Release Date: April 23, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- TE Connectivity PLC (TEL, Financial) reported second-quarter sales of $4.1 billion, exceeding guidance and reflecting a 5% organic growth year over year.
- The company achieved record adjusted earnings per share of $2.10, surpassing guidance and marking a 13% increase from the previous year.
- Adjusted operating margins improved to 19.4%, up 90 basis points year over year, driven by strong operational performance.
- The industrial solutions segment experienced double-digit growth, with a notable 17% increase, driven by digital data networks and AI applications.
- TE Connectivity PLC (TEL) demonstrated strong cash generation, with $1.1 billion in free cash flow in the first half of the year and a 9% dividend increase announced.
Negative Points
- The company faces challenges from recent tariff announcements, particularly impacting the industrial segment more than the transportation segment.
- Global auto production is expected to decline, with a 5% year-over-year decrease anticipated, affecting the transportation segment.
- The commercial transportation business experienced a 5% organic decline due to market weakness in Europe and North America.
- The medical business saw a 14% decline in sales due to inventory normalization by customers, although sequential growth was noted.
- The adjusted effective tax rate is expected to increase, resulting in a $0.06 sequential headwind to EPS in the third quarter.
Q & A Highlights
Q: How are tariffs impacting TE Connectivity, and what are the geopolitical challenges for a US company like TE?
A: Terrence Curtin, CEO, explained that the tariff impact is more significant in the industrial segment than in transportation due to global scale and regional manufacturing. TE's business model is highly localized, which mitigates anti-American sentiment. The company works closely with local teams and customers to navigate geopolitical challenges, emphasizing its global nature and local presence.
Q: How are tariffs affecting TE's outlook by end market, and is there a risk of sales pull-in due to tariffs?
A: Curtin noted that while there were discussions about potential sales pull-in, no meaningful pull-ins were observed. Orders have remained stable, and customer discussions focus on mitigation strategies. The industrial segment shows strong momentum, particularly in AI applications, energy, and aerospace, while transportation faces mixed conditions with growth in Asia and declines in Western markets.
Q: Can TE Connectivity sustain margin expansion and EPS growth in a challenging market environment?
A: Heath Mitts, CFO, stated that despite market volatility, TE has reduced its manufacturing footprint and aligned with customer localization strategies, allowing for continued margin expansion. The industrial segment is expected to drive further margin growth, while the transportation segment maintains margins above 20% despite softer markets.
Q: What is the outlook for content growth in the automotive segment given production trends?
A: Curtin highlighted that while European production weakness pressures content growth, TE expects to achieve the low end of its 4-6 point content growth range due to strong ramps in Asia and increasing data connectivity in vehicles. The company anticipates sequential declines in global auto production but sees opportunities in electrification and data connectivity.
Q: How is TE Connectivity positioned regarding tariff risks, and could this be an advantage over competitors?
A: Curtin emphasized that TE's significant localization investments provide an advantage over competitors, some of whom only manufacture in one region. This localization strategy allows TE to offer more options to customers and mitigate tariff impacts effectively, positioning the company favorably in the current environment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
