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TE Connectivity(TEL) - 2024 Q1 - Earnings Call Transcript
TELTE Connectivity(TEL)2024-01-24 20:24
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Financial Data and Key Metrics - Q1 sales were 3.83billion,in−linewithguidance,withflatrevenuegrowth[105]−Adjustedoperatingmarginsexpandedto19.13.83 billion, in-line with guidance, with flat revenue growth [105] - Adjusted operating margins expanded to 19.1%, up 290 basis points year-over-year, driven by strong operational performance [98][109] - Adjusted EPS was 1.84, up 20% year-over-year, ahead of guidance [109] - Free cash flow reached a record 570millioninQ1,buildingonstrongcashperformancefromthepreviousyear[91][119]BusinessLineDataandKeyMetrics−Transportationsegmentsalesgrew5570 million in Q1, building on strong cash performance from the previous year [91][119] Business Line Data and Key Metrics - Transportation segment sales grew 5% organically, driven by 8% growth in the auto business, with 13% growth in Asia and 7% in Europe [100] - Industrial segment sales were down 5% organically, with growth in Aerospace, Defense & Marine (AD&M), Medical, and Energy, but weakness in Industrial Equipment [118] - Communications segment sales were down 17% organically, with destocking now occurring only in pockets, and growth expected in the second half driven by AI applications [107][125] Market Data and Key Metrics - Global auto production was slightly over 22 million units in Q1, with stronger production in China offsetting weakness in Europe and North America [96] - EV production is expected to grow 25% this year, with two-thirds of EVs produced in Asia, where the company has a strong position [129][139] - Industrial Equipment destocking is expected to continue into the second half of the fiscal year, impacting organic growth [86][123] Company Strategy and Industry Competition - The company is focused on secular growth trends, including EV adoption, renewable energy, and AI applications [93][101] - Portfolio optimization and footprint consolidation have contributed to margin expansion, particularly in the Transportation segment [89][113] - The Schaffner acquisition expands the company's product portfolio in factory automation, with expected revenue of 40 million per quarter [152][168] Management Commentary on Operating Environment and Future Outlook - The company expects a slow global economic environment but remains confident in its ability to deliver strong margin expansion and earnings growth [84][120] - Q2 sales are expected to increase to 3.95billion,drivenbygrowthintheIndustrialsegment,partiallyoffsetbyaslightdeclineinTransportation[94]−Thecompanyanticipatesadjustedoperatingmarginstoremaininthehigh−teensfortheCommunicationssegmentandmid−teensfortheIndustrialsegment[133][149]OtherImportantInformation−ThecompanywasincludedintheDowJonesSustainabilityIndexforthe12thconsecutiveyear,reflectingitscommitmenttosustainablebusinesspractices[95]−RestructuringchargesforFY2024areexpectedtobeapproximately3.95 billion, driven by growth in the Industrial segment, partially offset by a slight decline in Transportation [94] - The company anticipates adjusted operating margins to remain in the high-teens for the Communications segment and mid-teens for the Industrial segment [133][149] Other Important Information - The company was included in the Dow Jones Sustainability Index for the 12th consecutive year, reflecting its commitment to sustainable business practices [95] - Restructuring charges for FY2024 are expected to be approximately 100 million, well below prior years, with future charges driven by bolt-on acquisitions [127] Q&A Summary Question: Can you elaborate on the factors driving the strong margin performance this quarter? [124] - Answer: Margin expansion was driven by operational execution, footprint consolidation, portfolio optimization, and price actions to offset higher input costs, particularly in the Transportation and Communications segments [124][132] Question: How is the company managing pricing in the Transportation segment, especially in automotive? [67] - Answer: The company has maintained neutral pricing by focusing on input costs and has successfully implemented price actions to offset inflationary pressures [67][68] Question: What is the outlook for EV adoption and its impact on the auto business? [144] - Answer: EV production is expected to grow 25% this year, with two-thirds of EVs produced in Asia, where the company has a strong position. The company expects 4-6% content outperformance in the auto business [129][139] Question: Can you provide more details on the Schaffner acquisition? [157] - Answer: Schaffner expands the company's product portfolio in factory automation, with expected revenue of 40millionperquarter.Theacquisitionisexpectedtoimproveprofitabilityovertime[152][168]Question:HowisthecompanymanagingdestockingintheIndustrialEquipmentbusiness?[123]−Answer:DestockinginIndustrialEquipmentisexpectedtocontinueintothesecondhalfofthefiscalyear,impactingorganicgrowth.Thecompanyisfocusingondirectcustomerrelationshipstomitigatetheimpact[123][128]Question:WhatistheoutlookforAI−relatedrevenueintheCommunicationssegment?[165]−Answer:Thecompanyexpects40 million per quarter. The acquisition is expected to improve profitability over time [152][168] Question: How is the company managing destocking in the Industrial Equipment business? [123] - Answer: Destocking in Industrial Equipment is expected to continue into the second half of the fiscal year, impacting organic growth. The company is focusing on direct customer relationships to mitigate the impact [123][128] Question: What is the outlook for AI-related revenue in the Communications segment? [165] - Answer: The company expects 200 million in AI-related revenue in FY2024, with growth expected in the second half of the year. AI applications are expected to drive higher content and revenue in the Communications segment [165][169]