TE Connectivity(TEL) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company's third quarter sales were $4 billion, slightly down year-over-year on a reported and organic basis [64][128] - Adjusted operating income was$ 692 million with an adjusted operating margin of 17.3%, reflecting a 130 basis points sequential improvement [78][106] - Free cash flow for the quarter was approximately $615 million, with year-to-date free cash flow up 40% year-over-year [107][141] Business Line Data and Key Metrics Changes - In the Transportation segment, sales grew 7% organically year-over-year, driven by a 9% growth in the auto business [69][91] - The Industrial segment saw a 2% organic growth year-over-year, with strong performance in three out of four businesses [71][91] - The Communications segment experienced a 37% organic sales decline, attributed to market weakness and inventory consumption [101][128] Market Data and Key Metrics Changes - Global auto production is expected to remain flat at approximately 20 million units per quarter, with hybrid and electric vehicles making up about 25% of total production [62][69] - The company reported a 5% sequential increase in Communications segment orders, marking the first increase since the first quarter of fiscal 2022 [68] - The addressable market for renewable applications has a double-digit CAGR, with the company benefiting from utility-scale solar and wind farm deployments [72][89] Company Strategy and Development Direction - The company is focused on capitalizing on secular growth trends, including increased global production of electric vehicles and adoption of renewable energy [87][90] - There is a commitment to achieving high-teen operating margins in the Transportation Solutions segment, despite current margins being below target due to recent acquisitions [5][13] - The company is actively looking for M&A opportunities to enhance its strategic positioning [118][143] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the operating environment, noting improvements in supply chains and stable order trends across segments [61][90] - The company expects to maintain similar revenue levels in the fourth quarter as in the third quarter, with adjusted earnings per share around$ 1.75 [92][111] - Management highlighted the importance of working capital management and the positive impact on free cash flow performance [88][141] Other Important Information - The company has committed to science-based targets for greenhouse gas reduction by 2030, including Scope 3 emissions [67][93] - The company reported a significant reduction in Scope 1 and 2 greenhouse gas emissions, with 50% of its electricity sourced from renewable sources [93][128] Q&A Session Summary Question: Can you discuss the offsetting headwinds affecting the top line? - Management noted that while transportation revenue was stronger, the Communications segment was weaker due to ongoing market corrections and inventory adjustments [135] Question: What is the outlook for cash flow sustainability and capital allocation? - Management expressed confidence in cash flow sustainability, with a disciplined capital allocation strategy that includes funding for new products and M&A opportunities [141][143] Question: How does the company view the competitive landscape in AI? - Management highlighted strong relationships with key customers and semiconductor suppliers, emphasizing the importance of high-speed, low-latency connectivity in AI applications [120][146]