TE Connectivity announces first quarter results for fiscal year 2021
SCHAFFHAUSEN, Switzerland, Jan. 27, 2021 /PRNewswire/ -- TE Connectivity Ltd. (NYSE: TEL) today reported results for the fiscal first quarter ended Dec. 25, 2020.
First Quarter Highlights
-- Net sales were $3.5 billion, up 11% on a reported basis, and 6% on an
organic basis year over year.
-- Orders of approximately $4 billion, up 25% year over year.
-- GAAP earnings per share (EPS) from continuing operations were $1.13, and
adjusted EPS were $1.47, up 21% year over year.
-- Cash flow from continuing operating activities was $640 million and free
cash flow was $529 million, with $286 million returned to shareholders.
"Our strong first quarter performance reflects our global team's ability to adapt to ongoing dynamic market conditions to deliver double-digit sales and EPS growth that exceeded our expectations," said TE Connectivity CEO Terrence Curtin. "These results demonstrate the strength and resilience of our portfolio, our employees' commitment to our customers and the benefit of our leadership position in long-term global growth trends. In particular, our Transportation segment continued to outperform the market due to content growth driven by electric vehicles, along with data connectivity and autonomy trends. Our Communications segment also exhibited strength due to demand in high-speed cloud applications and growth in the appliances market. As we are seeing continued signs of improvement in the majority of our end markets, we expect to deliver continued sales and earnings growth in the second quarter."
Second Quarter FY21 Outlook
For the second quarter of fiscal 2021, the company expects net sales of approximately $3.5 billion, reflecting an approximate 10% increase on a reported basis and an increase of mid-single digits on an organic basis year over year. GAAP EPS from continuing operations are expected to be approximately $1.38 with adjusted EPS of approximately $1.47, up 14% year over year.
Information about TE Connectivity's use of non-GAAP financial measures is provided below. For reconciliations of these non-GAAP financial measures, see the attached tables.
Conference Call and Webcast
The company will hold a conference call today beginning at 8:30 a.m. ET. The dial-in information is provided here:
-- At TE Connectivity's website: investors.te.com
-- By telephone: For both "listen-only" participants and those participants
who wish to take part in the question-and-answer portion of the call,
the dial-in number in the United States is (866) 211-4092, and for
international callers, the dial-in number is (647) 689-6620.
-- A replay of the conference call will be available on TE Connectivity's
investor website at investors.te.com at 11:30 a.m. ET on Jan. 27, 2021.
About TE Connectivity
TE Connectivity Ltd. (NYSE: TEL) is a global industrial technology leader creating a safer, sustainable, productive, and connected future. Our broad range of connectivity and sensor solutions, proven in the harshest environments, enable advancements in transportation, industrial applications, medical technology, energy, data communications, and the home. With approximately 80,000 employees, including more than 7,500 engineers, working alongside customers in approximately 140 countries, TE ensures that EVERY CONNECTION COUNTS. Learn more at www.te.com and on LinkedIn, Facebook, WeChat and Twitter.
Non-GAAP Financial Measures
We present non-GAAP performance and liquidity measures as we believe it is appropriate for investors to consider adjusted financial measures in addition to results in accordance with accounting principles generally accepted in the U.S. ("GAAP"). These non-GAAP financial measures provide supplemental information and should not be considered replacements for results in accordance with GAAP. Management uses non-GAAP financial measures internally for planning and forecasting purposes and in its decision-making processes related to the operations of our company. We believe these measures provide meaningful information to us and investors because they enhance the understanding of our operating performance, ability to generate cash, and the trends of our business. Additionally, we believe that investors benefit from having access to the same financial measures that management uses in evaluating our operations. The primary limitation of these measures is that they exclude the financial impact of items that would otherwise either increase or decrease our reported results. This limitation is best addressed by using these non-GAAP financial measures in combination with the most directly comparable GAAP financial measures in order to better understand the amounts, character, and impact of any increase or decrease in reported amounts. These non-GAAP financial measures may not be comparable to similarly-titled measures reported by other companies.
The following provides additional information regarding our non-GAAP financial measures:
-- Organic Net Sales Growth (Decline) - represents net sales growth
(decline) (the most comparable GAAP financial measure) excluding the
impact of foreign currency exchange rates, and acquisitions and
divestitures that occurred in the preceding twelve months, if any.
Organic Net Sales Growth (Decline) is a useful measure of our
performance because it excludes items that are not completely under
management's control, such as the impact of changes in foreign currency
exchange rates, and items that do not reflect the underlying growth of
the company, such as acquisition and divestiture activity. This measure
is a significant component in our incentive compensation plans.
-- Adjusted Operating Income (Loss) and Adjusted Operating Margin -
represent operating income (loss) and operating margin, respectively,
(the most comparable GAAP financial measures) before special items
including restructuring and other charges, acquisition-related charges,
impairment of goodwill, and other income or charges, if any. We utilize
these adjusted measures in combination with operating income (loss) and
operating margin to assess segment level operating performance and to
provide insight to management in evaluating segment operating plan
execution and market conditions. Adjusted Operating Income (Loss) is a
significant component in our incentive compensation plans.
-- Adjusted Other Income (Expense), Net - represents net other income
(expense) (the most comparable GAAP financial measure) before special
items including tax sharing income related to adjustments to prior
period tax returns and other items, if any.
-- Adjusted Income Tax (Expense) Benefit and Adjusted Effective Tax Rate -
represent income tax (expense) benefit and effective tax rate,
respectively, (the most comparable GAAP financial measures) after
adjusting for the tax effect of special items including restructuring
and other charges, acquisition-related charges, impairment of goodwill,
other income or charges, and certain significant tax items, if any.
-- Adjusted Income (Loss) from Continuing Operations - represents income
(loss) from continuing operations (the most comparable GAAP financial
measure) before special items including restructuring and other charges,
acquisition-related charges, impairment of goodwill, tax sharing income
related to adjustments to prior period tax returns and other tax items,
other income or charges, and certain significant tax items, if any, and,
if applicable, the related tax effects.
-- Adjusted Earnings (Loss) Per Share - represents diluted earnings (loss)
per share from continuing operations (the most comparable GAAP financial
measure) before special items including restructuring and other charges,
acquisition-related charges, impairment of goodwill, tax sharing income
related to adjustments to prior period tax returns and other tax items,
other income or charges, and certain significant tax items, if any, and,
if applicable, the related tax effects. This measure is a significant
component in our incentive compensation plans.
-- Free Cash Flow (FCF) - is a useful measure of our ability to generate
cash. The difference between net cash provided by continuing operating
activities (the most comparable GAAP financial measure) and Free Cash
Flow consists mainly of significant cash outflows and inflows that we
believe are useful to identify. We believe Free Cash Flow provides
useful information to investors as it provides insight into the primary
cash flow metric used by management to monitor and evaluate cash flows
generated from our operations. Free Cash Flow is defined as net cash
provided by continuing operating activities excluding voluntary pension
contributions and the cash impact of special items, if any, minus net
capital expenditures. Voluntary pension contributions are excluded from
the GAAP financial measure because this activity is driven by economic
financing decisions rather than operating activity. Certain special
items, including net payments related to pre-separation tax matters and
cash paid (collected) pursuant to collateral requirements related to
cross-currency swap contracts, are also excluded by management in
evaluating Free Cash Flow. Net capital expenditures consist of capital
expenditures less proceeds from the sale of property, plant, and
equipment. These items are subtracted because they represent long-term
commitments. In the calculation of Free Cash Flow, we subtract certain
cash items that are ultimately within management's and the Board of
Directors' discretion to direct and may imply that there is less or more
cash available for our programs than the most comparable GAAP financial
measure indicates. It should not be inferred that the entire Free Cash
Flow amount is available for future discretionary expenditures, as our
definition of Free Cash Flow does not consider certain non-discretionary
expenditures, such as debt payments. In addition, we may have other
discretionary expenditures, such as discretionary dividends, share
repurchases, and business acquisitions, that are not considered in the
calculation of Free Cash Flow.
Forward-Looking Statements
This release contains certain "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to risks, uncertainty and changes in circumstances, which may cause actual results, performance, financial condition or achievements to differ materially from anticipated results, performance, financial condition or achievements. All statements contained herein that are not clearly historical in nature are forward-looking and the words "anticipate," "believe," "expect," "estimate," "plan," and similar expressions are generally intended to identify forward-looking statements. We have no intention and are under no obligation to update or alter (and expressly disclaim any such intention or obligation to do so) our forward-looking statements whether as a result of new information, future events or otherwise, except to the extent required by law. The forward-looking statements in this release include statements addressing our future financial condition and operating results, and the impact on our operations resulting from the coronavirus disease 2019 ("COVID-19"). Examples of factors that could cause actual results to differ materially from those described in the forward-looking statements include, among others, the extent, severity and duration of COVID-19 negatively affecting our business operations; business, economic, competitive and regulatory risks, such as conditions affecting demand for products in the automotive and other industries we serve; competition and pricing pressure; fluctuations in foreign currency exchange rates and commodity prices; natural disasters and political, economic and military instability in countries in which we operate; developments in the credit markets; future goodwill impairment; compliance with current and future environmental and other laws and regulations; and the possible effects on us of changes in tax laws, tax treaties and other legislation, including the effects of Swiss tax reform. In addition, the extent to which COVID-19 will impact our business and our financial results will depend on future developments, which are highly uncertain and cannot be predicted. Such developments may include the geographic spread of the virus, the severity of the virus, the duration of the outbreak, the impact on our suppliers' and customers' supply chains, the actions that may be taken by various governmental authorities in response to the outbreak in jurisdictions in which we operate, and the possible impact on the global economy and local economies in which we operate. More detailed information about these and other factors is set forth in TE Connectivity Ltd.'s Annual Report on Form 10-K for the fiscal year ended Sept. 25, 2020 as well as in our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports filed by us with the U.S. Securities and Exchange Commission.
TE CONNECTIVITY LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Quarters Ended
December 25, December 27,
2020 2019
---
(in millions, except per share
data)
Net sales $
3,522 $
3,168
Cost of sales 2,376 2,138
Gross margin 1,146 1,030
Selling, general, and administrative expenses 361 367
Research, development, and engineering expenses 162 161
Acquisition and integration costs 8 7
Restructuring and other charges, net 167 24
Operating income 448 471
Interest income 3 6
Interest expense (15) (12)
Other income (expense), net (1) 5
Income from continuing operations before income taxes 435 470
Income tax expense (60) (447)
Income from continuing operations 375 23
Income from discontinued operations, net of income taxes 6 3
Net income $
381 $
26
===
Basic earnings per share:
Income from continuing operations $
1.13 $
0.07
Income from discontinued operations 0.02 0.01
Net income 1.15 0.08
Diluted earnings per share:
Income from continuing operations $
1.13 $
0.07
Income from discontinued operations 0.02 0.01
Net income 1.14 0.08
Weighted-average number of shares outstanding:
Basic 331 335
Diluted 333 337
TE CONNECTIVITY LTD.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
December 25, September 25,
2020 2020
---
(in millions, except share data)
Assets
Current assets:
Cash and cash equivalents $
1,098 $
945
Accounts receivable, net of allowance for doubtful accounts of $33 and $29, respectively 2,640 2,377
Inventories 2,066 1,950
Prepaid expenses and other current assets 677 512
Total current assets 6,481 5,784
Property, plant, and equipment, net 3,768 3,650
Goodwill 5,387 5,224
Intangible assets, net 1,613 1,593
Deferred income taxes 2,198 2,178
Other assets 819 813
Total assets $
20,266 $
19,242
===
Liabilities, redeemable noncontrolling interests, and shareholders' equity
Current liabilities:
Short-term debt $
685 $
694
Accounts payable 1,629 1,276
Accrued and other current liabilities 1,769 1,720
Total current liabilities 4,083 3,690
Long-term debt 3,516 3,452
Long-term pension and postretirement liabilities 1,329 1,336
Deferred income taxes 144 143
Income taxes 266 252
Other liabilities 949 874
Total liabilities 10,287 9,747
Commitments and contingencies
Redeemable noncontrolling interests 118 112
Shareholders' equity:
Common shares, CHF 0.57 par value, 338,953,381 shares authorized and issued, respectively 149 149
Accumulated earnings 10,672 10,348
Treasury shares, at cost, 7,836,597 and 8,295,878 shares, respectively (655) (669)
Accumulated other comprehensive loss (305) (445)
Total shareholders' equity 9,861 9,383
Total liabilities, redeemable noncontrolling interests, and shareholders' equity $
20,266 $
19,242
===
TE CONNECTIVITY LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Quarters Ended
December 25, December 27,
2020 2019
---
(in millions)
Cash flows from operating activities:
Net income $
381 $
26
Income from discontinued operations, net of income taxes (6) (3)
Income from continuing operations 375 23
Adjustments to reconcile income from continuing operations to net cash provided by operating
activities:
Depreciation and amortization 187 174
Deferred income taxes (42) 394
Non-cash lease cost 30 27
Provision for losses on accounts receivable and inventories 6 20
Share-based compensation expense 19 22
Other 21 10
Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
Accounts receivable, net (299) (24)
Inventories (145) (176)
Prepaid expenses and other current assets (87) (23)
Accounts payable 349 94
Accrued and other current liabilities 88 (185)
Income taxes 17 10
Other 121 45
Net cash provided by operating activities 640 411
Cash flows from investing activities:
Capital expenditures (142) (176)
Proceeds from sale of property, plant, and equipment 1 2
Acquisition of businesses, net of cash acquired (107) (115)
Other 2
Net cash used in investing activities (246) (289)
Cash flows from financing activities:
Net decrease in commercial paper (9)
Repayment of debt (30)
Proceeds from exercise of share options 75 14
Repurchase of common shares (119) (139)
Payment of common share dividends to shareholders (159) (154)
Other (19) (26)
Net cash used in financing activities (252) (314)
Effect of currency translation on cash 11 7
Net increase (decrease) in cash, cash equivalents, and restricted cash 153 (185)
Cash, cash equivalents, and restricted cash at beginning of period 945 927
Cash, cash equivalents, and restricted cash at end of period $
1,098 $
742
===
Supplemental cash flow information:
Interest paid on debt, net $
4 $
4
Income taxes paid, net of refunds 85 43
TE CONNECTIVITY LTD.
RECONCILIATION OF FREE CASH FLOW (UNAUDITED)
For the Quarters Ended
December 25, December 27,
2020 2019
---
(in millions)
Net cash provided by continuing operating activities $
640 $
411
Excluding:
Cash paid pursuant to collateral requirements related to cross-currency swap contracts 30 6
Capital expenditures, net (141) (174)
Free cash flow (1) $
529 $
243
===
(1) Free cash flow is a non-GAAP financial measure. See description of non-GAAP financial measures.
TE CONNECTIVITY LTD.
CONSOLIDATED SEGMENT DATA (UNAUDITED)
For the Quarters Ended
December 25, December 27,
2020 2019
($ in millions)
Net Sales Net Sales
Transportation Solutions $
2,224 $
1,868
Industrial Solutions 873 927
Communications Solutions 425 373
Total $
3,522 $
3,168
Operating Operating Operating Operating
Income Margin Income Margin
---
Transportation Solutions $
308 13.8 $
316 16.9
% %
Industrial Solutions 76 8.7 115 12.4
Communications Solutions 64 15.1 40 10.7
Total $
448 12.7 $
471 14.9
% %
Adjusted Adjusted Adjusted Adjusted
Operating Operating Operating Operating
Income (1) Margin (1) Income (1) Margin (1)
---
Transportation Solutions $
431 19.4 $
325 17.4
% %
Industrial Solutions 118 13.5 132 14.2
Communications Solutions 75 17.6 45 12.1
Total $
624 17.7 $
502 15.8
% %
(1) Adjusted operating income and adjusted operating margin are non-GAAP financial measures. See description of non-GAAP financial measures.
TE CONNECTIVITY LTD.
RECONCILIATION OF NET SALES GROWTH (DECLINE) (UNAUDITED)
Change in Net Sales for the Quarter Ended December 25, 2020
versus Net Sales for the Quarter Ended December 27, 2019
Net Sales Organic Net Sales
Growth (Decline) Growth (Decline) (1) Translation (2) Acquisitions
---
($ in millions)
Transportation Solutions (3):
Automotive $
224 15.9 $
161 11.3
% % $
63
$
Commercial transportation 73 28.3 65 24.9 8
Sensors 59 28.8 7 3.2 5 47
Total 356 19.1 233 12.3 76 47
Industrial Solutions (3):
Aerospace, defense, oil, and gas (59) (19.1) (68) (22.0) 6 3
Industrial equipment 32 12.2 21 7.7 11
Medical (23) (12.8) (24) (13.4) 1
Energy (4) (2.3) (7) (3.7) 3
Total (54) (5.8) (78) (8.4) 21 3
Communications Solutions (3):
Data and devices 15 6.8 10 4.7 5
Appliances 37 24.0 33 21.1 4
Total 52 13.9 43 11.5 9
Total $
354 11.2 $
198 6.2
% % $
106 $
50
===
(1) Organic net sales growth (decline) is a non-GAAP financial measure. See description of non-GAAP financial measures.
(2) Represents the change in net sales resulting from changes in foreign currency exchange rates.
(3) Industry end market information is presented consistently with our internal management reporting and may be periodically revised as management deems necessary.
TE CONNECTIVITY LTD.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL MEASURES
For the Quarter Ended December 25, 2020
(UNAUDITED)
Adjustments
Acquisition- Restructuring
Related and Other Adjusted
U.S. GAAP Charges (1) Charges, Net (1) Tax Items (2) (Non-GAAP) (3)
($ in millions, except per share data)
Operating income:
Transportation Solutions $
308 $
5 $
118
$ $
431
Industrial Solutions 76 4 38 118
Communications Solutions 64 11 75
Total $
448 $
9 $
167
$ $
624
Operating margin 12.7 17.7
% %
Other expense, net $
(1)
$
$
$ $
(1)
Income tax expense $
(60) $
(2) $
(32) $
(29) $
(123)
Effective tax rate 13.8 20.1
% %
Income from continuing operations $
375 $
7 $
135 $
(29) $
488
Diluted earnings per share from $
1.13 $
0.02 $
0.41 $
(0.09) $
1.47
continuing operations
(1) The tax effect of each non-GAAP adjustment is calculated based on the jurisdictions in which the expense (income) is incurred and the tax laws in effect for each such jurisdiction.
(2) Income tax benefits related to an Internal Revenue Service approved change in the tax method of depreciating or amortizing certain assets.
(3) See description of non-GAAP financial measures.
TE CONNECTIVITY LTD.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL MEASURES
For the Quarter Ended December 27, 2019
(UNAUDITED)
Adjustments
Acquisition- Restructuring
Related and Other Adjusted
U.S. GAAP Charges (1) Charges, Net (1) Tax Items (2) (Non-GAAP) (3)
($ in millions, except per share data)
Operating income:
Transportation Solutions $
316 $
5 $
4
$ $
325
Industrial Solutions 115 2 15 132
Communications Solutions 40 5 45
Total $
471 $
7 $
24
$ $
502
Operating margin 14.9 15.8
% %
Other income, net $
5
$
$
$ $
5
Income tax expense $
(447) $
(1)
$ $
355 $
(93)
Effective tax rate 95.1 18.6
% %
Income from continuing operations $
23 $
6 $
24 $
355 $
408
Diluted earnings per share from $
0.07 $
0.02 $
0.07 $
1.05 $
1.21
continuing operations
(1) The tax effect of each non-GAAP adjustment is calculated based on the jurisdictions in which the expense (income) is incurred and the tax laws in effect for each such jurisdiction.
(2) Income tax expense related to the tax impacts of certain measures of Swiss tax reform.
(3) See description of non-GAAP financial measures.
TE CONNECTIVITY LTD.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL MEASURES
For the Quarter Ended March 27, 2020
(UNAUDITED)
Adjustments
Acquisition- Restructuring
Related and Other Impairment Adjusted
U.S. GAAP Charges (1) Charges, Net (1) of Goodwill (1) Tax Items (2) (Non-GAAP) (4)
($ in millions, except per share data)
Operating income (loss):
Transportation Solutions $
(606) $
10 $
18 $
900
$ $
322
Industrial Solutions 142 2 1 145
Communications Solutions 49 3 52
Total $
(415) $
12 $
22 $
900
$ $
519
Operating margin (13.0) 16.2
% %
Other income, net $
11
$
$
$ $
(8) $
3
Income tax expense $
(42) $
(2) $
(4) $
(4) $
(31) $
(83)
Effective tax rate (10.2) 16.1
% %
Income (loss) from continuing $
(452) $
10 $
18 $
896 $
(39) $
433
operations
Diluted earnings (loss) per share from $
(1.35) $
0.03 $
0.05 $
2.67 $
(0.12) $
1.29
continuing operations (3)
(1) The tax effect of each non-GAAP adjustment is calculated based on the jurisdictions in which the expense (income) is incurred and the tax laws in effect for each such jurisdiction.
(2) Includes an income tax benefit related to pre-separation tax matters and the termination of the tax sharing agreement with Tyco International and Covidien, as well as the related impact to net other income.
(3) U.S. GAAP diluted shares excludes one million of nonvested share awards and options outstanding as the inclusion of these securities would have been antidilutive because of our loss during the period. Such amounts are included in adjusted (non-GAAP) diluted shares.
(4) See description of non-GAAP financial measures.
TE CONNECTIVITY LTD.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL MEASURES
For the Year Ended September 25, 2020
(UNAUDITED)
Adjustments
Acquisition- Restructuring
Related and Other Impairment Adjusted
U.S. GAAP Charges (1) Charges, Net (1) of Goodwill (1) Tax Items (2) (Non-GAAP) (4)
($ in millions, except per share data)
Operating income (loss):
Transportation Solutions $
(93) $
32 $
113 $
900
$ $
952
Industrial Solutions 412 8 102 522
Communications Solutions 218 42 260
Total $
537 $
40 $
257 $
900
$ $
1,734
Operating margin 4.4 14.2
% %
Other income, net $
20
$
$
$ $
(8) $
12
Income tax expense $
(783) $
(8) $
(46) $
(4) $
550 $
(291)
Effective tax rate 149.4
%
% 17.0
Income (loss) from continuing $
(259) $
32 $
211 $
896 $
542 $
1,422
operations
Diluted earnings (loss) per share from $
(0.78) $
0.10 $
0.63 $
2.68 $
1.62 $
4.26
continuing operations (3)
(1) The tax effect of each non-GAAP adjustment is calculated based on the jurisdictions in which the expense (income) is incurred and the tax laws in effect for each such jurisdiction.
(2) Includes $355 million of income tax expense related to the tax impacts of certain measures of Swiss tax reform and $226 million of income tax expense related to increases to the valuation allowance for certain deferred tax assets, partially offset by a $31 million income tax benefit related to pre-separation tax matters and the termination
of the tax sharing agreement with Tyco International and Covidien.
(3) U.S. GAAP diluted shares excludes two million of nonvested share awards and options outstanding as the inclusion of these securities would have been antidilutive because of our loss during the period. Such amounts are included in adjusted (non-GAAP) diluted shares.
(4) See description of non-GAAP financial measures.
TE CONNECTIVITY LTD.
RECONCILIATION OF FORWARD-LOOKING NON-GAAP FINANCIAL MEASURES
TO FORWARD-LOOKING GAAP FINANCIAL MEASURES
As of January 27, 2021
(UNAUDITED)
Outlook for
Quarter Ending
March 26,
2021
Diluted earnings per share from continuing operations $
1.38
Restructuring and other charges, net 0.07
Acquisition-related charges 0.02
Adjusted diluted earnings per share from continuing operations (1) $
1.47
(1)See description of non-GAAP financial measures.
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SOURCE TE Connectivity Ltd.
