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TE Connectivity's (TEL) Q3 Earnings & Revenues Top Estimates

TE Connectivity Ltd.TEL delivered third-quarter fiscal 2018 adjusted earnings of $1.43 per share, beating the Zacks Consensus Estimate by 6 cents. Notably, this marked the company's 11th consecutive earnings beat. The figure also grew 15.3% year over year and steered past the projected range of $1.35-$1.37.

Continued solid execution of the company's strategic plans resulted in impressive earnings.

Net sales in the quarter were up 12% year over year to $3.764 billion and also topped the Zacks Consensus Estimate of $3.684 million.

Solid segmental performance especially in the transportation and industrial segments drove top-line growth in the reported quarter. Additionally, organic growth in all the segments remained positive throughout the quarter.

The company received total orders of $3.7 billion excluding the company's SubCom business. The figure grew 9% organically from the year-ago quarter.

The company's shares have gained 18.4% in the past 12 months, slightly outperforming the industry 's growth of 16.4%.

Top-Line in Detail

TE Connectivity operates in the following three organized segments.

Transportation Solutions: The company generated $2.112 billion of sales (56.2% of net sales) in the reported quarter, up 19.7% on a year-over-year basis. This was driven by solid organic growth of 12% within the segment's businesses - automotive, commercial transportation and sensor. Further, orders also improved 8% organically. All these can primarily be attributed to robust performance in agriculture, mining, construction and heavy truck areas. Additionally, increasing design wins and strong presence in Americas, Europe and China drove the results.

Industrial Solutions: This segment yielded sales of $988 million (26.2% of net sales) witnessed another strong quarter, rising 9.2% from the prior-year quarter. The company experienced organic growth of 5% in the reported quarter. Further, the orders went up 12% organically. Strength in industrial equipment, Aerospace, Defense and Marine business drove impressive growth.

Communications Solutions: This segment generated sales of $664 million (17.6% of net sales), which decreased 4.7% year over year. This decline was primarily due to fall in SubCom revenues. However, the company maintained its strong momentum in appliances and data and devices businesses throughout the quarter. TE Connectivity witnessed 6% year over year organic growth within the segment. Moreover, by excluding the impact of SubCom, organic growth in orders received came to 8% from the year-ago quarter.

Operating Details

Per the company, the gross margin for the third quarter of fiscal 2018 came in 32.3%, which contracted 150 basis points (bps) from the year-ago quarter. Further, adjusted operating margin came in 16.7%, shriveling 10 bps year over year.

Margin contraction was primarily due to increasing research and development (R&D) activities. R&D expenses were $181 million which went up 7.7% from the prior-year quarter. Further, selling, general, and administrative expenses came in $409 million which increased slightly 0.2% year over year.

TE Connectivity Ltd. Price, Consensus and EPS Surprise

TE Connectivity Ltd. Price, Consensus and EPS Surprise | TE Connectivity Ltd. Quote

Balance Sheet & Cash Flow

As of Jun 29, 2018, TE Connectivity's cash and cash equivalents of $770 million, greater than $559 million as of Mar 30, 2018.

The company generated free cash flow of $504 million in the reported quarter, up from $377 million in the prior quarter. Further, TE Connectivity paid back $382 million to its shareholders through the means of share repurchases and dividend payments.

Guidance

The company issued encouraging earnings and revenue guidance for the fiscal fourth quarter. It expects net sales in the range of $3.59-$3.69 billion, reflecting growth of 6% at mid-point.

Adjusted earnings per share are projected in the band of $1.31-$1.33, reflecting growth of 6% at mid-point.

Additionally, for fiscal 2018, TE Connectivity anticipates net sales of $14.58-$14.68 billion, reflecting growth of 12% year over year at the mid-point.

The company anticipates adjusted EPS to be within $5.56-$5.58, reflecting year-over-year growth of 15% at the mid-point.

To Conclude

TE Connectivity delivered yet another impressive quarter beating both the top and bottom lines significantly. The company's fiscal 2018 earnings guidance and robust sales forecast are likely to buoy investors' sentiment, as it carries growth momentum forward into fiscal 2018.

The company's strong efforts toward business development will continue to benefit segmental performance.

The Transportation Solutions segment is anticipated to witness growth at high-single digit, owing to content growth in its automotive business. Further, emerging trend of smart vehicles worldwide is likely to have positive impact on this segment.

The Industrial Solutions segment is also poised to grow at mid-single digit. This can primarily be attributed to strong performance of industrial equipment and commercial air. Also, improving presence in the aerospace & defense space remains positive.

However, Communications Solutions segment is expected to be down by low-single digit. The company's strong performing device and appliances businesses will be offset by sluggish SubCom business.

Zacks Rank & Stocks to Consider

TE Connectivity carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader technology sector are Twitter TWTR , Analog Devices ADI and Stoneridge SRI . While Twitter flaunts a Zacks Rank #1 (Strong Buy), Analog Devices and Stoneridge carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Long-term earnings growth rate for Twitter, Analog Devices and Stoneridge is pegged at 23.1%, 12.4% and 8.5%, respectively.

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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.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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