10-QPeriod: Q2 FY2023

TE Connectivity plc Quarterly Report for Q2 Ended Mar 31, 2023

Filed April 28, 2023For Securities:TEL

Summary

TE Connectivity Ltd. (TEL) reported its financial results for the quarter and six months ended March 31, 2023. For the quarter, net sales increased by 3.8% year-over-year to $4.16 billion, driven by growth in the Transportation Solutions and Industrial Solutions segments, although Communications Solutions saw a decline. Diluted EPS from continuing operations was $1.34. The company highlighted a significant increase in restructuring and other charges, primarily related to cost structure improvements across all segments, impacting operating income. For the six-month period, net sales grew 2.2% to $8.00 billion, with similar segment performance trends. Net cash provided by operating activities was strong at $1.215 billion for the six months. The company provided an outlook for the third quarter of fiscal 2023, expecting net sales of approximately $4.0 billion and diluted EPS of approximately $1.56, reflecting anticipated declines in Communications Solutions. Key financial developments include a continued focus on operational efficiencies through restructuring programs, which incurred substantial charges in the period. Despite inflationary pressures on materials and operations, the company managed to offset some of these impacts through pricing actions. The balance sheet shows a healthy cash position, with significant share repurchases and dividend payments continuing to return capital to shareholders. Management remains focused on navigating macroeconomic uncertainties and supply chain challenges while pursuing strategic growth opportunities.

Financial Highlights

52 data points
Beta

Revenue

$4.16B

30.9% Gross Margin

Net Income

$433.00M

10.4% Net Margin

EPS (Diluted)

$1.36

Total Assets

$21.49B

Cash & Equivalents

$905.00M

Free Cash Flow

$445.00M

Financial Statements
Beta
Revenue$4.16B
Cost of Revenue$2.88B
Gross Profit$1.28B
SG&A Expenses$435.00M
Operating Income$537.00M
Interest Expense$20.00M
Net Income$433.00M
EPS (Basic)$1.37
EPS (Diluted)$1.36
Shares Outstanding (Basic)316.00M
Shares Outstanding (Diluted)318.00M

Key Highlights

  • 1Net sales increased 3.8% to $4.16 billion for the second quarter and 2.2% to $8.00 billion for the first six months of fiscal 2023 year-over-year.
  • 2Transportation Solutions and Industrial Solutions segments showed solid net sales growth, while Communications Solutions experienced a significant decline.
  • 3Operating income decreased by $168 million to $537 million for the quarter and $338 million to $1,039 million for the six months, largely due to increased restructuring and other charges.
  • 4Restructuring and other charges totaled $119 million for the quarter and $230 million for the six months, reflecting ongoing cost improvement initiatives.
  • 5Net cash provided by operating activities was $1,215 million for the first six months of fiscal 2023, up from $945 million in the prior year period.
  • 6The company repurchased approximately $432 million of common stock in the first six months of fiscal 2023 and declared a dividend of $0.59 per share for the upcoming quarter.
  • 7The outlook for Q3 fiscal 2023 anticipates net sales of approximately $4.0 billion and diluted EPS of approximately $1.56.

Frequently Asked Questions

Sales performance was primarily driven by growth in the Transportation Solutions and Industrial Solutions segments, benefiting from increased demand in automotive, aerospace, defense, marine, energy, and medical end markets. This growth was partially offset by significant declines in the Communications Solutions segment, attributed to market downturns and inventory corrections in data and devices, as well as appliances.

Restructuring and other charges, which totaled $119 million for the quarter and $230 million for the six months, represent a significant year-over-year increase. These charges are primarily related to cost structure improvements and footprint consolidation initiatives across all segments. While these initiatives are aimed at long-term competitiveness and efficiency, they have a notable negative impact on operating income and net income in the current reporting periods.

TE Connectivity expects net sales of approximately $4.0 billion and diluted earnings per share of approximately $1.56 for the third quarter of fiscal 2023. This outlook reflects anticipated continued sales declines in the Communications Solutions segment, which are expected to be partially offset by growth in the Transportation Solutions segment. The outlook is based on current foreign currency exchange rates and commodity prices.

The company is actively managing inflationary cost pressures on materials and operations through pricing actions, which have positively impacted organic net sales. They are also focusing on cost reduction initiatives, including restructuring programs, reducing discretionary spending, and optimizing their global manufacturing footprint. Despite ongoing supply chain disruptions and inflationary pressures, management believes they have sufficient resources and liquidity.