TE Connectivity(TEL) - 2026 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported first-quarter sales of $4.7 billion, representing a 22% increase on a reported basis and a 15% increase organically year over year [7][20] - Adjusted earnings per share (EPS) reached a record of $2.72, up over 30% compared to the previous year [8][20] - Adjusted operating margins improved to 22%, an increase of 180 basis points year over year [8][20] - Free cash flow exceeded $600 million, with 100% returned to shareholders [8][20] Business Line Data and Key Metrics Changes - Industrial Solutions segment sales grew 38% year over year, with a 26% organic increase [11] - Digital Data Networks (DDN) experienced a remarkable 70% growth year over year, driven by strong AI revenue expectations [12] - Transportation Solutions segment sales increased by 10%, with organic growth of 7% year over year [15] Market Data and Key Metrics Changes - Orders increased to a record level of over $5 billion, reflecting a growth of more than $1 billion compared to the prior year [5][9] - Double-digit organic order growth was observed in all regions year over year [9] - The company expects global auto production to be approximately 88 million units for fiscal 2026, slightly down from the previous year [16][78] Company Strategy and Development Direction - The company is focusing on broadening growth drivers to capitalize on secular trends in data and power connectivity [4] - Investments in co-creation engineering models and global supply chain enhancements are expected to drive value for customers [4] - The long-term target is to achieve six to eight points of annual average growth, with expectations to exceed this in fiscal 2026 [7] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to deliver growth ahead of the long-term target, supported by strong order momentum [7][21] - The company is experiencing ongoing macroeconomic challenges but continues to execute well, achieving record adjusted operating margins [6][21] - Management highlighted the importance of AI and data connectivity as key growth drivers for the future [10] Other Important Information - The company plans to increase capital expenditures to support the growing pipeline of customer awards for AI programs, expecting CapEx to be closer to 6% of sales this year [20] - The adjusted effective tax rate for Q1 was approximately 22%, with expectations to remain at this level for Q2 [19] Q&A Session Summary Question: AI revenue forecast increase - Management confirmed an increase in AI revenue expectations by $200 million compared to previous forecasts, driven by new program awards and strong customer demand [28][29] Question: Order trends and revenue implications - Management noted that orders were up significantly, with strong growth across various segments, but acknowledged a typical seasonal decline in auto production affecting revenue guidance [34][36] Question: Drivers of AI revenue uptick - The increase in AI revenue expectations is attributed to new program awards and existing programs performing better than anticipated [40][42] Question: Supply chain tightness and inflation - Management indicated that while there is inflation in metal-related components, they are able to procure necessary materials and pass costs through to customers [62][71] Question: Commercial transportation outlook - Management acknowledged that while last year's first quarter was an easier comparison, they expect continued growth in commercial transportation driven by improvements in markets outside North America [66][68] Question: EPS guidance and operating income items - Management explained that the slight decrease in EPS guidance is due to tax and higher interest expenses, but they remain confident in maintaining strong incremental margins [69][70]