TE Connectivity Beats on Q2 Earnings

Zacks

TE Connectivity Ltd. (TEL) reported second-quarter fiscal 2014 (ended Mar 28, 2014) pro-forma earnings of 95 cents a share, which surpassed the Zacks Consensus Estimate of 91 cents. The reported figure was also up 25% from 76 cents a share earned in the prior-year quarter.

The company reported GAAP earnings of 87 cents per share, which reflected a year-over-year increase of 32%.

The continued strength in transportation and industrial markets were the primary growth drivers. The company also reaped gains from its diligent operational execution.

Revenues

Total revenue in the quarter increased 5.1% year over year to $3431 million. The company’s organic revenues grew 6% in the quarter. Revenues rose on the back of strength in most of the end markets including automotive, industrial transportation, aerospace, oil and gas, industrial equipment, appliances and broadband networks. However, the reported figure fell short of the Zacks Consensus Estimate of $3451 million. 

Segment Revenues

Revenues in the Transportation Solutions segment rose 13.4% year over year to $1571 million. The segment’s operating margin increased to 22.1% from 17.4% in the prior-year quarter.

Revenues in the Industrial Solutions segment were up 4.1% to $789 million. The segment reported an operating margin of 13.4%, marking an increase from the previous year’s margin of 10.4%.

Network Solutions revenues declined 5.1% year over year to $688 million. However, operating margin for the quarter increased to 3.3% from 2.6% in the past year.

Consumer Solutions revenues declined 3.5% year over year to $383 million. The operating margin for the segment increased to 8.9% from 5.0% in the previous year.

Margins        

Gross margin in the quarter increased to 34.2% from 32.2% in the prior-year quarter. The operating margin also increased to 14.9% from 11.0% in the year-ago quarter. The increase in operating margin was attributable to lower selling, general and administrative expenses as well as reduction in restructuring and acquisition costs.     

Cash Flow and Balance Sheet

TE Connectivity exitedthe quarter with cash and cash equivalents of $1429 million, up from $1403 million as on Sep 27, 2013.

Net cash from operating activities for the quarter was $449 million, up from $445 million in the last year.

Capital expenditure for the 6 months period was $168 million while the company paid $102 million in dividends.

The company’s free cash flow for quarter came in at $273 million against $353 million as on Mar 29, 2013.

Dividend

In the quarter, the company got the necessary approvals to increase the annual dividend by 16% to $1.16 per share.

Business Update

TE Connectivity acquired leading offshore oil and gas industry solutions provider, SEACON Group in an all-cash deal worth $490 million in the quarter. The acquisition of SEACON Group extends TE Connectivity’s connectivity solutions to the oil and gas sector, which has high growth potential. The acquisition will enhance its connectivity solutions business, especially for the applications in harsh environment.

Outlook

Along with the earnings release, TE Connectivity provided guidance for the third quarter and fiscal 2014.

The company expects third-quarter revenues of $3.54–$3.64 billion and adjusted earnings per share of 96 cents to $1.00. The company expects GAAP earnings to be in the range of 93–97 cents per share that include restructuring charges worth 2 cents and acquisition costs of 1 cent.

For fiscal 2014, the company anticipates revenues of $13.8–$14.1 billion and adjusted earnings per share of $3.72–$3.84. The company expects GAAP earnings for the year to be in the range of $3.62 to $3.74 per share, restructuring charges of 7 cents and acquisition costs of 2 cents in the year.

TE Connectivity currently has a Zacks Rank #2 (Buy). Some other stocks that look promising in the industry include CTS Corp. (CTS), InvenSense, Inc. (INVN) and Ballard Power Systems Inc. (BLDP). All of these have the same Zacks Rank as TE Connectivity.

Read the Full Research Report on CTS
Read the Full Research Report on TEL
Read the Full Research Report on BLDP
Read the Full Research Report on INVN


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