Why did GAAP EPS fall from $5.76 to $1.75 when adjusted EPS grew?

The year-ago quarter included large one-time income tax benefits, including an $874 million benefit from a Swiss tax credit and a $262 million benefit from a Swiss tax rate change, which inflated GAAP EPS to $5.76. Adjusted EPS removes these items, so the year-over-year comparison is distorted on a GAAP basis. Adjusted EPS rose from $1.84 to $1.95.

Why is Q2 GAAP EPS guided to a loss even though adjusted EPS is expected to grow?

Management expects a one-time, non-cash income tax charge of about $1.87 per share in the second quarter from changes in tax law. This is excluded from adjusted EPS, which is guided to about $1.96, up 5% year over year. Investors should focus on adjusted figures for underlying trends, but the charge is real in GAAP results.

What is driving the divergence between the Industrial and Transportation segments?

Industrial Solutions benefited from strong growth in Digital Data Networks (up 48%) on AI-related demand, plus growth in Aerospace, Defense and Marine and Energy. Medical sales fell 25% due to customer inventory normalization. Transportation Solutions was pressured by Europe and North America weakness in commercial transportation (down 12%) and sensors (down 13%), partly offset by Asian automotive growth. Management expects sequential organic growth in both segments in Q2.

How strong is the company's cash position and capital return capacity?

Operating cash flow of $878M and free cash flow of $674M covered about $492M of dividends and buybacks plus $325M of acquisitions in the quarter. Cash ended at $1.25B against total debt of about $4.2B. Investors should note that cash returns and acquisitions exceeded free cash flow in the quarter, so the balance sheet absorbed the difference through a $90M increase in commercial paper and lower cash.

What are the main risks to the outlook?

Currency is a clear headwind, with Q2 guidance including about $110M of sales and $0.06 of EPS pressure. Auto production remains uneven, and commercial transportation and sensor end markets are weak. Industrial factory automation is also soft. Further, the company's redomiciling from Switzerland to Ireland carries governance and stock-index risks, and changes in tax law may affect results beyond the expected Q2 charge.

TEL 8-K: Earnings & Results & Regulation FD

01—Abstract

Summary

Summary of the 8-K filed January 22, 2025. Cited figures are marked; the original filing is the authoritative source.

TE Connectivity reported fiscal Q1 2025 (quarter ended Dec.

27, 2024) with net sales of $3.84 billion^a, flat year over year and in line with expectations on an organic basis. Adjusted EPS was $1.95, up about 6% from $1.84, and beat guidance. GAAP diluted EPS from continuing operations was $1.75, down sharply from $5.76 a year earlier, when results included large one-time tax benefits.

Profitability improved: adjusted operating margin reached a first-quarter record of 19.4%, up 30 basis points, though GAAP operating margin slipped to 18.0% from 18.2% because restructuring charges rose to $50 million^b. Orders of $4.0 billion rose 6% year over year and 4% sequentially, led by the Industrial segment and artificial intelligence programs. Industrial Solutions sales grew 11% (9% organic), while Transportation Solutions sales fell 6% (5% organic) on weak commercial transportation and sensors demand.

Cash generation was strong. Operating cash flow rose 22% to $878 million^c, and free cash flow rose 18% to a first-quarter record of $674 million. The company returned roughly $500 million to shareholders through dividends and buybacks and spent $325 million on bolt-on acquisitions in Industrial.

Cash ended the quarter at $1.25 billion^d, with total debt of about $4.2 billion. For fiscal Q2 2025, management guided to net sales of about $3.95 billion and adjusted EPS of about $1.96, up 5% year over year. The company also expects a GAAP loss of about $0.05 per share because of a one-time, non-cash tax charge of roughly $1.87 per share tied to changes in tax law.

Management expects sequential organic sales growth in both segments, with currency a headwind of about $110 million to sales and $0.06 to EPS. Investors should note that the company now reports two segments following a reorganization.

02—Key points

Key Highlights

Net sales of $3.84B were flat year over year (organic growth in line with expectations), while adjusted EPS of $1.95 beat guidance and rose about 6%.
Adjusted operating margin hit a Q1 record of 19.4% (up 30 bps), while GAAP operating margin was 18.0%, down slightly on higher restructuring charges ($50M vs. $21M).
Orders of $4.0B rose 6% year over year and 4% sequentially, with Industrial book-to-bill of about 1.3 and Digital Data Networks sales up 48% on AI demand.
Industrial Solutions sales rose 11% (9% organic) to $1.59B, while Transportation Solutions fell 6% (5% organic) to $2.24B on commercial transportation and sensor weakness.
Record Q1 free cash flow of $674M (up 18%) on operating cash flow of $878M (up 22%).
Returned about $500M to shareholders (dividends and buybacks) and deployed $325M on Industrial bolt-on acquisitions.
Q2 guidance: sales of about $3.95B and adjusted EPS of about $1.96 (up 5%), but a GAAP loss of about $0.05 per share due to a one-time non-cash tax charge from tax law changes.

03—Questions

Frequently Asked Questions

Why did GAAP EPS fall from $5.76 to $1.75 when adjusted EPS grew?
The year-ago quarter included large one-time income tax benefits, including an $874 million benefit from a Swiss tax credit and a $262 million benefit from a Swiss tax rate change, which inflated GAAP EPS to $5.76. Adjusted EPS removes these items, so the year-over-year comparison is distorted on a GAAP basis. Adjusted EPS rose from $1.84 to $1.95.
Why is Q2 GAAP EPS guided to a loss even though adjusted EPS is expected to grow?
Management expects a one-time, non-cash income tax charge of about $1.87 per share in the second quarter from changes in tax law. This is excluded from adjusted EPS, which is guided to about $1.96, up 5% year over year. Investors should focus on adjusted figures for underlying trends, but the charge is real in GAAP results.
What is driving the divergence between the Industrial and Transportation segments?
Industrial Solutions benefited from strong growth in Digital Data Networks (up 48%) on AI-related demand, plus growth in Aerospace, Defense and Marine and Energy. Medical sales fell 25% due to customer inventory normalization. Transportation Solutions was pressured by Europe and North America weakness in commercial transportation (down 12%) and sensors (down 13%), partly offset by Asian automotive growth. Management expects sequential organic growth in both segments in Q2.
How strong is the company's cash position and capital return capacity?
Operating cash flow of $878M and free cash flow of $674M covered about $492M of dividends and buybacks plus $325M of acquisitions in the quarter. Cash ended at $1.25B against total debt of about $4.2B. Investors should note that cash returns and acquisitions exceeded free cash flow in the quarter, so the balance sheet absorbed the difference through a $90M increase in commercial paper and lower cash.
What are the main risks to the outlook?
Currency is a clear headwind, with Q2 guidance including about $110M of sales and $0.06 of EPS pressure. Auto production remains uneven, and commercial transportation and sensor end markets are weak. Industrial factory automation is also soft. Further, the company's redomiciling from Switzerland to Ireland carries governance and stock-index risks, and changes in tax law may affect results beyond the expected Q2 charge.

04—Continue

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