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TE Connectivity (TEL) Q4 Earnings & Sales Beat Estimates

TE Connectivity Ltd. TEL has reported fourth-quarter fiscal 2020 adjusted earnings of $1.16 per share, beating the Zacks Consensus Estimate by 34.9%.

Further, the bottom line surged 96.6% sequentially but declined 12.8% on a year-over-year basis.

Net sales in the reported quarter were $3.3 billion, which surpassed the Zacks Consensus Estimate of $2.9 billion. Further, the figure rose 28% from the previous quarter but slumped 1% from the year-ago quarter.

The company witnessed sequential growth across all the segments, especially the Transportation segment, which exhibited growth of 49%.

On a year-over-year basis, TE Connectivity experienced an improvement in the Communications segment. However, a decline in the Transportation and Industrial segments was an overhang.

Notably, the company witnessed growth in its total orders, which was $3.35 billion, up4% and 40% from the prior-year quarter and previous quarter, respectively.

However, uncertainties related to the coronavirus pandemic remain concerning.

Nevertheless, the company’s global manufacturing strategy, continued solid execution of its plans especially cost reduction, and footprint consolidation initiatives remain key catalysts.

Additionally, TE Connectivity’s strong momentum across hybrid and electric vehicle platform technology, and recovering auto production remain tailwinds.

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 in Detail

TE Connectivity operates in three organized segments.

Transportation Solutions: The company generated sales worth $1.9 billion (57.2% of net sales) in the reported quarter, down 1.6% on a year-over-year basis. This can be attributed to weakness in auto production globally, which resulted in a year-over-year decline of 3% in automotive sales. Further, sluggishness in commercialtransportation led to a year-over-year fall of 6% in sales from this particular space.

Nevertheless, TE Connectivity experienced 10% growth in the sensors business year over year, which was a positive.

Industrial Solutions: This segment generated sales of $959 million (29.4% of net sales), which fell 5.4% year over year. This was primarily due to sluggishness in the commercial aerospace that led to a decline of 11% year over year in sales generated from aerospace, defense and marine markets in the reported quarter.

Further, the company witnessed a decline of 1% in the industrial equipment sales from the year-ago quarter. Although it performed sluggishly in Europe, it witnessed growth in Asia.

Moreover, delays in elective procedures due to the ongoing pandemic led to a year-over-year decline of 9% in medical sales.

Nevertheless, energy sales grew 1% from the year-ago quarter,owing to strong momentum in China amid sluggishness in the North American region.

Communications Solutions: This segment generated sales of $437 million (13.4% of net sales), improving 12.1% year over year. This was driven by 8% growth in data and device sales, owing to solid demand for cloud applications. Further, strong appliances sales, which grew 18%, thanks to improvement inthe housing market, contributed well.

Operating Details

Per management, gross margin was 29.7%, contracting 220 basis points (bps) from the year-ago quarter.

We note that R&D expenses were $148 million, which declined 6.9% year over year. Further, selling, general and administrative expenses were $352 million, down 5.4% year over year.

However, acquisition and integration expenses totaled $9 million, increasing 50% from the year-ago quarter. Also, restructuring costs increased 59.1% from the year-ago quarter to $113 million in the reported quarter.

Consequently, adjusted operating margin was 14.5%, contracting 180 bps from the prior-year quarter.

Balance Sheet & Cash Flow

As of Sep 25, 2020, TE Connectivity’s cash and cash equivalents were $945 million, higher than $474 million as of Jun 26, 2020.

Long-term debt was $3.4 billion, up from $3.3 billion in the previous quarter.

The company generated $720 million of cash from operations in the reported quarter, which increased from $380 million in the prior quarter.

Further, free cash flow of $648million was generated in the reported quarter. Additionally, TE Connectivity made $159 million worth of dividend payments to shareholders during the reported quarter.

Guidance

The company projects net sales at $3.2 billion for first-quarter fiscal 2021, suggesting year-over-year growth of 1% on a reported basis. However, the figure indicates a 2% decline organically.

The Zacks Consensus Estimate for fiscal first-quarter sales is pegged at $3.01 billion.

Further, TE Connectivity projects adjusted earnings at $1.25 per share. The Zacks Consensus Estimate for the same is pegged at $1.04.

Zacks Rank & Other Stocks to Consider

TE Connectivity currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader technology sector are Fortinet FTNT, CDW Corporation CDW and Qorvo QRVO. All three companies carry a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate of Fortinet, CDW and Qorvo is pegged at 14%, 13.1% and 12.35%, respectively.

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