13.75 billion for the full year.

Financial Highlights

52 data points
Beta

Revenue

$3.41B

32.8% Gross Margin

Net Income

$439.00M

12.9% Net Margin

EPS (Diluted)

$1.29

Total Assets

$19.26B

Cash & Equivalents

$565.00M

Free Cash Flow

$365.00M

Financial Statements
Beta
Revenue$3.41B
Cost of Revenue$2.29B
Gross Profit$1.12B
SG&A Expenses$373.00M
Operating Income$530.00M
Interest Expense$15.00M
Net Income$439.00M
EPS (Basic)$1.30
EPS (Diluted)$1.29
Shares Outstanding (Basic)338.00M
Shares Outstanding (Diluted)340.00M

Key Highlights

  • 1Net sales decreased by 4.2% to $3.41 billion in Q2 FY19 compared to Q2 FY18, with Transportation Solutions being the main driver of the decline.
  • 2The Industrial Solutions segment showed resilience, with net sales increasing by 3.6% in Q2 FY19 year-over-year.
  • 3Operating income fell 14.6% to $530 million in Q2 FY19, impacted by lower sales and increased restructuring charges.
  • 4Diluted EPS from continuing operations decreased to $1.26 in Q2 FY19 from $1.38 in Q2 FY18.
  • 5The company completed the sale of its Subsea Communications (SubCom) business during the first six months of fiscal 2019, impacting reported results.
  • 6Restructuring charges increased significantly, reaching $42 million in Q2 FY19 compared to $6 million in Q2 FY18, signaling ongoing cost-reduction initiatives.
  • 7The company is managing its liquidity well, with net cash provided by continuing operating activities at $883 million for the first six months of fiscal 2019.

Frequently Asked Questions

The primary driver of the revenue decline was a decrease in net sales from the Transportation Solutions segment, particularly within the automotive end market, which experienced market weakness in key regions like Asia-Pacific and EMEA.

Restructuring charges increased significantly to $42 million in the second quarter of fiscal 2019, up from $6 million in the same period of the prior year. These charges are part of ongoing efforts to improve operational efficiency and consolidate the manufacturing footprint, which impacted operating income.

TE Connectivity expects net sales for the full fiscal year 2019 to be between $13.55 billion and $13.75 billion, reflecting expected sales declines in Transportation Solutions and Communications Solutions. Diluted EPS from continuing operations is projected to be between $4.88 and $4.98.

The sale of the Subsea Communications (SubCom) business resulted in $297 million in net cash proceeds and a pre-tax loss on sale of $86 million. The business was classified as discontinued operations, contributing $10 million to net income in the second quarter of fiscal 2019. However, the company also retained certain performance guarantees related to this sale, with a significant outstanding value.