TE Connectivity Ltd. (TEL) is a global industrial technology leader that is creating a safer, sustainable, productive, and connected future. The company's broad range of connectivity and sensor solutions enable the distribution of power, signal, and data to advance next-generation transportation, renewable energy, automated factories, data centers, medical technology, and more.

Financials

TE Connectivity's strong financial performance in recent years is a testament to its strategic positioning and operational excellence. In the fiscal year 2023, the company reported annual net income of $1.91 billion, annual revenue of $16.03 billion, annual operating cash flow of $3.13 billion, and annual free cash flow of $2.40 billion. These impressive figures demonstrate TE Connectivity's ability to generate consistent and substantial returns for its shareholders.

In the third quarter of fiscal 2024, TE Connectivity reported net sales of $4.0 billion, which was in line with the company's guidance and up 2% organically year-over-year. Orders for the quarter were $4.1 billion, up year-over-year and sequentially, driven by momentum in artificial intelligence design wins. Adjusted earnings per share for the quarter was $1.91, ahead of the company's guidance and up 8% versus the prior year. Adjusted operating margins were 19.3%, up 200 basis points year-over-year, reflecting the strong operational performance of TE Connectivity's teams.

Outlook

Looking ahead, the company expects fourth quarter sales of approximately $4.0 billion, including a $60 million year-over-year currency exchange headwind. On the margin front, the fourth quarter will be another quarter of strong year-over-year expansion, and TE Connectivity expects adjusted earnings per share to be approximately $1.94, up 9% year-over-year, including a $0.10 headwind from both currency exchange rates and a higher tax rate.

For the full fiscal year 2024, the company expects adjusted earnings per share to be up 12% year-over-year, with sales that are essentially flat. This strong performance is a testament to TE Connectivity's ability to navigate the dynamic global economic environment and execute on its strategic initiatives.

Value Creation Model

TE Connectivity's success is underpinned by its three-pillar value creation model. First, the company's portfolio is strategically positioned around secular growth trends, including the adoption of renewable energy, applications for artificial intelligence, and growth in global hybrid and electric vehicle production, along with further electronification of the vehicle. Second, TE Connectivity has operational levers to drive strong margin performance through economic cycles. Third, the company has established a strong cash generation model to return capital to shareholders while investing in bolt-on M&A opportunities.

Segment Performance

In the Transportation Solutions segment, TE Connectivity's net sales decreased 4.0% in the third quarter of fiscal 2024 compared to the same period last year. This was driven by declines across all end markets, including automotive, commercial transportation, and sensors. However, the company's automotive business grew 4% organically against a global auto production decline of 1%, demonstrating TE Connectivity's ability to outperform the market through its content growth strategy. The company's content growth over production was 5 points in the third quarter, with strong double-digit organic sales growth in China more than offsetting declines in Europe and North America.

In the Industrial Solutions segment, net sales decreased 4.0% in the third quarter of fiscal 2024 compared to the same period last year. This was primarily due to sales declines in the industrial equipment end market, partially offset by sales increases in the aerospace, defense, and marine; medical; and energy end markets. The segment's adjusted operating margins were 15.1%, in line with the company's expectations given current volume levels and business mix.

The Communications Solutions segment was a standout performer in the third quarter, with net sales increasing 9.5% year-over-year on an organic basis. This growth was driven by a 32% organic increase in the data and devices end market, reflecting accelerating momentum in artificial intelligence applications. The company's appliances business also grew 12% organically in the quarter. The segment's adjusted operating margins were 20%, up over 600 basis points compared to the prior year, driven by the higher volumes and stronger operational performance.

Geographic Diversification

TE Connectivity's geographic diversification is a key strength, with approximately 60% of its net sales invoiced in currencies other than the U.S. dollar in the first six months of fiscal 2024. The company's sales in the EMEA region decreased 6.9% in the third quarter, while Asia-Pacific sales declined 3.2% and Americas sales were down 3.0%, all on an organic basis.

Liquidity

The company's strong cash generation model continues to be a differentiator, with free cash flow of $2.0 billion in the first three quarters of fiscal 2024, up 36% year-over-year. TE Connectivity has deployed over $2.2 billion so far this year, with $1.8 billion returned to shareholders and approximately $350 million deployed for acquisitions, including the purchase of Schaffner Holding AG, a leader in electromagnetic solutions based in Switzerland.

Conclusion

Looking ahead, TE Connectivity remains well-positioned to benefit from the secular growth trends in its end markets. The company expects to continue to drive margin and earnings improvement, supported by its operational levers and strong cash generation model. With a balanced capital allocation strategy and a focus on bolt-on M&A opportunities, TE Connectivity is poised to deliver long-term value creation for its shareholders.