10-QPeriod: Q3 FY2019

TE Connectivity plc Quarterly Report for Q3 Ended Jun 28, 2019

Filed July 26, 2019For Securities:TEL

Summary

TE Connectivity Ltd. reported a decrease in net sales for the third quarter and first nine months of fiscal 2019 compared to the prior year, with sales declining in the Transportation Solutions and Communications Solutions segments, partially offset by growth in Industrial Solutions. Despite lower sales, the company maintained a strong gross margin and demonstrated effective cost control, leading to a slight decrease in operating income. The company highlighted progress in its restructuring initiatives and continued to return capital to shareholders through dividends and share repurchases. The sale of the Subsea Communications (SubCom) business was completed during the period, impacting reported results. Looking ahead, TE Connectivity anticipates continued sales pressure in the fourth quarter of fiscal 2019, particularly in the automotive sector due to market weakness in China and EMEA. The company expects full-year fiscal 2019 sales to be between $13.35 billion and $13.45 billion. Management remains focused on managing costs, capital resources, and navigating the evolving macroeconomic environment. The company also noted a significant income tax benefit related to Swiss Tax Reform, which will be followed by a significant tax expense upon cantonal implementation.

Financial Statements
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Key Highlights

  • 1Net sales decreased by 5.4% in Q3 2019 and 3.2% for the first nine months of fiscal 2019 compared to the prior year, with declines in Transportation and Communications Solutions, while Industrial Solutions saw growth.
  • 2Gross margin remained robust at 32.8% for the quarter and 32.9% for the nine months, though slightly down from the prior year due to lower volume, unfavorable product mix, and foreign currency impacts.
  • 3Selling, general, and administrative expenses were reduced by 9.6% in Q3 and 5.3% for the nine months, reflecting successful cost control measures and restructuring savings.
  • 4Operating income saw a decrease of 6.1% for the quarter and 12.9% for the nine months, reflecting lower sales and higher restructuring charges.
  • 5The company completed the sale of its Subsea Communications (SubCom) business during the nine-month period, generating cash proceeds of $297 million.
  • 6TE Connectivity returned capital to shareholders through $454 million in dividends and $836 million in share repurchases during the first nine months of fiscal 2019.
  • 7The company provided an outlook for Q4 fiscal 2019 with expected net sales between $3.2 billion and $3.3 billion and adjusted full-year 2019 net sales to $13.35-$13.45 billion.

Frequently Asked Questions

The decrease in net sales for the third quarter and first nine months of fiscal 2019 compared to the prior year was primarily driven by declines in the Transportation Solutions segment, particularly in the automotive end market due to market weakness in China and the EMEA region, and in the Communications Solutions segment due to reduced demand in appliances and data/devices. Foreign currency translation also had a negative impact.

The company incurred $67 million in restructuring and other charges in the third quarter and $184 million in the first nine months of fiscal 2019. These charges are part of ongoing efforts to consolidate manufacturing footprints and improve efficiency. While these costs impacted operating income, the company expects annualized cost savings of approximately $145 million from fiscal 2019 actions to be realized by the end of fiscal 2021.

TE Connectivity expects net sales for the fourth quarter of fiscal 2019 to be between $3.2 billion and $3.3 billion, a decrease compared to the prior year. For the full fiscal year 2019, net sales are projected to be between $13.35 billion and $13.45 billion. Diluted earnings per share from continuing operations for the full year are expected to be in the range of $5.42 to $5.48.

The sale of the SubCom business was completed during the nine months ended June 28, 2019, resulting in net cash proceeds of $297 million and a pre-tax loss on sale of $86 million. This divestiture is reflected in the 'Discontinued Operations' section of the financial statements and impacts year-over-year comparisons.