10-QPeriod: Q1 FY2020

TE Connectivity plc Quarterly Report for Q1 Ended Dec 27, 2019

Filed January 29, 2020For Securities:TEL

Summary

TE Connectivity Ltd. (TEL) reported a 5.3% decrease in net sales for the first quarter of fiscal year 2020, ending December 27, 2019, compared to the same period in fiscal year 2019. This decline was primarily driven by softer demand in the Transportation Solutions and Communications Solutions segments, with organic net sales down 4.8%. The company also incurred a significant tax expense related to Swiss Tax Reform, which heavily impacted net income. Despite the sales challenges, the company maintained a strong gross margin and demonstrated effective cost management, leading to a slight increase in operating income for the Industrial Solutions segment. Management provided a cautious outlook for the full fiscal year 2020, anticipating continued sales declines in key segments.

Financial Highlights

50 data points
Beta

Revenue

$3.17B

32.5% Gross Margin

Net Income

$26.00M

0.8% Net Margin

EPS (Diluted)

$0.08

Total Assets

$19.98B

Cash & Equivalents

$742.00M

Free Cash Flow

$235.00M

Financial Statements
Beta
Revenue$3.17B
Cost of Revenue$2.14B
Gross Profit$1.03B
SG&A Expenses$367.00M
Operating Income$471.00M
Interest Expense$12.00M
Net Income$26.00M
EPS (Basic)$0.08
EPS (Diluted)$0.08
Shares Outstanding (Basic)335.00M
Shares Outstanding (Diluted)337.00M

Key Highlights

  • 1Net sales decreased by 5.3% to $3,168 million for the quarter ended December 27, 2019, compared to $3,347 million for the prior year quarter.
  • 2Organic net sales decreased by 4.8%, indicating underlying demand weakness across segments, particularly in Transportation and Communications Solutions.
  • 3Net income significantly declined to $26 million from $276 million in the prior year, largely due to a substantial $355 million income tax expense related to Swiss Tax Reform.
  • 4Gross margin remained solid at 32.5% of net sales, though down from 33.3% in the prior year, reflecting pricing pressures and lower volumes.
  • 5Operating income for the Industrial Solutions segment increased, driven by growth in aerospace, defense, oil & gas, medical, and energy end markets, while Transportation and Communications Solutions experienced declines.
  • 6The company completed two acquisitions for $112 million in the quarter and expects to close the First Sensor AG acquisition in fiscal year 2020.
  • 7TE Connectivity continues to return capital to shareholders through dividends and share repurchases, with $1.4 billion remaining under its share repurchase authorization.

Frequently Asked Questions

The primary driver of the significant decrease in net income from $276 million to $26 million was a substantial income tax expense of $355 million related to the implementation of Swiss Tax Reform, which required the write-down of certain deferred tax assets.

Sales declined in the Transportation Solutions (down 5.9%) and Communications Solutions (down 13.9%) segments. The Industrial Solutions segment's sales were flat year-over-year, with growth in aerospace, defense, oil & gas, medical, and energy markets offsetting weakness in industrial equipment.

For the second quarter of fiscal 2020, TE Connectivity expects net sales between $3.1 billion and $3.3 billion. For the full fiscal year 2020, net sales are projected to be between $12.85 billion and $13.25 billion, representing a decrease compared to fiscal year 2019. Diluted EPS from continuing operations for Q2 FY2020 is expected to be $1.05-$1.11, and for full FY2020, $3.23-$3.53.

The company is undertaking restructuring programs focused on footprint consolidation, migrating facilities to lower-cost regions, and reducing fixed costs. These initiatives are expected to yield annualized cost savings and improve operating leverage. Selling, general, and administrative expenses decreased due to cost control measures and savings from restructuring actions.