10-QPeriod: Q1 FY2024

TE Connectivity plc Quarterly Report for Q1 Ended Dec 29, 2023

Filed January 26, 2024For Securities:TEL

Summary

TE Connectivity Ltd. (TEL) reported a stable net sales performance for the first quarter of fiscal year 2024, with total net sales of $3.83 billion, a slight decrease of 0.3% compared to the prior year's $3.84 billion. This stability was achieved despite a 0.7% decline in organic net sales, with the difference attributed to favorable foreign currency translation effects. The company experienced a significant boost in operating income, which rose to $698 million from $502 million in the prior year, driven by improved gross margins (34.6% vs. 30.9%) due to better manufacturing productivity and prior-year pricing actions, as well as a substantial reduction in restructuring charges. Geographically, the EMEA region showed robust growth in net sales (+6.4%), while the Americas saw a decline (-6.0%), and Asia-Pacific remained relatively flat (-2.0%). Segment-wise, Transportation Solutions demonstrated strong growth (+5.0%), primarily driven by the automotive sector, while Communications Solutions experienced a significant decline (-17.0%). Industrial Solutions saw a modest decrease (-3.3%), impacted by a slowdown in industrial equipment but offset by growth in aerospace, energy, and medical markets. Notably, the company successfully acquired Schaffner Holding AG for $349 million, strengthening its Industrial Solutions segment.

Financial Highlights

52 data points
Beta

Revenue

$3.83B

34.6% Gross Margin

Net Income

$1.80B

47.1% Net Margin

EPS (Diluted)

$5.76

Total Assets

$23.07B

Cash & Equivalents

$1.17B

Free Cash Flow

$568.00M

Financial Statements
Beta
Revenue$3.83B
Cost of Revenue$2.51B
Gross Profit$1.32B
SG&A Expenses$424.00M
Operating Income$698.00M
Interest Expense$18.00M
Net Income$1.80B
EPS (Basic)$5.80
EPS (Diluted)$5.76
Shares Outstanding (Basic)311.00M
Shares Outstanding (Diluted)313.00M

Key Highlights

  • 1Net sales remained stable at $3.83 billion, a slight decrease of 0.3% year-over-year, with organic net sales down 0.7%.
  • 2Operating income surged by 39% to $698 million, driven by a significant improvement in gross margin to 34.6% from 30.9% in the prior year.
  • 3Transportation Solutions segment showed strong net sales growth of 5.0%, primarily in the automotive market.
  • 4Communications Solutions segment experienced a substantial decline in net sales of 17.0%.
  • 5The company acquired Schaffner Holding AG for $349 million, adding to its Industrial Solutions segment.
  • 6Net cash provided by operating activities increased by 23.7% to $719 million.
  • 7Diluted earnings per share from continuing operations significantly increased to $5.76 from $1.25 in the prior year, largely due to a substantial income tax benefit of $1.1 billion.

Frequently Asked Questions

The substantial increase in net income to $1.80 billion and diluted EPS to $5.76 from $397 million and $1.24, respectively, in the prior year, was primarily driven by a significant income tax benefit of $1.1 billion recognized in the current quarter. This benefit was related to a tax credit obtained by a Swiss subsidiary, the revaluation of deferred tax assets due to a corporate tax rate increase in Switzerland, and benefits from a legal entity restructuring.

The acquisition of Schaffner Holding AG for $349 million occurred during the quarter and was reported within the Industrial Solutions segment. While it contributed to the segment's net sales and goodwill, its impact on the overall quarterly results was limited due to its recent timing. The company is still finalizing the purchase price allocation. The acquisition is expected to strengthen the Industrial Solutions segment's offerings in electromagnetic solutions.

For the second quarter of fiscal year 2024, TE Connectivity expects net sales of approximately $3.95 billion, which represents a decrease compared to $4.16 billion in the second quarter of fiscal year 2023. The company anticipates sales declines across all segments in Q2 FY2024 compared to the prior year. Diluted earnings per share from continuing operations are projected to be around $1.75 per share.

TE Connectivity is subject to various legal proceedings and claims in the normal course of business. Additionally, the company has made voluntary disclosures regarding past compliance with U.S. trade controls to the U.S. Department of Commerce and the U.S. State Department, with ongoing investigations by these agencies and the U.S. Department of Justice. While the company has reserved for potential fines, the ultimate outcome and potential penalties are currently not reasonably estimable and could be material.