TE Connectivity announces third quarter results for fiscal year 2023

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Jul 26, 2023

PR Newswire

EPS exceeds, sales in line with guidance; continuing strong cash generation

SCHAFFHAUSEN, Switzerland, July 26, 2023 /PRNewswire/ -- TE Connectivity Ltd. (NYSE: TEL) today reported results for the fiscal third quarter ended June 30, 2023.

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Third Quarter Highlights

  • Net sales were $4 billion, in line with guidance, with year-over-year growth in the Transportation and Industrial segments offsetting an expected decline in Communications.
  • GAAP diluted earnings per share (EPS) from continuing operations were $1.67, and adjusted EPS were $1.77, both exceeding guidance.
  • Order levels were $4 billion, reflecting stability across all segments.
  • Cash flow from operating activities of $779 million and strong free cash flow of $614 million in the quarter, with approximately $1.2 billion returned to shareholders year to date
  • Published Connecting Our World report, highlighting commitments to the Science Based Targets initiative

"We delivered earnings above guidance, along with year-over-year sales growth in our Transportation and Industrial segments, as we continue to benefit from the strategic positioning of our portfolio around key growth and sustainability trends. Our leading global position in electric vehicles once again allowed us to deliver a strong performance in Transportation, and we continued to capitalize on growth momentum in renewable energy applications as well as ongoing market recovery in commercial air and medical in our Industrial segment," said TE Connectivity CEO Terrence Curtin. "While our Communications segment declined as expected, we are excited about our increased design win momentum in AI applications, where our high-speed connectivity solutions will drive future growth.

"Our year-to-date free cash flow is up over 40 percent year over year, demonstrating our strong business model. We are delivering on our commitment to expand margins in the second half, reinforced by our third quarter performance and fourth quarter guidance. We remain confident that we are well positioned for long-term profitable growth, as our customers depend on our technology to advance important trends including e-mobility, renewable energy, factory automation and artificial intelligence."

Fourth Quarter FY23 Outlook

For the fourth quarter of fiscal 2023, the company expects net sales of approximately $4 billion. GAAP EPS from continuing operations are expected to be approximately $1.63, with adjusted EPS of approximately $1.75.

Information about TE Connectivity's use of non-GAAP financial measures is provided below. For reconciliations of these non-GAAP financial measures, see the attached tables.

Conference Call and Webcast

The company will hold a conference call for investors today at 8:30 a.m. ET. The conference call may be accessed in the following ways:

  • At TE Connectivity's website: investors.te.com
  • By telephone: For both "listen-only" participants and those participants who wish to take part in the question-and-answer portion of the call, the dial-in number in the United States is (888) 330-3417 and for international callers, the dial-in number is (646) 960-0804.
  • A replay of the conference call will be available on TE Connectivity's investor website at investors.te.com at 11:30 a.m. ET on July 26, 2023.

About TE Connectivity

TE Connectivity Ltd. (NYSE: TEL) is a global industrial technology leader creating a safer, sustainable, productive, and connected future. Our broad range of connectivity and sensor solutions, proven in the harshest environments, enable advancements in transportation, industrial applications, medical technology, energy, data communications, and the home. With more than 85,000 employees, including over 8,000 engineers, working alongside customers in approximately 140 countries, TE ensures that EVERY CONNECTION COUNTS. Learn more at www.te.com and on LinkedIn, Facebook, WeChat and Twitter.

Non-GAAP Financial Measures

We present non-GAAP performance and liquidity measures as we believe it is appropriate for investors to consider adjusted financial measures in addition to results in accordance with accounting principles generally accepted in the U.S. ("GAAP"). These non-GAAP financial measures provide supplemental information and should not be considered replacements for results in accordance with GAAP. Management uses non-GAAP financial measures internally for planning and forecasting purposes and in its decision-making processes related to the operations of our company. We believe these measures provide meaningful information to us and investors because they enhance the understanding of our operating performance, ability to generate cash, and the trends of our business. Additionally, we believe that investors benefit from having access to the same financial measures that management uses in evaluating our operations. The primary limitation of these measures is that they exclude the financial impact of items that would otherwise either increase or decrease our reported results. This limitation is best addressed by using these non-GAAP financial measures in combination with the most directly comparable GAAP financial measures in order to better understand the amounts, character, and impact of any increase or decrease in reported amounts. These non-GAAP financial measures may not be comparable to similarly-titled measures reported by other companies.

The following provides additional information regarding our non-GAAP financial measures:

  • Organic Net Sales Growth (Decline) – represents net sales growth (decline) (the most comparable GAAP financial measure) excluding the impact of foreign currency exchange rates, and acquisitions and divestitures that occurred in the preceding twelve months, if any. Organic Net Sales Growth (Decline) is a useful measure of our performance because it excludes items that are not completely under management's control, such as the impact of changes in foreign currency exchange rates, and items that do not reflect the underlying growth of the company, such as acquisition and divestiture activity. This measure is a significant component in our incentive compensation plans.
  • Adjusted Operating Income and Adjusted Operating Margin – represent operating income and operating margin, respectively, (the most comparable GAAP financial measures) before special items including restructuring and other charges, acquisition-related charges, impairment of goodwill, and other income or charges, if any. We utilize these adjusted measures in combination with operating income and operating margin to assess segment level operating performance and to provide insight to management in evaluating segment operating plan execution and market conditions. Adjusted Operating Income is a significant component in our incentive compensation plans.
  • Adjusted Other Income (Expense), Net – represents net other income (expense) (the most comparable GAAP financial measure) before special items including tax sharing income related to adjustments to prior period tax returns and other items, if any.
  • Adjusted Income Tax (Expense) Benefit and Adjusted Effective Tax Rate – represent income tax (expense) benefit and effective tax rate, respectively, (the most comparable GAAP financial measures) after adjusting for the tax effect of special items including restructuring and other charges, acquisition-related charges, impairment of goodwill, other income or charges, and certain significant tax items, if any.
  • Adjusted Income from Continuing Operations – represents income from continuing operations (the most comparable GAAP financial measure) before special items including restructuring and other charges, acquisition-related charges, impairment of goodwill, tax sharing income related to adjustments to prior period tax returns and other tax items, other income or charges, and certain significant tax items, if any, and, if applicable, the related tax effects.
  • Adjusted Earnings Per Share – represents diluted earnings per share from continuing operations (the most comparable GAAP financial measure) before special items including restructuring and other charges, acquisition-related charges, impairment of goodwill, tax sharing income related to adjustments to prior period tax returns and other tax items, other income or charges, and certain significant tax items, if any, and, if applicable, the related tax effects. This measure is a significant component in our incentive compensation plans.
  • Free Cash Flow (FCF) – is a useful measure of our ability to generate cash. The difference between net cash provided by operating activities (the most comparable GAAP financial measure) and Free Cash Flow consists mainly of significant cash outflows and inflows that we believe are useful to identify. We believe Free Cash Flow provides useful information to investors as it provides insight into the primary cash flow metric used by management to monitor and evaluate cash flows generated from our operations. Free Cash Flow is defined as net cash provided by operating activities excluding voluntary pension contributions and the cash impact of special items, if any, minus net capital expenditures. Voluntary pension contributions are excluded from the GAAP financial measure because this activity is driven by economic financing decisions rather than operating activity. Certain special items, including net payments related to pre-separation tax matters and cash paid (collected) pursuant to collateral requirements related to cross-currency swap contracts, are also excluded by management in evaluating Free Cash Flow. Net capital expenditures consist of capital expenditures less proceeds from the sale of property, plant, and equipment. These items are subtracted because they represent long-term commitments. In the calculation of Free Cash Flow, we subtract certain cash items that are ultimately within management's and the Board of Directors' discretion to direct and may imply that there is less or more cash available for our programs than the most comparable GAAP financial measure indicates. It should not be inferred that the entire Free Cash Flow amount is available for future discretionary expenditures, as our definition of Free Cash Flow does not consider certain non-discretionary expenditures, such as debt payments. In addition, we may have other discretionary expenditures, such as discretionary dividends, share repurchases, and business acquisitions, that are not considered in the calculation of Free Cash Flow.

Forward-Looking Statements

This release contains certain "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to risks, uncertainty and changes in circumstances, which may cause actual results, performance, financial condition or achievements to differ materially from anticipated results, performance, financial condition or achievements. All statements contained herein that are not clearly historical in nature are forward-looking and the words "anticipate," "believe," "expect," "estimate," "plan," and similar expressions are generally intended to identify forward-looking statements. We have no intention and are under no obligation to update or alter (and expressly disclaim any such intention or obligation to do so) our forward-looking statements whether as a result of new information, future events or otherwise, except to the extent required by law. The forward-looking statements in this release include statements addressing our future financial condition and operating results, and the impact on our operations resulting from the coronavirus disease 2019 ("COVID-19"). Examples of factors that could cause actual results to differ materially from those described in the forward-looking statements include, among others, the extent, severity and duration of COVID-19 negatively affecting our business operations; business, economic, competitive and regulatory risks, such as conditions affecting demand for products in the automotive and other industries we serve; competition and pricing pressure; fluctuations in foreign currency exchange rates and commodity prices; natural disasters and political, economic and military instability in countries in which we operate, including continuing military conflict between Russia and Ukraine resulting from Russia's invasion of Ukraine or escalating tensions in surrounding countries; developments in the credit markets; future goodwill impairment; compliance with current and future environmental and other laws and regulations; and the possible effects on us of changes in tax laws, tax treaties and other legislation, including the effects of Swiss tax reform. In addition, the extent to which COVID-19 will impact our business and our financial results will depend on future developments, which are highly uncertain and cannot be predicted. Such developments may include the geographic spread of the virus, the severity of the virus, the duration of the outbreak, the impact on our suppliers' and customers' supply chains, the actions that may be taken by various governmental authorities in response to the outbreak in jurisdictions in which we operate, and the possible impact on the global economy and local economies in which we operate. More detailed information about these and other factors is set forth in TE Connectivity Ltd.'s Annual Report on Form 10-K for the fiscal year ended Sept 30, 2022, as well as in our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports filed by us with the U.S. Securities and Exchange Commission.

TE CONNECTIVITY LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

For the Quarters Ended

For the Nine Months Ended

June 30,

June 24,

June 30,

June 24,

2023

2022

2023

2022

(in millions, except per share data)

Net sales

$

3,998

$

4,097

$

11,999

$

11,922

Cost of sales

2,699

2,769

8,229

8,027

Gross margin

1,299

1,328

3,770

3,895

Selling, general, and administrative expenses

431

393

1,258

1,172

Research, development, and engineering expenses

176

179

534

539

Acquisition and integration costs

9

11

26

29

Restructuring and other charges, net

53

26

283

59

Operating income

630

719

1,669

2,096

Interest income

18

3

39

9

Interest expense

(20)

(18)

(61)

(48)

Other income (expense), net

(4)

4

(13)

24

Income from continuing operations before income taxes

624

708

1,634

2,081

Income tax expense

(96)

(116)

(283)

(362)

Income from continuing operations

528

592

1,351

1,719

Income from discontinued operations, net of income taxes

β€”

2

7

1

Net income

$

528

$

594

$

1,358

$

1,720

Basic earnings per share:

Income from continuing operations

$

1.68

$

1.84

$

4.28

$

5.31

Income from discontinued operations

β€”

0.01

0.02

β€”

Net income

1.68

1.84

4.30

5.31

Diluted earnings per share:

Income from continuing operations

$

1.67

$

1.83

$

4.25

$

5.26

Income from discontinued operations

β€”

0.01

0.02

β€”

Net income

1.67

1.83

4.27

5.26

Weighted-average number of shares outstanding:

Basic

315

322

316

324

Diluted

317

324

318

327

TE CONNECTIVITY LTD.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

June 30,

September 30,

2023

2022

(in millions, except share data)

Assets

Current assets:

Cash and cash equivalents

$

1,131

$

1,088

Accounts receivable, net of allowance for doubtful accounts of $42 and $45, respectively

2,998

2,865

Inventories

2,801

2,676

Prepaid expenses and other current assets

719

639

Total current assets

7,649

7,268

Property, plant, and equipment, net

3,781

3,567

Goodwill

5,528

5,258

Intangible assets, net

1,242

1,288

Deferred income taxes

2,680

2,498

Other assets

821

903

Total assets

$

21,701

$

20,782

Liabilities, redeemable noncontrolling interests, and shareholders' equity

Current liabilities:

Short-term debt

$

291

$

914

Accounts payable

1,616

1,593

Accrued and other current liabilities

2,351

2,125

Total current liabilities

4,258

4,632

Long-term debt

3,915

3,292

Long-term pension and postretirement liabilities

735

695

Deferred income taxes

211

244

Income taxes

335

304

Other liabilities

791

718

Total liabilities

10,245

9,885

Commitments and contingencies

Redeemable noncontrolling interests

107

95

Shareholders' equity:

Common shares, CHF 0.57 par value, 322,470,281 shares authorized and issued, and 330,830,781
shares authorized and issued, respectively

142

146

Accumulated earnings

12,372

12,832

Treasury shares, at cost, 8,271,688 and 12,749,540 shares, respectively

(1,085)

(1,681)

Accumulated other comprehensive loss

(80)

(495)

Total shareholders' equity

11,349

10,802

Total liabilities, redeemable noncontrolling interests, and shareholders' equity

$

21,701

$

20,782

TE CONNECTIVITY LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the Quarters Ended

For the Nine Months Ended

June 30,

June 24,

June 30,

June 24,

2023

2022

2023

2022

(in millions)

Cash flows from operating activities: