The operator introduces the TE Connectivity Second Quarter Results Call for Fiscal Year 2024. The call is being recorded and will include a question-and-answer session. The host, Sujal Shah, introduces the CEO and CFO. Forward-looking information will be discussed and non-GAAP measures will be used. Participants are asked to limit themselves to one question during the Q&A portion. The CEO, Terrence Curtin, highlights the company's performance and the dynamic global economic environment.

Despite a slow growth environment, the company's second quarter sales were in line with expectations and showed sequential growth in all segments. The company also saw improved order levels and strong performance in adjusted earnings per share and operating margins. They expect to continue delivering strong performance and double-digit earnings growth for the fiscal year. The company has a strong cash generation model and has already deployed over $1.5 billion, with a focus on returning capital to shareholders and pursuing bolt-on M&A activities.

The company's view on transportation markets and global auto production remains unchanged, with expected growth in the Communications segment and continued weakness in the Industrial Solutions segment due to destocking. The company expects the dollar's strength to impact growth and earnings in the second and third quarter. The company's long-term value creation model remains centered around strategically positioned portfolio in renewable energy, cloud and artificial intelligence, and hybrid and electric vehicle production. The company also benefits from the trend of increased software defined vehicles and safety features.

In the fourth paragraph, the speaker discusses the three pillars of value creation, which include operational leverage, strong margin performance, and a cash generation model. They then provide an overview of the second quarter, highlighting sales, adjusted earnings per share, and adjusted operating margins. The speaker also mentions their expectations for the third quarter and their commitment to corporate responsibility.

In the fifth paragraph, the speaker discusses the key highlights of the company's achievements, including a 70% reduction in greenhouse gas emissions and the validation of their reduction targets by the Science Based Target initiatives. They then move on to discuss the company's improved order levels, which were up 6% sequentially to $4 billion. This is the first time in a year and a half that orders have been above $4 billion, indicating stability in most of their end markets. The speaker then breaks down the orders by segment, with Transportation orders growing despite a decline in auto production, Industrial orders showing continued momentum, and Communications orders increasing significantly due to design win momentum and AI orders. The speaker concludes by discussing year-over-year segment results, starting with Transportation.

The transportation sector of the company saw a 1% growth in the auto business, driven by strong sales in China but offset by declines in North America and Europe. The company expects an increase in vehicle production in China due to the growing adoption of electric vehicles. However, there are declines in internal combustion engine production globally. The commercial transportation business saw a decline of 4%, mainly due to heavy truck market declines in North America and Europe. The Sensors business also saw a decline in sales due to market weakness in industrial applications and portfolio optimization.

In the Transportation segment, adjusted operating margins were slightly above target levels and are expected to remain on target for the rest of the year. The company is investing in their auto business to support engineering requirements for next generation vehicles. In the Industrial Solutions segment, sales were down 6% organically, but growth was seen in 3 out of 4 businesses. AD&M, Medical, and Energy businesses are expected to continue growing. The AD&M business saw a 17% organic growth due to commercial aerospace and defense markets. Medical sales were up 6% organically due to increased interventional procedures. Energy saw growth in the Americas but weakness in Europe. The Industrial Equipment business saw a 28% decline in sales due to destocking, but there is expected to be some stabilization later this year. Margins in the Industrial segment are expected to remain in the mid-teens until the Industrial Equipment business returns to growth.

The speaker discusses the Communications segment and the return to year-over-year growth in the third quarter. They expect higher growth from artificial intelligence applications and plan to double AI revenues next year. The segment had a 17.3% adjusted operating margin, up 100 basis points from last year. The speaker hands over to Heath for more details on the financials, including an adjusted operating income of $735 million and a margin of 18.5%.

In the second quarter, GAAP operating income was $692 million, with $3 million in acquisition related charges and $40 million in restructuring and other charges. Adjusted EPS was $1.86 and GAAP EPS was $1.75, with an adjusted effective tax rate of 21%. Sales were down 5% on a reported basis and 3% on an organic basis, but showed 3% organic growth sequentially. Adjusted operating margins were 18.5%, up 250 basis points from last year. Cash flow from operations was $710 million and free cash flow was $543 million, with a total of $1.1 billion for the first half of the fiscal year. The company's long-term capital strategy remains unchanged, with a focus on returning two thirds of free cash flow to shareholders and using one third for acquisitions. The company expects its free cash flow conversion to exceed 100% for the year.

The speaker is reinforcing the company's positive performance and growth in various markets, such as automotive, renewables, and artificial intelligence. They are also seeing an improvement in order patterns and have a strong cash generation model. They remain optimistic about future opportunities to create value for stakeholders. During the Q&A session, an analyst asks for clarification on the company's positive outlook on the automotive industry, given the recent deceleration in EV growth and shift towards plug-in hybrids. The speaker is asked to provide more context on the company's view and whether there may be any impact from customers adjusting their product mix plans.

Terrence Curtin, a company executive, responds to a question about the impact of global shifts in the auto industry. He highlights the strong position of the company globally and mentions that despite changes, auto production is expected to increase this year. He also notes that there is still growth in the e-mobility category, including hybrids, plug-in hybrids, and electric vehicles. In China, there is a strong trend towards EV production and adoption, and the company has a strong position in the market. Overall, the company's content per vehicle is increasing as EV adoption continues to grow in China.

In the Western world, there is a shift towards PHEVs and hybrids, which is driving content growth in EVs. All regions are expected to see double-digit growth in EVs this year. The company remains confident in their 4 to 6 points of outperformance, cautioning against looking at it on a quarterly basis. Content growth is driven by electrification, data Ethernet for autonomy, and other electronics. The company expects to see content growth in both EVs and hybrids, and is confident in their 4 to 6 points of outperformance.

Terrence Curtin, answering a question from Luke Junk, discusses the current state of market health and destocking. He notes that this is the first time in 6 quarters that they have seen orders above $4 billion and a book to bill ratio above one. He also mentions that destocking in the communications segment is over, but it is still ongoing in the industrial equipment segment. However, he sees signs of improvement in both China and the Americas, but there are still weak areas in Europe. Overall, Curtin believes that there is stability and growth in most areas.

Terrence Curtin, CEO of TE Connectivity, discussed the company's strong revenue trajectory and the role of AI solutions in driving this growth. He mentioned that the company expects to see a doubling of revenue in AI applications next year, with a potential to reach $1 billion a few years after that. This is due to the company's design win momentum and positive feedback from customers.

The company has invested in teams and operations to drive AI solutions, and they work closely with hyperscale customers and semiconductor companies. They have a broad range of products and are focused on improving performance in these applications. The CEO is optimistic about their momentum and potential for growth beyond fiscal '24.

Terrence Curtin, CEO of TE Connectivity, believes that the destocking trend is coming to an end and orders are bouncing back. He expects similar momentum in AI applications as seen in cloud applications during COVID. He also predicts that the tailwind from destocking will turn into a headwind and that the growth in electric vehicles will continue to drive growth in the transportation sector. Additionally, the AI element will be a significant driver for growth in the next year.

The speaker discusses the growth momentum in their three businesses in the Industrial Equipment sector and how it will continue into 2025. They also mention the progress made in margins, particularly in the transportation segment, and anticipate a strong jumping off point for 2025. The margin in the communications segment is dependent on volume, and the speaker notes that they are currently performing better than expected.

The company has consistently achieved high teens in revenue this year and is working towards a target margin of 20% for that segment. They are hiring to support growth areas and expect significant improvement in the Industrial business next year. The company expects to exit this year with operating margins up a couple of 100 basis points year-over-year and plans to make normalized improvements each year. They feel good about their operating model and are planning for FY '25. The next question is from a different analyst.

Terrence Curtin responds to a question about the capacity investments being made in the communication segment, specifically around AI demand. He mentions that the company has been investing in expanding operations in Mexico and the Philippines, and that these investments have been ongoing for a few years. The company will continue to build on these investments and also increase engineering capacity as needed for specific programs. Curtin highlights the strong partnership the company has with its customers in developing connectivity solutions and states that these investments are included in the company's current run rate.

The operator introduces a question from Joe Giordano about the company's investments in AI and its customers' growth plans. Giordano asks about the feasibility of these plans and how the company weighs its investments against market outlook. The CEO responds by saying they focus on nailing technical requirements with customers and working with them to understand market opportunities. The next question from Asiya Merchant is about pricing and the impact on margins from normalization. The CEO responds by saying they are focused on understanding their customers' needs and are prepared for pricing to normalize in the future.

The speaker discusses the pricing and demand environment for industrial equipment. They mention that they have recovered from inflation and expect pricing to be neutral this year. They also mention targeted price increases and staying competitive. They believe that the material environment will be the main driver of pricing going forward. They then address the demand environment, stating that it is currently cloudy due to a mix of channel partners and OEMs. They note that there are pockets of strength, particularly in the process side.

The speaker discusses the current state of the market and how their company is impacted by customers and channel partners working off buffer stock. They expect this to continue for the next couple of quarters before business returns to normal in 2025. The company also works with customers to help reduce costs and improve the quality of their products.

The company is seeing opportunities for growth in the automotive industry, particularly in China. Their strong position in the market allows them to offer competitive prices and bring their technology to other manufacturers around the world. They are focused on scaling their electric vehicle technology and making their processes more productive. In the second quarter, they experienced a 1% growth, but expect to reach their long-term target of 4-6% outperformance for the year. They caution against looking at individual quarters and assure that they are still on track for their overall goals.

The speaker discusses the current state of the commercial transportation market, which is driven by three main factors: on-road truck and bus, agriculture equipment, and construction equipment. They note that while the Americas and Europe are weak, China and Asia are recovering. The overall market is expected to be down by around 5% this year, but the speaker anticipates a more positive outlook in the future.

The operator introduces a question from Matt Sheerin of Stifel about TE's industrial group's performance in the energy markets. Terence Curtin responds by saying they are still optimistic about the energy market, with strong growth in the US and global renewables. The only area of softness is in European utilities, but they expect growth to return. The operator then introduces a question from Shreyas Patil of Wolfe Research about sustained organic growth for TE overall. Curtin responds that they still expect 4-6% organic growth over time.

The speaker discusses the potential for fluctuations in growth and mentions that the 4% to 6% range is a good way to think about the company's portfolio. The final question from a conference participant is about AI and the speaker mentions that there are three main companies in this space, including TE, and that they all have unique strengths and capabilities. The speaker also mentions the importance of technical innovation and customer expectations in this competitive market.

The speaker believes that the connectivity industry has an important role to play in enabling the development of AI technology. They see this as a great opportunity for both their company and the industry as a whole. The conference call has now ended and a replay will be available on TE Connectivity's website.

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