Why did GAAP EPS fall so sharply in Q4 if adjusted EPS grew 10%?

Q4 GAAP diluted EPS was $0.90 versus $1.75 a year earlier, mainly because of a one-time $0.78 per share tax charge from an increased valuation allowance on deferred tax assets at a Swiss subsidiary. Excluding that item and other special charges such as restructuring ($0.25 per share), adjusted EPS rose to a record $1.95.

Is the full-year GAAP EPS of $10.34 a good measure of underlying earnings?

Probably not. Full-year GAAP results include large one-time tax benefits, including a $636 million net benefit from a $972 million Swiss ten-year tax credit, plus a $262 million benefit from a Swiss tax rate change and $118 million from a legal entity restructuring. Adjusted EPS of $7.56 is a better gauge of operating earnings power.

What is the outlook for fiscal Q1 2025?

Management expects net sales of about $3.9 billion, up about 2% year over year, and adjusted EPS of about $1.88, up about 2%, after a $0.04 tax headwind. GAAP EPS from continuing operations is guided to $1.64, which includes restructuring and acquisition-related charges.

How strong is TE's cash generation and capital return?

FY24 operating cash flow was about $3.5 billion and free cash flow was $2.8 billion, about 120% of adjusted income from continuing operations. TE returned about $2.8 billion to shareholders in FY24 through buybacks ($2.06 billion) and dividends ($760 million). The new $2.5 billion buyback authorization adds capacity for further repurchases, though actual execution depends on market conditions.

What does the segment reorganization mean for investors?

Starting in fiscal 2025, TE will report two segments, Transportation Solutions and Industrial Solutions, replacing the current three-segment structure that includes Communications Solutions. The company said it will file recast historical financials in a separate 8-K later in the quarter, which will be needed to compare future segment results with prior periods.

TEL 8-K: Earnings & Results & Regulation FD

01—Abstract

Summary

Summary of the 8-K filed October 30, 2024. Cited figures are marked; the original filing is the authoritative source.

TE Connectivity reported fiscal Q4 2024 sales of $4.1 billion^a, up 1% reported and 2% organically, above its guidance.

Adjusted operating margin reached a fourth-quarter record of 18.6%, and adjusted EPS hit a record $1.95^b, up 10% year over year. GAAP diluted EPS from continuing operations fell 49% to $0.90 because of a one-time $0.78 tax-related charge tied to an increased valuation allowance on a Swiss subsidiary's deferred tax assets. Investors should focus on the adjusted figures, which better reflect operating performance.

For full fiscal 2024, net sales were $15.8 billion^c, roughly flat organically. Adjusted operating margin expanded 220 basis points to a record 18.9%, and adjusted EPS rose 12% to $7.56. Free cash flow reached a record $2.8 billion, about 120% of adjusted income from continuing operations.

GAAP EPS of $10.34^d is heavily inflated by non-recurring Swiss tax credit benefits, so adjusted EPS is the more reliable baseline. Looking ahead, management guided fiscal Q1 2025 sales to about $3.9 billion and adjusted EPS to $1.88, which it said would be up year over year.

The board also approved a $2.5 billion increase to the share repurchase authorization. Beginning in fiscal 2025, TE will report two segments, Transportation Solutions and Industrial Solutions, with recast financials to follow in a later 8-K.

02—Key points

Key Highlights

Q4 FY24 net sales of $4.07 billion, up 1% reported and 2% organic, above guidance; Communications Solutions sales rose 25% on AI-related data and device demand.
Record Q4 adjusted operating margin of 18.6% (up 130 bps year over year); GAAP operating margin was 16.0%.
Q4 GAAP diluted EPS of $0.90 (down 49%) includes a $0.78 one-time tax-related charge; adjusted EPS of $1.95 was up 10%, a record.
Full-year FY24 adjusted operating margin of 18.9% (up 220 bps) and adjusted EPS of $7.56 (up 12%); GAAP EPS of $10.34 is boosted by a one-time $1.0 billion net tax benefit from a Swiss tax credit and related items.
Free cash flow of $2.8 billion for FY24 (up 17%), with about $2.8 billion returned to shareholders, including $2.06 billion in buybacks, and about $340 million spent on a bolt-on acquisition.
Board authorized a $2.5 billion increase to the share repurchase program, signaling continued capital return.
Q1 FY25 guidance: net sales of about $3.9 billion (up about 2% year over year) and adjusted EPS of $1.88, including a $0.04 tax headwind; reorganization into two reportable segments begins in FY25.

03—Questions

Frequently Asked Questions

Why did GAAP EPS fall so sharply in Q4 if adjusted EPS grew 10%?
Q4 GAAP diluted EPS was $0.90 versus $1.75 a year earlier, mainly because of a one-time $0.78 per share tax charge from an increased valuation allowance on deferred tax assets at a Swiss subsidiary. Excluding that item and other special charges such as restructuring ($0.25 per share), adjusted EPS rose to a record $1.95.
Is the full-year GAAP EPS of $10.34 a good measure of underlying earnings?
Probably not. Full-year GAAP results include large one-time tax benefits, including a $636 million net benefit from a $972 million Swiss ten-year tax credit, plus a $262 million benefit from a Swiss tax rate change and $118 million from a legal entity restructuring. Adjusted EPS of $7.56 is a better gauge of operating earnings power.
What is the outlook for fiscal Q1 2025?
Management expects net sales of about $3.9 billion, up about 2% year over year, and adjusted EPS of about $1.88, up about 2%, after a $0.04 tax headwind. GAAP EPS from continuing operations is guided to $1.64, which includes restructuring and acquisition-related charges.
How strong is TE's cash generation and capital return?
FY24 operating cash flow was about $3.5 billion and free cash flow was $2.8 billion, about 120% of adjusted income from continuing operations. TE returned about $2.8 billion to shareholders in FY24 through buybacks ($2.06 billion) and dividends ($760 million). The new $2.5 billion buyback authorization adds capacity for further repurchases, though actual execution depends on market conditions.
What does the segment reorganization mean for investors?
Starting in fiscal 2025, TE will report two segments, Transportation Solutions and Industrial Solutions, replacing the current three-segment structure that includes Communications Solutions. The company said it will file recast historical financials in a separate 8-K later in the quarter, which will be needed to compare future segment results with prior periods.

04—Continue

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