TE Connectivity (TEL) Q1 Earnings & Sales Beat, Rise Y/Y

TE Connectivity Ltd. TEL has reported first-quarter fiscal 2022 adjusted earnings of $1.76 per share, which surpassed the Zacks Consensus Estimate by 8.6%. The figure rose 20% year over year.

Net sales in the reported quarter were $3.82 billion, which beat the consensus mark of $3.73 billion. The figure rose 8% from the year-ago quarter.

Top-line growth was driven by well-performing communications and industrial solutions of the company.

However, TE Connectivity witnessed a sluggish performance of its transportation solutions in the reported quarter.

Nevertheless, the company’s strong momentum across hybrid and electric vehicles, data and devices, factory automation, renewable energy, and cloud remains a major positive.

TE Connectivity Ltd. Price, Consensus and EPS Surprise

TE Connectivity Ltd. Price, Consensus and EPS Surprise

TE Connectivity Ltd. price-consensus-eps-surprise-chart | TE Connectivity Ltd. Quote

Top-Line Details

Transportation Solutions: The segment generated $2.16 billion, which accounted for 56% of net sales. The figure declined 3% year over year. This was primarily due to weak automotive production, which led to a 7% decrease in automotive sales from the year-ago quarter.

Nevertheless, the company continued benefiting from the growing proliferation of electric vehicles and strong content trends of electronification in the automotive space. Further, commercial transportation sales grew 10% year over year. Also, sensor sales grew 3% from the year-ago quarter on the back of solid momentum across transportation and industrial applications.

Industrial Solutions: The segment generated $1.06 billion, which accounted for 28% of net sales. The figure rose 21% year over year. This was driven by robust industrial equipment sales, which grew 57% from the prior-year quarter, owing to the growing capital investment in factory automation applications. Solid momentum across renewable applications led to 9% growth in energy sales. The recovery in interventional procedures led to 7% year-over-year growth in the medical category.

However, weakness in aerospace, defense and marine sales, which were down 3% year over year, was concerning.

Communications Solutions: The segment generated $601 million, which accounted for 16% of net sales. Further, the figure rose 41% year over year. This was driven by solid content growth in high-speed cloud applications, which led to a year-over-year rise of 49% in data and devices sales. Appliance sales grew 32% from the prior-year quarter, which contributed well.

Operating Details

Per management, the gross profit was $1.2 billion, which was up 7.3% year over year. As a percentage of revenues, the figure contracted 30 basis points (bps) from the year-ago quarter to 32.2%.

We note that selling, general and administrative expenses, and research and development expenses of $363 million and $175 million rose 0.5% and 8% year over year, respectively.

The company’s adjusted operating margin was 18.6% in the reported quarter, which expanded 90 bps year over year.

Balance Sheet & Cash Flow

As of Dec 24, 2021, cash and cash equivalents were $982 million, down from $1.2 billion as of Sep 24, 2021.

Long-term debt was $3.5 billion in the fiscal first quarter, down from $3.6 billion in the prior quarter.

The company generated $532 million of cash from operations in the reported quarter compared with $774 million in the previous quarter.

Further, it generated a free cash flow of $370 million.

The company returned $410 million to shareholders.

Guidance

For second-quarter fiscal 2022, TE Connectivity expects year-over-year net sales growth of 2% and 3% on a reported basis and an organic basis, respectively, to $3.7 billion. The Zacks Consensus Estimate for the same is pegged at $3.89 billion.

Adjusted earnings are projected to be $1.70 per share, reflecting growth of 8% from the year-ago quarter. The consensus mark is pegged at $1.72 per share.

Zacks Rank and Stocks to Consider

Currently, TE Connectivity carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are STMicroelectronics STM, Advanced Micro Devices AMD and Mimecast MIME. While STMicroelectronics currently sports a Zacks Rank #1 (Strong Buy), Advanced Micro Devices and Mimecast carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

STMicroelectronics is scheduled to report fourth-quarter 2021 results on Jan 27. It has gained 14.6% over a year. The long-term earnings growth rate for STM is currently projected at 5%.

Advanced Micro Devices is slated to report fourth-quarter 2021 results on Feb 1. It has gained 25.1% over a year. The long-term earnings growth rate for AMD is currently projected at 46.2%.

Mimecast is slated to report third-quarter fiscal 2022 results on Feb 3. It has gained 82.3% over a year. The long-term earnings growth rate for MIME is currently projected at 35%.

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