10-QPeriod: Q2 FY2020

TE Connectivity plc Quarterly Report for Q2 Ended Mar 27, 2020

Filed May 4, 2020For Securities:TEL

Summary

TE Connectivity Ltd. (TEL) reported a challenging second quarter for fiscal year 2020, ending March 27, 2020, with net sales declining 6.4% year-over-year to $3.2 billion. This decline was primarily driven by the early impacts of the COVID-19 pandemic, which significantly affected demand in key markets such as automotive and commercial transportation. The company recorded a substantial goodwill impairment charge of $900 million related to its Sensors reporting unit within the Transportation Solutions segment, reflecting current and projected declines in sales and profitability. Despite the top-line headwinds and the significant impairment charge, TE Connectivity generated $892 million in net cash from operating activities for the first six months of fiscal 2020, demonstrating operational resilience. The company also made strategic moves, including the acquisition of 72% of First Sensor AG for $232 million to bolster its sensing solutions capabilities in the Transportation Solutions segment. Looking ahead, the company anticipates a continued decline in sales for the third quarter of fiscal 2020, with further uncertainty due to the ongoing pandemic, leading them to withdraw their full-year guidance.

Financial Statements
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Key Highlights

  • 1Net sales decreased by 6.4% to $3.2 billion in the second quarter of fiscal 2020 compared to the prior year, impacted by the early effects of the COVID-19 pandemic.
  • 2A significant goodwill impairment charge of $900 million was recognized in the quarter for the Sensors reporting unit within the Transportation Solutions segment.
  • 3The company acquired approximately 72% of First Sensor AG for $232 million in March 2020, strengthening its sensing solutions portfolio.
  • 4Net cash provided by operating activities remained strong at $892 million for the first six months of fiscal 2020.
  • 5Operating income (loss) for the quarter was $(415) million, a significant decrease from $530 million in the prior year, heavily influenced by the goodwill impairment.
  • 6The company withdrew its full-year fiscal 2020 guidance due to uncertainty surrounding the COVID-19 pandemic's impact.
  • 7The outlook for the third quarter of fiscal 2020 indicates an expected net sales decline of approximately 25% due to weakness in automotive and commercial aerospace markets.

Frequently Asked Questions

The primary reason for the decline in net sales was the early impact of the COVID-19 pandemic, which negatively affected demand in key end markets such as automotive and commercial transportation. This resulted in a 6.4% decrease in net sales for the quarter.

A goodwill impairment charge of $900 million was recorded due to current and projected declines in sales and profitability for the Sensors reporting unit in the Transportation Solutions segment. This was influenced by factors including the impact of COVID-19 and projected reductions in global automotive production.

TE Connectivity generated $892 million in net cash from operating activities in the first six months of fiscal 2020. The company believes its cash generated from operations, along with potential access to capital markets and existing financing arrangements, will be sufficient to meet its foreseeable capital needs, including debt obligations and anticipated payments related to acquisitions.

Due to the significant uncertainty surrounding the impact of the COVID-19 pandemic, TE Connectivity has withdrawn its full-year fiscal 2020 guidance. The company anticipates a continued decline in net sales for the third quarter of fiscal 2020, with an estimated decrease of approximately 25% compared to the second quarter, driven by weakness in automotive and commercial aerospace markets.