TE Connectivity (TEL) Q1 Earnings, Revenues Beat; View Up
TE Connectivity Ltd.TEL scored its fifth consecutive earnings beat as it reported first-quarter fiscal 2017 adjusted earnings of $1.15 per share, beating the Zacks Consensus Estimate of $1.00 by 15%. The bottom line fared phenomenally in year-over-year comparison, surging 37% from the prior-year tally of 92 cents.
The company shares rose 3.4% in pre-market trading as investors cheered the remarkable results.
The impressive earnings were driven by robust growth in harsh environment businesses. The company's consistent productivity improvements also reflected in the quarter's earnings.
On GAAP basis, the company posted record first-quarter earnings from continuing operations of $1.13 per share in the quarter, up over 36% from 83 cents reported in the year-ago quarter.
The strong growth was supported by constant excellent performance in the Transportation Solutions segment, along with solid execution in Industrial Solutions segment in the quarter.
Inside the Headlines
Net sales in the quarter grew 8.1% year over year at $3,063 million,marginally ahead of the Zacks Consensus Estimate of $3,001 million.
The top line benefited from excellent traction in the company's harsh environment businesses, including Automotive, Commercial Transportation, and Appliances.
Transportation Solutions revenues came in at $1,675 million in the quarter, up 11% on a year-over-year basis. Orders in the transportation segment came in at $1,775 million compared with the year-ago tally of $1,583 million. Though automotive organic sales growth in Asia and EMEA regions acted as tailwinds, softness in heavy trucks offset these improvements to some extent.
Industrial Solutions revenues had another good quarter, rising 12% year over year to $795 million in the quarter under review. Orders in this quarter rose 14.6% to $832 million. Growth was driven by good performance from Aerospace and Defense business, while the recently acquired Creganna also lent strength to the segment's top line. However, weakness in oil and gas and energy markets hurt growth to some extent.
Communications Solutions continued to show weakness as revenues went down 4% year over year to $593 million. Orders were marginally up year over year at $417 million, compared with $406 million a year ago. The lackluster performance of the communications business was largely on account of the poorData & Devices end market. Solid performance of Appliances business in Asia and North America offset the decline to some extent.
The company's adjusted operating margin for the quarter expanded 180 basis points from the year-ago quarter to 17.5%.
Liquidity & Cash Flow
TE Connectivity exited the quarter with cash and cash equivalents of $665 million, significantly lower than $2,223 million a year back.
The company generated free cash flow of $218 million in the quarter, down from $237 million in the prior-year quarter.
Share Repurchase Program/Dividend
During the reported quarter, the company returned $234 million to shareholders through share buybacks and dividends.
The last reported quarter witnessed TE Connectivity fortify its portfolio through the acquisition of Jaquet Technology Group, which makes innovative speed sensors for the auto, rail and power markets. This expands the company's scope of engineering and manufacturing expertise for sensor technology, and adds to its automotive and industrial and commercial transportation portfolio as well.
In Apr 2016, TE Connectivity concluded the buyout of the healthcare device company - Creganna Medical Group - for $895 million, in a bid to expand and emerge as the industry leader in high-growth harsh environment applications.
This acquisition will enable TE Connectivity to double its medical business revenues to approximately $500 million and cement its position in the high-growth minimally invasive medical device market. The company expects the deal to be accretive to the extent of 3 cents to adjusted earnings in the first full fiscal, while boosting interventional revenues by over $300 million.
TE Connectivity also acquired Intercontec Group, a leading maker of high-quality industrial metric circular connectors. The deal will further elevate its position in harsh connectivity applications for the industrial market.
TE Connectivity projects second-quarter fiscal 2017 adjusted earnings per share in the range of $1.05-$1.09 (representing a 19% year-over-year growth at mid-point) on revenues between $3.025 and $3.125 billion (which reflects a growth of 4% year over year at mid-point).
For fiscal 2017, the company raised its projection of adjusted earnings per share to a range of $4.30-$4.50 (up from prior expectations of $4.19-$4.49) and foresees revenues to lie in the band of $12.2-$12.6 billion.
TE Connectivity Ltd. Price, Consensus and EPS Surprise
The company is currently experiencing steady momentum in the automotive market, sensors business and commercial transportation business and expects them to continue gaining traction in the forthcoming quarters. The company anticipates industrial orders to gain further traction, which is a sign of stabilization in the sector. However, foreign exchange volatility remains a formidable risk.
Going forward, TE Connectivity believes that the acquisition of Creganna and Intercontec Group will further fortify its strong foothold in the harsh environment portfolio. Interventional medical applications business has also been witnessing sturdy momentum.
The company has been undergoing restructuring in order to enhance its focus on the lucrative connectivity and sensor markets as well. These strategic steps are beginning to gain momentum and will likely drive growth in the coming quarters.
In addition, though the exit of the Circuit Protection business may have affected financials in the short run, we believe that the company will now be able to channel its resources to more productive areas in the future, thereby augmenting long-term growth.
Zacks Rank & Stocks to Consider
TE Connectivity currently carries a Zacks Rank #2 (Buy).
Ballard Power Systems has a robust earnings beat history, having surpassed estimates twice in the trailing four quarters, for an average positive earnings surprise of 12.5%, and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
AU Optronics carries a Zacks Rank #2 (Buy) and has managed to achieve an average positive earnings surprise of 16.7% over the trailing four quarters, thanks to a massive beat last quarter.
TTM Technologies, also holding a Zacks Rank #2, has registered a remarkable positive average surprise of over 29% over the four trailing quarters, driven by three consecutive strong beats.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.