TE Connectivity (TEL) Q3 Earnings Beat, Sales Fall Y/Y
TE Connectivity Ltd. TEL reported third-quarter fiscal 2023 adjusted earnings of $1.77 per share, which surpassed the Zacks Consensus Estimate by 6.6%.
However, the figure decreased by 4.8% from the year-ago quarter’s reading.
Net sales in the reported quarter were $3.99 billion, which lagged the consensus mark of $4.02 billion. The figure fell 2.4% on a reported basis and 1.4% organically from the respective year-ago fiscal quarter’s readings.
Top-line decline was attributed to sluggish communication solutions.
Nevertheless, the company witnessed strong momentum in transportation solutions.
TE Connectivity Ltd. Price, Consensus and EPS Surprise
TE Connectivity Ltd. price-consensus-eps-surprise-chart | TE Connectivity Ltd. Quote
Top-Line Details
Transportation Solutions: The segment generated $2.43 billion, which accounted for 60.9% of net sales. The figure grew by 6% year over year and surpassed the Zacks Consensus Estimate of $2.38 billion. The company witnessed a 7% growth in automotive sales, driven by the growing proliferation of electric vehicles and strong content trends in electronification. Sensor sales were up 4% from the year-ago quarter, owing to solid momentum across automotive applications. Commercial transportation sales grew 1% year over year, which remained a positive.
Industrial Solutions: The segment generated $1.14 billion, which accounted for 28.5% of net sales, and came below the Zacks Consensus Estimate of $1.15 billion. The figure rose 1% year over year on improvements in commercial aerospace, which led to 8% growth in aerospace, defense and marine sales. Solid momentum across renewable applications also remained positive for the company’s energy business, which grew 11% year over year. Increasing momentum across interventional procedures led to a 10% rise in medical sales.
However, industrial equipment sales, which declined 10%, were concerning.
Communications Solutions: The segment generated $424 million, which accounted for 10.6% of net sales. Further, the figure declined by 37% year over year and missed the consensus mark of $478 million. This was attributed to broad market weakness. Data and device sales decreased by 41% and appliance sales fell 30% year over year.
Operating Details
Per management, the gross margin expanded 10 basis points (bps) from the year-ago quarter to 32.5%.
We note that selling, general and administrative expenses were $431 million, up 9.7% year over year. Research and development expenses were $176 million, down 1.7% year over year.
The company’s adjusted operating margin was 17.3% in the reported quarter, down 130 bps year over year.
Balance Sheet & Cash Flow
As of Jun 30, 2023, cash and cash equivalents were $1.1 billion, up from $905 million as of Mar 31, 2023.
Long-term debt was $3.915 billion in the fiscal third quarter compared with $3.916 billion in the prior fiscal quarter.
TE Connectivity generated $779 million in cash from operations in the reported quarter, up from $634 million in the previous quarter.
TEL generated a free cash flow of $614 million.
Guidance
For fourth-quarter fiscal 2023, TE Connectivity expects net sales of $4 billion. The Zacks Consensus Estimate for the same is pegged at $4.04 billion.
Adjusted earnings are projected at $1.75 per share. The consensus mark is pegged at $1.72 per share.
Zacks Rank & Stocks to Consider
Currently, TE Connectivity carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology sector are Salesforce CRM, Akamai Technologies AKAM and AvidXchange AVDX. Salesforce sports a Zacks Rank #1 (Strong Buy), and Akamai Technologies and AvidXchange carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Salesforce shares have gained 70.7% in the year-to-date period. The long-term earnings growth rate for CRM is currently projected at 19.25%.
Akamai shares have gained 9.5% in the year-to-date period. The long-term earnings growth rate for AKAM is currently projected at 10%.
AvidXchange shares have increased 21.1% in the year-to-date period. The long-term earnings growth rate for AVDX is currently projected at 22.90%.
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