TE Connectivity Ltd. (TEL)

TEL 
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Tyco Electronics Ltd (TEL)

Q3 2010 Earnings Call

October 28, 2010 03:00 pm ET

Executives

Keith Kolstrom - IR

Tom Lynch - CEO

Terrence Curtin - EVP & CFO

Analysts

Matt Sheerin

Amitabh Passi

Amit Daryanani

Steven Fox

Craig Hettenbach

Shawn Harrison - Longbow Research

Steve O'Brien - JP Morgan

William Stien - Credit Suisse

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Tyco Electronics Report Strong Fiscal Fourth Quarter for year 2010 results conference call. 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) As a remainder, this conference is being recorded. I would like to now turn the conference over to our host, Mr. Keith Kolstrom, Senior Director of Investor Relation. Please go ahead.

Keith Kolstrom

Thank you for joining our conference call to discuss Tyco Electronics fourth quarter results for fiscal year 2010 and our outlook for the first fiscal quarter at full year 2011. With me today are Chief Executive Officer Tom Lynch and Chief Financial Officer Terrence Curtin. During the course of this call, we will be providing certain forward looking information. We ask to review the forward looking cautionary statements included in today’s press release. In addition, we will use certain non GAAP measures in our discussion this morning and we ask you to review the section of our press release in the accompanied 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 te.com. finally, for participants on the Q&A portion of today’s call, I would like to remind everyone to limit themselves to one follow question to make sure we are able to cover all questions during the allotted time. Now let me turn the call over to Tom for some opening comments.

Tom Lynch

If you could please turn to slide number three. Q4 was another strong quarter for the company. A revenue of just over $3.1 billion was up 16% year-over-year and was at the high end of our guidance range and our adjusted earnings per share was $0.72 which was up $0.42 versus last year and was also at the high end of our range. Our adjusted operating margins were above 14% again this quarter and I think that’s a clear indication we’ve really strengthened the company’s operating leverage and our consistently delivering about 14% margin at the $12 billion sale level which was an important objective for us. And we are on track to achieve 15% plus operating margin at the $14 billion sales level.

Free cash flow was very strong at $443 million in the quarter as a result of increased earnings and continued solid working capital management. So a pretty solid quarter for us in Q4. now, I'll do a quick recap of the full year. We also felt 2010 was the year very good performance for the company. Sales were up, sales were at $12.1 billion, up 18% and adjusted operating margins improved to 13.7% which was up almost 800 basis points from the prior year. we exceeded the target of 12% margin at $12 billion in revenue that we planned the business around during the downturn, about impacting our strategic investments cause I'm sure you recall 18 months ago and the business was pretty difficult, the 12 at 12 scene is what we embarked on in the company and drove through the company and we’re pleased that we’re able to exceed that and now be delivering 14% at 12.

The key to achieving that through the improved margin were driven by the strong flow through on the volume growth, the benefits of our restructuring program which is now substantially complete and improved productivity. We also made several moves in the past year to strengthen our strategic position. In July, we announced an agreement to acquire ADC which will significantly enhance our position in the broadband connectivity market. We also made some small technology acquisition through the year to strengthen our position in the data communication and touch markets. We had another year of very strong cash flow generating $1.4 billion, up approximately $180 million versus last year. We returned approximately 60% of this cash to shareholders almost $800 million in the form of dividend and share repurchases.

Last month, we announced our board of directors approved the $750 million increase to our share repurchase program and we also planned to request shareholder approval for dividend increase of 12.5% as part of our annual meeting in March. This increase would be effective in June 2011 quarter when approved. So we’re happy with the fourth quarter. I think we finished the year strong, had a year of really good progress in a number of areas and not just for 2010. and now, I’ll turn it over to Terrence who is going to review our Q4 results in more detail.

Terrence Curtin

Let me start by reviewing the sales performance and then I’ll get into earnings as well as cash flow. If you could return to slide four please. In the fourth quarter, we had both year-over-year and sequential sales growth in all of our segments excluding sub communications. Total company sales are just over $3.1 billion were up 16% year-over-year with growth primarily driven by the electronic components segment. Excluding the SubCom segment, growth was broad based across all the regions with Asia up 29%, the Americas up 25% and Europe up 16%. Currency translation did decrease our overall growth on a year-on-year basis by approximately 250 basis points.

On a sequential basis, sales were up 2%. Solid mid single digit growth and our network solutions and specialty product segments were partially offset by the expected decline in SubCom and lower growth in the component segment primarily due to typical seasonal declines in the auto business. Currency translation benefited overall company growth by approximately 80 basis points on a sequential basis as well as compared to our guidance. The currency translation above our guidance really drove our sales being involved the mid point of our guidance range. Now, let me get in some highlights of key markets in each of our segments and unless otherwise indicated, all changes that I’ll discuss will be on an organic basis. So please turn to slide five.

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