TE Connectivity (TEL) Q3 2024 earnings summary

Executive summary

• Q3 FY24 sales were $4.0B, in line with guidance, up 2% organically year-over-year, with record adjusted margins and EPS, and strong free cash flow generation; growth was led by AI-driven Communications and stable Automotive, offsetting industrial weakness.

• Adjusted EPS reached a record $1.91, up 8% year-over-year, with GAAP EPS at $1.86; orders rose to $4.1B, up 4% year-over-year, driven by AI momentum.

• Year-to-date free cash flow was $2.0B, up 36% year-over-year, with $1.8B returned to shareholders and over $2.2B capital deployed.

• Significant tax benefits in FY24, including an $874M credit and $262M from deferred tax revaluation, contributed to net income growth.

• Ongoing restructuring and a proposed change of incorporation from Switzerland to Ireland, expected by September 30, 2024.

Financial highlights

• Q3 adjusted operating income was $766M with a 19.3% margin, up 200 basis points year-over-year; adjusted EBITDA margin reached 24.5%.

• Gross margin improved to 34.8% in Q3 FY24; operating income was $755M GAAP, up from $630M.

• Q3 free cash flow was $867M, up from $614M year-over-year; year-to-date free cash flow reached $2.0B.

• Q3 diluted EPS: $1.86 GAAP, $1.91 adjusted; net income for Q3 was $573M, up from $528M.

• Book-to-bill ratio was 1.04, with orders up 4% year-over-year and 3% sequentially, driven by AI-related momentum.

Outlook and guidance

• Q4 FY24 net sales expected at ~$4.0B, with adjusted EPS at ~$1.94 (up 9% year-over-year) and GAAP EPS at ~$1.80; FX expected to be a headwind.

• Full-year adjusted EPS growth projected at 12% year-over-year, with double-digit earnings growth and margin expansion on flat sales.

• Q4 guidance anticipates strong margin expansion in Transportation and Communications segments, with continued strength in AI-related markets.

• Industrial Solutions Q4 sales to rise in aerospace/defense/marine but decline in industrial equipment.

• Communications Solutions Q4 sales to grow in data/devices and appliances, driven by AI momentum.