Why Is TE Connectivity (TEL) Down 2.5% Since Last Earnings Report?
A month has gone by since the last earnings report for TE Connectivity (TEL). Shares have lost about 2.5% 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 its most recent earnings report in order to get a better handle on the important catalysts.
TE Connectivity Q3 Earnings Top Estimates, Sales Fall Y/Y
TE Connectivity reported third-quarter fiscal 2024 adjusted earnings of $1.91 per share, which surpassed the Zacks Consensus Estimate by 2.69% and increased 8% year over year.
The year-over-year upside was driven by strong margin expansion.
Net sales in the reported quarter were $3.97 billion, missing the consensus mark by 0.51%. The figure dropped 1% on a reported basis but moved up 2% organically on a year-over-year basis.
Orders were $4.1 billion in the reported quarter, up 4% year over year and 3% sequentially, driven by strong momentum in artificial intelligence programs.
Top-Line Details
The Transportation solutions segment generated revenues of $2.33 billion, which contributed 58.6% to net sales. The figure fell 4.2% year over year and missed the Zacks Consensus Estimate by 2.94%.
The company witnessed a 1% decline in automotive sales. Organically, auto sales increased 4%.
Sensor sales were down 15% year over year. Commercial transportation sales fell 10% year over year.
TEL’s initiatives to exit lower-margin and lower-growth products negatively impacted sensor sales, along with weakness in industrial markets.
Industrial solutions segment generated revenues of $1.13 billion, contributing 28.5% to net sales and missing the Zacks Consensus Estimate by 1.24%. The figure dropped 0.7% year over year.
Industrial equipment sales declined 17% year over year, while Aerospace, defense and marine increased 18%. Energy sales declined 2% year over year, while Medical increased 7%.
The Communications solutions segment generated revenues of $516 million, contributing 13% to net sales. The figure increased 21.7% year over year and beat the consensus mark by 11.85%.
Data and device sales increased 31%. Appliance sales were up 9% year over year.
Operating Details
In third-quarter fiscal 2024, GAAP gross margin expanded 230 basis points (bps) year over year to 34.8%.
Selling, general and administrative expenses, as a percentage of revenues, increased 10 bps year over year to 10.8%. Research, development and engineering expenses, as a percentage of revenues, expanded 30 bps to 4.7%.
GAAP operating margin expanded 320 bps year over year to 19%. Adjusted operating margin expanded 200 bps year over year to 19.3% in the reported quarter.
Balance Sheet & Cash Flow
As of Jun 28, 2024, cash and cash equivalents were $1.46 billion, down from $1.18 billion as of Mar 29, 2024.
Long-term debt was $2.95 billion as of Jun 28, 2024, compared with $2.96 billion as of Mar 29, 2024.
TE Connectivity generated $1 billion in cash from operations in the reported quarter, up from $710 million in the previous quarter.
TEL generated a free cash flow of $867 million in the reported quarter, up from $543 million reported in the previous quarter.
Guidance
For fourth-quarter fiscal 2024, TE Connectivity expects net sales of $4 billion with year-over-year organic growth, driven by the Transportation and Communications segments.
Adjusted earnings are projected at $1.94 per share, indicating growth of 9% year over year.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
VGM Scores
Currently, TE Connectivity has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly 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