TE Connectivity Ltd. (TEL)

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Tyco Electronics Ltd. (TEL)

F4Q09 (Qtr. End 09/25/09) Earnings Call

November 04, 2009 08:30 a.m. ET


John Roselli - VP, IR

Tom Lynch - CEO

Terrence Curtin - CFO


Shawn Harrison - Longbow Research

Matt Sheerin - Thomas Weisel Partners

Amitabh Passi - UBS

Jim Suva - Citi

Craig Hettenbach - Goldman Sachs

Wamsi Mohan - Bank of America

William Stein - Credit Suisse

Steven Fox - CLSA

Amit Daryanani - RBC Capital Markets

Brian White - Ticonderoga



Ladies and gentlemen, thank you for standing by. Welcome to the Tyco Electronics reports fiscal fourth quarter results. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions). And as a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Vice President of Investor Relations, John Roselli. Please go ahead.

John Roselli

Thanks Ruth. Good morning. Thank you for joining our conference call to discuss Tyco Electronics, fourth quarter results for fiscal year 2009 and our outlook for the first 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 have included there. In addition, we will use certain non-GAAP measures in our discussion this morning and we ask you to read through the sections of our press release and the accompanying slide presentation that address the use of these items. Press release and related tables along with the slide presentation can be found on the Investor Relations portion of our web site at tycoelectronics.com.

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

Tom Lynch

Thanks John and good morning everyone. Guess you could definitely say 2009 was a challenging year but I feel we really navigated through it very well and we finished strong in Q4 with sales, earnings and cash flow above guidance. Just like to take a second here to thank our 75,000 people across the world for really pulling together during these times and responding to the challenge. I'll briefly recap some highlights of the year and Q4 and then I'll cover the overall market environment before I turn it over to Terrence, we'll go through our Q4 results in more detail.

To recap Q4, sequentially sales increased 8% overall and 15% in our electronics component segment. As expected, consumer markets such as auto, computer, mobile phone and appliances showed solid increases and this offset the expected decline in our Undersea Telecom segment.

Total company orders were up 25% sequentially with strength across the majority of our end-markets excluding Undersea, bookings were up 12% sequentially and the book-to-bill ratio was 1.05. Adjusted operating income for the quarter was $221 million, an increase of 74% sequentially and importantly our adjusted operating margins improved again 300 basis points to 8.2%. We also had another quarter of strong cash flow, generating 600 million this quarter; this included a $200 million inventory reduction for the third quarter in row.

As we entered in and went through the downturn we had four overriding objectives: resize the company to be able to deliver 12% operating margins of $12 billion of revenue. We felt this was the striking the right balance of preserving the tremendous opportunities we feel we have while making sure the company stayed solid. We wanted to accelerate the restructuring program we started two years ago, of course keep the balance sheet strong and stay focused on our strategic growth initiatives.

I feel we made very good progress against all of these objectives. Our cost reduction actions in response to the downturn combined with strong execution of the strategic restructuring program we initiated, like before separation generated 300 million of annualized cost savings. And this adds us on track to deliver 12% operating margin at the $12 billion revenue level, what we refer to as 12 to12. With respect to restructuring, we ended the year with 97 manufacturing facilities, versus a 133 when we launched the program. And this is a little ahead of where we expected to be.

We also made significant progress in focusing our portfolio around our core connectivity businesses by divesting the wireless systems and battery businesses during the year. And this substantially completes the plan we initiated two years ago.

We generated 1.2 billion in free cash flow during the year, driven by working capital turnover improvement and a substantial reduction in CapEx spending.

Clearly, when the business falls of, you do get the positive impact of working capital liquidation, but more than that we improved our working capital turnover. And this free cash flow was a little more than three times adjusted net income in fiscal '09. Divestitures also contributed approximately 700 million in cash and addition to the free cash flow. So, this strong cash generation enable us to maintain our dividend, reduce our debt by 800 million and end the year with a cash position of about $1.5 billion.

I think just as important, despite all the disruption caused by the economy, the team also stayed focused on our growth strategy, and made good progress strengthening our product offerings across most of our businesses, and over the last six months two year, we've had some very key new platform wins in automotive with our alternative power and activity systems, our high voltage energy, product line that we recently introduced, some key new wins on the new airliners, and the commercial airliners and aerospace and defense and across our communications businesses.

Let me now shift to talk a little bit about what we are seeing in our end markets. Our Q4 was our second straight quarter of sequential revenue growth and as I mentioned earlier the bulk of this was in our consumer related markets due to rebuilding of inventory and some increase in demand, and we clearly showed the benefit of stimulus in the automotive industry in all regions of the world.

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