TE Connectivity(TEL) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics - Q4 sales were $4.1 billion, up 2% organically year-over-year, driven by higher sales from AI applications in the Communications segment [20] - Adjusted EPS for Q4 was$ 1.95, up 10% year-over-year, with adjusted operating margins at 18.6%, up 130 basis points [21] - Full-year sales were $15.8 billion, with organic growth in Communications and Transportation segments offset by Industrial Equipment weakness [22] - Full-year adjusted EPS was$ 7.56, up 12% year-over-year, with adjusted operating margins at 18.9%, expanding 220 basis points [23] - Free cash flow for the year was a record $2.8 billion, up 17% year-over-year [23][47] Business Segment Performance Transportation Segment - Auto business declined 1% organically against a 5% global auto production decline, with 400 basis points of outperformance driven by double-digit growth in Asia [28] - Commercial Transportation business declined 4% organically, primarily due to weakness in Europe [31] - Adjusted operating margins for the Transportation segment were 19.3% in Q4 and 20% for the full year, up 300 basis points year-over-year [32] Industrial Solutions Segment - Aerospace & Defense and Energy businesses grew 14% organically, driven by strong demand and supply chain recovery [33][34] - Industrial Equipment business declined 20% organically, with weakness in factory automation, particularly in Europe [35] - Industrial segment margins were 15.6%, in line with expectations given volume levels and business mix [35] Communications Segment - Data & Devices business grew 35% organically, with AI revenue reaching$ 300 million in fiscal 2024, expected to double in fiscal 2025 [36] - Appliances business grew double digits for the second consecutive quarter, driven by strength in the Americas and Asia [37] - Adjusted operating margins for the Communications segment were 21.7%, showing significant improvement over the prior year [37] Market Trends and Strategic Direction - Global auto production is expected to decline slightly in fiscal 2025, with continued growth in hybrid and electric vehicle production, particularly in Asia [13] - AI applications in the Communications segment are accelerating, with $300 million in sales in fiscal 2024, expected to double in fiscal 2025 [15][36] - The company is investing in Asian operations to support EV growth and expanding engineering capacity for AI-related design wins [17] - Long-term value creation is centered around portfolio alignment with secular growth trends, margin expansion, and strong cash generation [18] Management Commentary on Operating Environment and Outlook - The company expects a return to growth in fiscal 2025, with investments in markets aligned with secular trends expected to accelerate [16][50] - Industrial end markets are expected to return to growth in 2025, with ongoing investments in engineering and capacity [16] - The company announced a$ 2.5 billion increase to its share repurchase program, reflecting confidence in its cash generation model [11][49] Other Important Information - The company is transitioning to a 2-segment structure, combining Transportation Solutions and Industrial Solutions, effective fiscal 2025 [4][5] - Restructuring charges for fiscal 2025 are expected to be at or below $100 million, with ongoing footprint optimization efforts [41] Q&A Session Summary AI Opportunity - The company expects AI revenue to double to$ 600 million in fiscal 2025, driven by design wins across a broad customer base [36][57] - AI momentum is accelerating, with orders up 40% year-over-year in Q4, following a 100% increase in the previous quarter [56] Content Outgrowth in Asia - Asia represents the largest revenue region for the company, with over 70% of EV and HEV production occurring there [13][62] - The company achieved mid-double-digit revenue growth in Asia, outperforming regional production growth by 10 points [62] New Segment Structure - The new Industrial segment is expected to finish fiscal 2024 with margins in the high teens, with a goal of reaching 20% over the midterm [69][72] - Transportation segment margins are expected to remain at or above 20%, with growth opportunities in auto and potential recovery in Commercial Transportation [70][72] Industrial Segment Weakness - Factory automation and building automation markets remain weak, particularly in Europe, with potential improvement expected in calendar 2025 [75][76] Capital Allocation - The company plans to deploy capital through share buybacks, dividends, and bolt-on acquisitions, with a $2.5 billion repurchase authorization announced [49][84] - CapEx for fiscal 2025 is expected to be$ 100 million higher than fiscal 2024, primarily to support AI program growth [96] Automotive Positioning in China - China represents a significant portion of the company's automotive revenue, with $2 billion in sales and strong positioning with local OEMs [87][88] - The company is opening its sixth automotive factory in China to support growth in the region [89] Commercial Vehicle Market - The commercial transportation market is expected to remain weak in fiscal 2025, with potential improvement later in the year [104][107] - The company expects to outperform the market decline by 200 basis points, with margins supported by strong performance in the auto business [105][107] Data & Devices Business - Excluding AI, the traditional datacom business is expected to return to mid-single-digit growth in fiscal 2025, driven by cloud recovery [109] Product Exits in Sensors - The company is completing$ 50 million of product exits in the Sensors business in fiscal 2025, focusing on automotive, heavy vehicle, medical, and factory automation markets [114]