TE Connectivity Ltd. (TEL)

TEL 
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Tyco Electronics, Ltd. (TEL)

F3Q09 Earnings Call

July 29, 2009 8:30 am ET

Executives

John Roselli – Vice President of Investor Relations

Thomas J. Lynch – Chief Executive Officer & Director

Terrence R. Curtin – Chief Financial Officer & Executive Vice President

Analysts

Matt Sheerin – Thomas Weisel Partners, LLC

Amit Daryanani – RBC Capital Markets

Shawn Harrison – Longbow Research

Steven B. Fox – CLSA – Calyon Securities

Jim Suva – Citigroup

William Stein – Credit Suisse

Amitabh Passi – UBS

Presentation

Operator

Welcome to the Tyco Electronics reports third quarter results conference call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session and instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Vice President of Investor Relations John Roselli.

John Roselli

Thank you for joining our conference call to discuss Tyco Electronics’ third quarter results for fiscal year 2009 and our outlook for the fourth quarter. With me today is our Chief Executive Officer Tom Lynch and our Chief Financial Officer Terrence Curtin. During the course of this call we will be providing certain forward-looking information. We ask you to look at today’s press release and read through the forward-looking cautionary statements that we’ve included there.

In addition we will use certain non-GAAP measures in our discussion this morning and we ask that you read through the sections of our press release and the accompanying slide presentation that address the use of these items. The press release and related tables along with the slide presentation can be found on the investor relations portion of our website at www.TycoElectronics.com.

Now, let me turn the call over to Tom for some opening comments.

Thomas J. Lynch

Q3 was a good solid quarter for the company for several reasons. Sales increased 7% sequentially and exceeded our original guidance primarily due to increased demand for our products which served consumer markets especially in the automotive market. While sales are well below last year’s level it does appear that the inventory correction in the consumer markets is largely behind us. As a data point automotive year-over-year was down 36% for us but sequentially us up a little over 25%. Total company orders were up 14% sequentially and the book-to-build ratio was 1.4 excluding the undersea telecommunications business.

The aggressive cost actions that we initiated early this year coupled with our footprint reduction actions have improved our operating leverage and our strategic footprint restructuring actions continue to be on track and at the pace we’re at we’ll be less than 100 facilities by the end of the year. As you know, improving margin flow through in the business has been a very, very critical objective for us and continues to be a critical objective and we’re making good progress.

If you take these productive and cost actions in conjunction with the sales increase this has enabled us to increase our adjusted operating income by $55 million or about 76% sequentially and this exceeded both our original and revised guidance. We also reduced inventory and additional $264 million in Q3 and to date we’ve reduced it about $1.5 billion. This was the primary driver behind our strong free cash flow in the quarter which exceeded $300 million for the second quarter in a row and we now expect free cash flow before restructuring to exceed $1 billion this fiscal year. This is a $200 million increase to our prior outlook.

We strengthened our balance sheet in the quarter by reducing our debt levels by $336 million and in July we completed a tender offer which reduced our debt by an additional $152 million. As of today we have reduced our debt by approximately $725,000,000 this year. Our debt stands right around $2.4 billion today and to put it in a little perspective, if the business were to stay at this range we’d ideally like the debt to be in the $2.0 to $2.2 billion range so we’re closing in on what we think is the appropriate level of debt for this level of business.

As you all know, we completed the sale of our wireless system business for $665 million cash and all-in-all I think we’ve made excellent progress over the past two years focusing the portfolio around our core connectivity business. I really feel good about this portfolio and the growth opportunities we have and how we’re positioned.

This morning we also issued another press release announcing that our board of directors recommends for shareholder approval a dividend of $0.16 per share for each of our first two fiscal quarters of 2010 and this would be in December and March. Shareholder approval of dividend payments is required as a result of our reincorporation to Switzerland. We decided to retain our dividend at this level despite the reduction in business levels over the past nine months because of our strong cash position, the strength of the balance sheet and the progress we have made in reducing costs and improving productivity.

Now, I’m going to turn the call over to Terrence who is going to go through our Q3 performance in more detail.

Terrence R. Curtin

I’ll start by reviewing our sales performance by segment and market and then I’ll get in to earnings, cash flow and liquidity. If you could look at Slide Four of the slide presentation, this shows our overall revenue performance by segment both year-over-year and sequentially. Our total company sales of $2.5 billion were down 34% in the quarter versus the prior year of which the effect of currency translation was approximately 400 basis points of decline. Sales were up 7% sequentially with three out of our four segments showing sequential growth.

Read the rest of this transcript for free on seekingalpha.com