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Why Is TE Connectivity (TEL) Down 1.6% Since its Last Earnings Report?

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It has been about a month since the last earnings report for TE Connectivity Ltd. TEL. Shares have lost about 1.6% in that time frame, outperforming the market.

Will the recent negative trend continue leading up to its next earnings release, or is TEL due for a breakout? Before we dive into how investors and analysts have reacted 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 Q1 Earnings & Sales Top, View Buoyant

TE Connectivity scored its ninth consecutive earnings beat as the company reported first-quarter fiscal 2018 adjusted earnings of $1.40 per share, beating the Zacks Consensus Estimate of $1.25 by 12%. The figure also steered past the projected range of $1.23-$1.27.

The impressive earnings were driven by the continued solid execution and impressive top-line growth. Encouraged by the successful execution and all-round growth, the company released upbeat earnings and revenue guidance for second-quarter fiscal 2018.

On a GAAP basis, the company reported loss from continuing operations of 11 cents per share compared with earnings of $1.14 recorded in first-quarter 2016. The company’s GAAP profitability was adversely affected by a huge, one-time charge associated with the latest U.S. tax regulations.

Inside the Headlines

Net sales in the quarter were up 14% year over year at $3,480 million and also topped the Zacks Consensus Estimate of $3,367 million. Solid performance in two of the three segments drove the quarterly top-line growth. Excellent traction in the company’s harsh environment businesses, which has been a staple profit churner over the past quarters, contributed significantly to the top line.

Segmental Performance

Transportation Solutions revenues came in at $2,032 million in the reported quarter, up 21.3% on a year-over-year basis. Orders in the transportation segment came in at $2,129 million, up 20% on a year-over-year basis. Organic growth in automotive, commercial transportation, and sensors across all regions boosted the top line. In fact, the company’s sales in automotive and commercial transportation were considerably above market trends.

Industrial Solutions revenues witnessed another strong quarter, rising 10.9% year over year to $882 million. Orders in this quarter rose 13% to $942 million. The impressive growth was driven by strength in industrial equipment. Industrial Equipment business contributed to the segment revenues, which was slightly offset by decline in the Aerospace, Defense and Marine business. Also, organic decline in the Energy business, which stemmed from weakness in the European power market, dragged down segment revenues to some extent.

Communications Solutions revenues contracted 4.6% year over year to $566 million. However, orders were up 9% year over year to $454 million, led by strength across all regions and businesses. The segment’s sales were boosted, somewhat, by strength in Asia in Data and Devices, and double-digit growth in appliances.

The company’s adjusted operating margin for the quarter expanded 10 basis points from the year-ago quarter to 17.9%.

Liquidity & Cash Flow

TE Connectivity exited the quarter with cash and cash equivalents of $704 million, higher than $665 million reported a year back.

The company generated free cash flow of $127 million in the quarter, down from $218 million in the prior-year quarter.

Acquisition

The company recently enhanced its harsh environment portfolio with bolt-on acquisitions in the Automotive and Medical business.

In addition, it also acquired Hirschmann Car Communication, which focuses on vehicle connectivity technology used in antenna and infotainment systems. TE Connectivity also acquired MicroGroup, which makes specialized shafts for medical applications. These acquisitions will unlock expansion opportunities, and advance content growth in key applications for the automotive and medical markets.

Guidance

The company issued encouraging earnings and revenue guidance for the fiscal second quarter. It expects net sales in the range of $3.55-$3.65 billion, reflecting growth of 12% at the mid-point. Adjusted earnings per share are projected in the band of $1.33-$1.37, reflecting growth of 13% year over year at the mid-point.

Additionally, for fiscal 2018, the company expects net sales of $14.1-$14.3 billion, reflecting growth of 8% year over year at the midpoint. The company expects adjusted EPS to be $5.40-$5.50, reflecting 13% year-over-year growth at the mid-point.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter.

TE Connectivity Ltd. Price and Consensus

 

TE Connectivity Ltd. Price and Consensus | TE Connectivity Ltd. Quote

VGM Scores

At this time, TEL has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is equally suitable for value, growth, and momentum investors.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions also looks promising. Notably, TEL has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.


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