TE Connectivity (TEL) Down 11.3% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for TE Connectivity (TEL). Shares have lost about 11.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is TE Connectivity due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
TE Connectivity's Q2 Earnings & Revenues Beat Estimates
TE Connectivity reported second-quarter fiscal 2023 adjusted earnings of $1.65 per share, which surpassed the Zacks Consensus Estimate by 5.1%.
However, the figure decreased by 8.8% from the year-ago fiscal quarter’s reading.
Net sales in the reported quarter were $4.16 billion, beating the consensus mark of $3.9 billion. The figure rose 4% on a reported basis and 8% organically from the respective year-ago fiscal quarter’s readings.
Well-performing transportation and industrial solutions drove the top line growth during the reported quarter.
Top-Line Details
Transportation Solutions: The segment generated $2.5 billion, which accounted for 59.7% of net sales. The figure grew by 7% year over year. The company witnessed 9% growth in automotive sales, driven by the growing proliferation of electric vehicles and strong content trends in electronification. Further, sensor sales were up 6% from the year-ago quarter, owing to solid momentum across automotive applications. Also, commercial transportation sales grew 3% year over year, which remained a positive.
Industrial Solutions: The segment generated $1.2 billion, which accounted for 28.6% of net sales. The figure rose 12% year over year on improvements in commercial aerospace, which led to 14% growth in aerospace, defense and marine sales. Solid momentum across renewable applications also remained positive for the company’s energy business, which grew 27% year over year. Increasing momentum across interventional procedures led to a 26% rise in medical sales.
However, industrial equipment sales, which declined 1%, were concerning.
Communications Solutions: The segment generated $486 million, which accounted for 11.7% of net sales. Further, the figure declined 22% year over year. This was attributed to broad market weakness. Data and device sales decreased by 27% and appliance sales fell 15% year over year.
Operating Details
Per management, the gross profit was $1.3 billion, which was down 3.9% year over year. As a percentage of revenues, the figure contracted 250 basis points (bps) from the year-ago quarter to 30.9%.
We note that selling, general and administrative expenses were $435 million, up 4.6% year over year. Research and development expenses were $185 million, which remained flat year over year.
The company’s adjusted operating margin was 16% in the reported quarter, down 240 bps year over year.
Balance Sheet & Cash Flow
As of Mar 31, 2023, cash and cash equivalents were $905 million, up from $793 million as of Dec 30, 2022.
Long-term debt was $3.9 billion in the fiscal first quarter, up from $3.4 billion in the prior fiscal quarter.
TE Connectivity generated $634 million in cash from operations in the reported quarter, up from $581 million in the previous quarter. Further, it generated a free cash flow of $445 million.
TEL returned $375 million to its shareholders.
Guidance
For third-quarter fiscal 2023, TE Connectivity expects net sales of $4 billion.
Adjusted earnings are projected at $1.65 per share.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
VGM Scores
At this time, TE Connectivity has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, TE Connectivity has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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TE Connectivity Ltd. (TEL) : Free Stock Analysis Report
