The operator introduces the TE Connectivity First Quarter Results Call for Fiscal Year 2024 and turns the call over to Vice President of Investor Relations, Sujal Shah. CEO Terrence Curtin and CFO Heath Mitts are also present. Forward-looking information and non-GAAP measures will be discussed, and the press release and accompanying materials can be found on the company's website. Due to the number of participants, only one question will be allowed during the Q&A portion. CEO Curtin briefly discusses the company's performance and the global economic environment.

The company's first quarter sales were in-line with their guidance, with growth in the Transportation segment offsetting declines in the Industrial and Communications segments. The company's strong execution and focus on margin improvement led to a 20% increase in adjusted earnings per share and a record first quarter free cash flow. The company also deployed capital for acquisitions and returning capital to shareholders. Overall, the company's markets are performing as expected and orders grew by 4% year-over-year across all segments.

The company is experiencing overall sales growth, but some business units are still being affected by customer inventory destocking. The transportation market is expected to grow slightly, with China and EV adoption offsetting weakness in Europe and North America. Three out of four businesses in the Industrial Solutions segment are seeing growth, particularly in renewable energy, commercial air, and medical applications. However, there has been some weakness in the Industrial Equipment business due to ongoing destocking. In the Communication segment, destocking is occurring in pockets, but growth is expected in the second half of the year due to wins in artificial intelligence programs. The company's long-term value creation model remains unchanged, focusing on secular growth trends such as electric vehicles, renewable energy, and cloud and artificial intelligence applications.

In the fourth paragraph of the article, the author discusses the operational levers that will enable margin expansion despite a slow economic environment. These include strong operational execution, portfolio optimization, and price actions to offset higher input costs. The company also has a strong cash generation model that allows for the return of capital to shareholders and investments in M&A opportunities. In the first quarter, sales were in line with guidance, with growth in the Transportation and Industrial segments. Adjusted earnings per share were ahead of guidance and adjusted operating margins were up 290 basis points year-over-year. For the second quarter, the company expects sales to increase and adjusted earnings per share to be up 10% year-over-year with margin expansion of 200 basis points.

TE reported a 4% increase in orders for the quarter, with all three segments experiencing year-over-year growth for the first time since the COVID crisis. This stability and backlog at near record levels gives the company confidence in their second quarter outlook. Transportation orders grew 4%, while Industrial saw growth in orders driven by AD&M Medical and Energy businesses, but weakness in Industrial Equipment markets. Communication segment orders also grew 3%, with only some customers experiencing destocking in certain applications.

In the quarter, the Transportation segment saw a 5% organic sales growth, driven by strong performance in the auto business, particularly in Asia and Europe. The company's global outlook for electric vehicle growth remains unchanged, with a focus on content outperformance and leveraging their leading position in the market. The Commercial Transportation business saw 1% organic sales growth, driven by Asia. The Sensors business saw a decline, partly due to portfolio optimization efforts and weakness in certain markets. Adjusted operating margins for the Transportation segment were close to the target of 20%, and the company expects them to remain at this level for the rest of the year. Improvements in operations have been a focus for the company.

In the first quarter, our company has optimized our factory footprint and improved our EV product margins through restructuring programs and portfolio optimization. Our team has effectively managed pricing to offset higher input costs. In the industrial segment, sales were down 5% but we expect continued growth in three out of four businesses in the second quarter. Sales in the AD&M and Medical businesses were up, driven by increased production and interventional procedures respectively. However, sales in the Industrial Equipment business were down 26% due to inventory digestion. Adjusted operating margins were 15% for the Industrial segment and are expected to remain in the mid-teens until the destocking environment improves.

In the first quarter, Communications saw a decline in organic sales of 17% compared to the previous year, but the company expects to see favorable growth in the third quarter. They are focused on providing high speed, low latency connectivity for AI workloads and have generated 50% more content in this area compared to traditional compute servers. The segment's adjusted operating margins were 18.7%, up 170 basis points despite the sales decline. The company expects to maintain high-teen margins in this segment for the rest of the year. In terms of financials, adjusted operating income was $731 million with an adjusted operating margin of 19.1%. GAAP operating income was $698 million and included acquisition and restructuring charges. The company expects fiscal '24 restructuring charges to be around $100 million.

In the first quarter, the company reported flat sales and a 1% decrease in organic sales. However, adjusted operating margins increased by 290 basis points due to margin expansion in the Transportation and Communications segments. Adjusted earnings per share also increased by 20%. Cash flow was strong, with a record $570 million in free cash flow. The company remains committed to returning two-thirds of free cash flow to shareholders and using one-third for acquisitions. Despite a slow macro environment, the company expects to continue improving efficiency and making bolt-on acquisitions in the future.

The company is taking action to improve its financial performance, reflected in its strong Q1 results and future expectations. It is benefiting from secular growth trends and its global leadership position in electric vehicles. The company is also successfully executing on operational levers to drive margin expansion and earnings growth. Despite a slow macro environment, the company remains excited about future opportunities. During the Q&A session, the company was asked about changes in its outlook, and it stated that things were largely in line with expectations. The company also discussed the two main factors that affected its topline results – one being better than expected and the other slightly worse.

In the paragraph, the speaker discusses the performance of various sectors in the company. Auto production was strong, driven by China, while the Industrial Equipment business saw a decline due to destocking in Europe. However, the margin performance was better, leading to higher EPS. The company expects to see a 25% increase in EV production, with Asia being the largest region for revenue. Overall, the company is confident in their 4-6% outperformance in the market.

Terrence and Heath discuss the strong margins that the company has seen, attributing it to actions such as restructuring, portfolio optimization, and price actions. These actions have led to lower costs and improved performance in the supply chain. The company expects this trend to continue for the rest of the year.

The company is confident that they can maintain their target margins for the Transportation segment, even with a decrease in auto production. The Communications segment has also seen improved margins, but may not reach the target margin of 20%. The Industrial segment is expected to maintain mid-teens margins due to destocking and acquisitions. Overall, the company expects to have an operating margin in the high-teens for the rest of the year and is optimistic about future opportunities.

The speaker, Terrence R. Curtin, responds to a question about the recent decrease in orders in the December quarter. He mentions that their orders were still up 4% year-over-year and that they have a backlog of $6 billion. He also notes that their products are different from semiconductors and that they did not see any cancellations during COVID. Overall, he believes that the orders and backlog are in line with their expectations.

The speaker is discussing the company's backlog and expected revenue for the second quarter. They mention that they expect global auto production to decrease and that they are seeing an increase in orders in the Industrial sector. They also note that there are some areas, such as telecom and enterprise, that are still working through issues but overall there is stability. The speaker also mentions that their revenue guidance for the second quarter is $3.95 billion, based on orders and backlog. A question is then asked about the Industrial Equipment market and the speaker clarifies that the decline is due to channel partners rather than the end market.

In this paragraph, Terrence R. Curtin discusses the issue of destocking in TE's business. He clarifies that they do not see destocking in the automotive sector, as their service levels are high and supply chain is flowing smoothly. However, they do see destocking in other areas, particularly in products that go through distribution partners. This has resulted in a decrease in inventory levels, especially in Industrial Equipment, appliances, and data devices. While there has been some improvement in appliances, other sectors like Industrials are still experiencing destocking, which may continue for some time.

Chris Snyder asks about the company's direct business levels and organic growth, particularly in relation to electric vehicle penetration. CEO Terrence Curtin responds that it's important to look at the content outperformance over a period of time rather than on a quarter-to-quarter basis. He also notes that there are various factors at play, such as destocking and shifts in global auto production, that can impact growth in the industry.

In the quarter, the company saw a 300 basis points outperformance, slightly below their target of 4-6%. They stress the importance of global car production and note that the majority of cars are made and driven in Asia. They also mention the growing trend of EV adoption in China and the positive impact on their revenues. The company's content of 4-6% remains unchanged.

The speaker discusses the recent Schaffner acquisition and its impact on the company's industrial portfolio. The acquisition will add value for customers and owners, as Schaffner is a global leader in electromagnetic filter solutions for factory automation. This acquisition will also increase revenue by $40 million per quarter.

During a recent conference call, Terrence Curtin, Heath Mitts, and Sujal Shah discussed the profitability of their company and a recent acquisition. Mitts compared the acquisition to a previous one and stated that their focus is on cost structure and cash returns for shareholders. Shah then opened the floor for questions, and Joe Giordano asked about the impact of AI on their Communications segment. Curtin responded by stating that they have seen a 50% increase in AI content, and Giordano inquired about how much of this is replacing traditional methods.

The speaker discusses the potential impact of AI on the company's revenue and how it may affect their Communications segment. They mention a projected $200 million in AI revenue for the year and explain that it will likely continue to grow in the second half of the year. They also mention a $1 billion order booked in the past and discuss the potential implications of this revenue on margins.

Terrence Curtin responds to a question about the increased demand and wins in the Communication segment, stating that the $1 billion is in excess of $1.3 billion and they will be in the high-teens for margins. Luke Junk from Baird asks a question, but the operator cannot hear him. Matt Sheerin asks about inventory and potential slowing demand in certain sub segments, and Terrence Curtin explains that Medical and automotive sales are direct and do not go through the channel or EMS.

The company has seen strong growth in the interventional market, with double-digit growth in line with overall market trends. In the energy sector, there has been some slowdown in wind due to financing, but continued growth in solar applications. The company has also seen some weakness in utility spending in Europe, impacting overall growth rates. However, the company has exceeded expectations in terms of margins, which may be due to achieving goals earlier than expected or a higher level of profitability. The company has been pursuing various strategies for some time, but something may have changed in the quarter to result in this upside.

The company exceeded its expectations for auto production builds and is confident in maintaining target margins as global production levels return to pre-pandemic levels. This is due to a combination of factors such as cost structure and stable planning, as well as market support and facility adjustments. The communications sector is also performing well due to proper structure and execution.

The speaker is discussing the company's ability to maintain neutral pricing in their Transportation Solutions segment, particularly in the automotive sector. They mention factors such as input costs and their strategy of working with customers to recover costs.

The speaker discusses the company's approach to pricing and how it is driven by input costs. They mention their consistent communication about this approach and the potential for price decreases in the future. They also mention the impact of inflation on their margins and the possibility of seeing price increases when materials costs decrease. A question is asked about the profitability of the company's auto business in relation to EV and ICE products.

The speaker discusses the profitability of ICE vehicles versus EV vehicles, noting that half of the content is the same for both and the other half is being scaled up to match the segment average. They also mention the progress made in increasing margins in the Transportation sector and the potential for future M&A activity. The question then shifts to the company's free cash flow generation and their strong start to the fiscal year.

The company's guidance for the year remains unchanged, with a focus on maintaining a 100% cash conversion to net income. The company has been successful in managing its working capital and CapEx spending, and is actively pursuing potential M&A opportunities. While the company has already completed one deal, there are several others being considered, with the potential for more to be completed in the fiscal year. The company remains cautious and selective in its approach to M&A, ensuring that any potential deals are the right strategic fit and financially viable. There is a positive outlook for M&A activity in the coming year.

Colin Langan from Wells Fargo asked a question about the tax rate during TE Connectivity's earnings call. Heath Mitts, the company's representative, explained that the rate has increased to 21% due to the Swiss tax rate going up sooner than expected. He also mentioned that there are many unknowns related to global minimum tax and the company is working on tax planning to mitigate any pressures. He stated that 21% is a good rate to work with going forward. The call was available for replay on the company's website.

The speaker is ending the conference for the day and instructing the participants to disconnect.

This summary was generated with AI and may contain some inaccuracies.