The paragraph is an introduction to TE Connectivity's First Quarter Earnings Call for Fiscal Year 2025. The Operator welcomes participants and informs them about the structure of the call, which includes a question-and-answer session. Sujal Shah, Vice President of Investor Relations, then takes over, introducing Chief Executive Officer Terrence Curtin and Chief Financial Officer Heath Mitts. Sujal highlights that the call will include forward-looking information and non-GAAP measures, referring participants to further details in the press release and slide presentation on the company's website. He notes the company's reorganization into two segments: Transportation Solutions and Industrial Solutions, and directs participants to refer to the December 8-K filing for financial information under the new structure. Participants are asked to limit to one question during the Q&A. Terrence Curtin is then introduced for his opening comments.

The speaker begins by wishing everyone a Happy New Year and expressing gratitude for attending the first quarter earnings call. They acknowledge the uneven global economy, which poses challenges and uncertainties as they look towards 2025. Despite this, the company performed well in the first quarter, with sales meeting expectations, and achieving record adjusted operating margin, EPS, and free cash flow, thanks to strong execution by their team. Orders exceeded expectations both year-over-year and sequentially, boosting confidence for future quarters. However, a stronger dollar posed challenges. The speaker highlights a focus on four key areas, especially innovation, to support customer needs amid the dynamic environment.

The paragraph outlines the company's focus on several strategic priorities, such as leveraging high-speed connectivity for AI and enhancing energy infrastructure applications, to drive adjusted margin expansion. The company highlights its operational strategies, including localizing manufacturing to support China Plus One strategies and being prepared for potential tariffs. Additionally, the focus is on maintaining strong cash generation for potential capital returns and M&A opportunities. The first quarter results showed sales of $3.84 billion, with adjusted earnings per share of $1.95, exceeding guidance and marking a 6% increase from the previous year. Adjusted operating margins reached a record 19.4%, with orders growing to $4 billion, demonstrating broader industrial growth and increased momentum in AI programs.

The company reported a record first-quarter free cash flow of $674 million, up 18% year-over-year, reflecting high-quality earnings. It anticipates a sequential increase in second-quarter sales to $3.95 billion but faces over $100 million in currency exchange headwinds. The adjusted earnings per share are expected to be $1.96, a 5% year-over-year increase, despite a $0.06 hit from currency and tax. The company was included in the Dow Jones Sustainability Index for the 13th year, reflecting its commitment to sustainable practices. Orders grew to $4 billion with a book-to-bill ratio of 1.05. In the Industrial segment, orders rose 15% sequentially, supporting expected organic sales growth, while the Transportation segment saw expected auto orders growth in Asia offset by Western softness. Weakness in commercial transportation and sensor markets led to a decline in the segment. The Industrial segment showed a strong book-to-bill ratio of over 1, driven by growth in aerospace, defense, marine, energy, and stabilization in factory automation markets.

The paragraph discusses the company's recent performance and future expectations in its transportation segment, focusing on the auto and commercial transportation sectors. The auto business saw a 3% organic decline in the first quarter, with growth in Asia being offset by declines in Western regions. Global auto production is expected to decrease by 1% to 2% in fiscal 2025, although growth in hybrid and EV production, especially in Asia, is anticipated. The company highlights the momentum in software-defined vehicle architectures and data connectivity, evidenced by over $1 billion in new design wins with a leading Chinese auto OEM. Commercial transportation experienced a 12% organic decline due to weak heavy truck production in Europe and North America, but improvement is expected later in the year.

In the sensors business, sales declined due to weakness in the industrial markets in Europe and North America, though operating margins were strong at 21.3%. In the Industrial Solutions segment, there was double-digit growth, driven by a 50% organic increase in the digital data networks business and strong AI application sales projections for fiscal 2025. However, the automation and connected living segment saw a 5% decline, particularly in Europe, with signs of stability and increased strength in Asia. The AD&M segment experienced 15% organic growth across aerospace, defense, and space markets. The medical business declined 25% due to inventory normalization but is expected to grow sequentially. The paragraph ends by noting the energy business, though further details on it are not provided.

In the quarter, the company experienced a 7% organic sales increase, driven by strong performance across regions and investments in utility-scale renewables. Additionally, they acquired Harger, a leader in lightning protection and grounding solutions, enhancing their grid reliability portfolio. The Industrial segment reported adjusted operating margins of 16.8%, up 100 basis points year-over-year due to higher volume and operational performance. Adjusted operating income was $745 million, with a record adjusted operating margin of 19.4%, achieved through strong execution and savings from restructuring. GAAP operating income was $690 million, including acquisition and restructuring charges. Restructuring charges in fiscal '25 are expected to remain at around $100 million.

In the recent quarter, the company achieved an adjusted EPS of $1.95 and a GAAP EPS of $1.75, with a 23% adjusted effective tax rate, influenced by Pillar 2 global minimum tax. The quarter's sales amounted to $3.84 billion but were negatively affected by a $50 million currency exchange impact due to a stronger U.S. dollar, anticipating a further $300 million impact for fiscal '25. Despite these challenges, the company experienced a 30 basis point increase in adjusted operating margins to 19.4% and a 6% rise in adjusted EPS year-over-year, supported by margin expansion. Cash from operations was $878 million, while free cash flow was $674 million. The company allocated around $500 million to shareholders through share buybacks and dividends and spent $325 million on Industrial segment acquisitions, including the Harger acquisition. The strong cash flow and solid balance sheet provide the company with significant financial flexibility.

The paragraph discusses a company's strategy to continue returning capital to shareholders while also pursuing bolt-on acquisition opportunities. The company intends to build on past performance for strong financial results in 2025, leveraging market growth trends for operational efficiency and cash generation. During a Q&A session, a question from Mark Delaney focuses on order trends by end market and their impact on second-quarter guidance, particularly regarding AI industry volatility. Terrence Curtin responds, noting that orders were better than expected, supporting sequential improvement and ongoing momentum, especially in the Industrial and AI sectors.

The paragraph discusses the regional performance and sector-specific trends in order growth. Asia shows strong and accelerating order growth, while Europe experiences weakness, especially in the auto and industrial sectors. The Americas remain neutral. Despite these regional disparities, all business segments report a book-to-bill ratio above 1, signaling healthy demand. The Industrial segment grew 10% year-over-year, excluding AI orders. Aerospace sees strong growth, driven by recovery in commercial air travel and defense, while the energy sector benefits from utility investments. There is stabilization in the automation and control sector, with growth potential anticipated. Transportation maintains auto production insights.

In the paragraph, the discussion centers around expectations for auto production and market growth, with a forecast at the low end of a 4% to 6% increase. Weaknesses were noted in the heavy truck market, but improvement is anticipated later in the year. The conversation then shifts to operating margins, highlighting the company's successful management and improvement of margins in a low-growth environment. Scott Davis from Melius Research questions the potential for incremental leverage and cost management in the TS (Transportation Solutions) segment if a market recovery occurs in the future. Heath Mitts responds by acknowledging progress in achieving a target margin of 20% for TS, noting that Q1 margins were particularly strong due to seasonal factors and strong performance in China.

The company is confident in achieving or exceeding a 20% growth target as they progress through the year, particularly in the automotive sector. The commercial transportation business, part of their Transportation segment, has been struggling due to downturns in heavy truck builds, construction, mining, and agriculture equipment cycles. They expect growth in this area to provide significant leverage and improve the situation by 2026. The company has focused on cost reduction, especially in Europe, by optimizing their footprint to withstand low or negative growth environments. Despite a 3% year-over-year decline in automotive growth, overall Transportation margins remain strong, leading to optimistic outlooks for their strategy.

The paragraph discusses the factors driving AI revenue growth, which has already doubled for the quarter and is expected to exceed the $600 million target for the year. Terrence Curtin attributes this growth to broad-based demand from hyperscalers and semiconductor collaboration, rather than any single program. He highlights the continued momentum, consistent order inflows, and the importance of successfully executing program ramps. Curtin also mentions that their market share remains stable at 30%-35%, at the program level.

The paragraph discusses the opportunities and challenges in the technology industry, particularly regarding connectivity and the role of major connector companies. It highlights the potential for growth in margins similar to previous cloud margin products, suggesting early success and future momentum. Wamsi Mohan from Bank of America queries Terrence Curtin about strategies for managing potential tariffs and the company's approach to mergers and acquisitions. Terrence Curtin emphasizes the company's focus on manufacturing strategy and localization, and Heath is expected to address cash flow and M&A strategies.

The paragraph discusses the company's strategy of aligning its manufacturing footprint with customer supply chains, emphasizing regional production, with 80% of manufacturing occurring in-region to better support customers. The company has experience dealing with tariffs, having incurred $300 million in tariff costs in 2017, which they managed by working with customers on logistical solutions, relocating tooling, or passing costs to customers through higher prices. The company is prepared to use this playbook again for future tariff challenges. Heath Mitts mentions the company's strong cash flow, facilitating flexibility for returning value to shareholders through dividends and share buybacks, and enabling continued activity in mergers and acquisitions (M&A).

The paragraph discusses the company's strategy of pursuing "bolt-on" acquisitions, which are close to their existing areas of expertise, rather than new, unfamiliar platforms. These acquisitions can range from small to large companies, and the company has been very active in this space, with an increase in opportunities and resources dedicated to it. They have observed a more active market environment over the past six months, with more discussions and deals available. The speaker then answers a question about industrial markets, noting that there is now stabilization in orders, which is an improvement from previous uncertainties. Previously, they were hoping for stabilization but still encountered weak spots in orders and customer discussions.

The paragraph highlights the current state of the company's market dynamics and customer trends. It notes that inventory issues are largely resolved and there's upward order momentum in Asia, particularly in Japan and China, while the U.S. market remains stable but not growing, and Europe continues to show weakness. Overall, the geographic mix reflects stabilization, which is seen as a positive first step amidst varying economic conditions and investment levels. The company anticipates that productivity drivers like tariffs and reshoring will benefit their operations, which focus on discrete markets. Although there isn't a full upward trend globally, there's a more optimistic outlook compared to before. The paragraph concludes with Sujal Shah asking for the next question, which is from Kosta Tasoulis filling in for Colin Langan of Wells Fargo.

In the paragraph, Terrence Curtin discusses the automotive production outlook and the company's expectations for growth. Auto production is expected to decline by 1-2% overall, with significant regional differences: strong growth in Asia, a 10% decline in Europe, and a slight decline in North America. Despite these challenges, the company anticipates being at the low end of their projected 4-6% growth range due to increased content in vehicles, particularly in Europe and Asia. The growth is largely driven by rising electrification and electronification trends, especially in Asia, where most of the additional 4 million electrified vehicles will be produced. The company is confident due to a recent design win with a large Chinese OEM and advancements in vehicle connectivity and technology integration such as electric and autonomous features.

The paragraph discusses expectations for the production environment, noting a weak outlook for Europe, particularly in the electric vehicle sector, and a slight decline in North America. In contrast, growth is anticipated in Asia, where the company holds a strong position. During a Q&A, William Stein from Truist Securities asks about the role of cross-licensing technology in the connector industry. Terrence Curtin explains that cross-licensing is not new in the telecom and datacom sectors and helps ensure security of supply for customers during production ramps. He views it as a positive trend, emphasizing the importance of collaboration and partnering to meet rising demand in the interconnect and datacom industries.

In the paragraph, Asiya Merchant from Citigroup inquires about TE's perspective on the AI opportunity related to co-packaged optics, a sector projected to grow significantly by fiscal '25. Terrence Curtin clarifies that while TE is involved in optics, they do not engage in co-packaged optics. He highlights their expertise in copper connectivity, which remains crucial as architectures evolve towards a hybrid approach involving both chip-near and distant components. Curtin emphasizes that complex problems arising from such architectural evolutions excite engineers and align with TE's strengths. Subsequently, Sujal Shah requests the next question, which is posed by Luke Junk from Baird, seeking further detail on TEL's opportunities around automotive data, particularly with emerging architectures.

In the paragraph, Terrence Curtin discusses the growing importance of electronification in vehicles, particularly in Asia where advancements are leading global trends. He emphasizes the significance of software-defined architectures in modern vehicles, replacing traditional mechanical components with connected digital systems. This shift enhances data connectivity within cars, and his company is capitalizing on this trend, reporting substantial growth in their product offerings, which contribute significantly to the content per vehicle. Curtin notes a recent $1 billion win from a customer, underscoring accelerating demand and future growth potential in their business. Sujal Shah then prompts for the next question.

In the discussion, Joe Giordano from TD Cowen inquires about the status of industrial equipment and medical markets. Terrence Curtin responds by indicating that industrial equipment orders are stabilizing, with potential for sequential improvement but no immediate widespread growth. Regarding the medical market, Curtin explains that a recent decline is a one-time event due to customers over-inventorizing. He anticipates that orders will improve moving forward, noting an already improved book-to-bill ratio and forecasting sequential growth throughout the year. The session proceeds with a question from Saree Boroditsky of Jefferies.

The paragraph discusses the ongoing restructuring efforts to improve margins by shifting production from more expensive Western regions to lower cost areas, particularly focusing on Europe. This restructuring is expected to enhance margins in the Transportation segment despite modest or negative growth. The Industrial segment, which includes five business units, is anticipated to see growth driven by AI activities in the DDN business and broader industries like energy, aerospace, and defense. Overall, significant margin improvement is expected, addressing current deficiencies in the Industrial segment's performance.

In the paragraph, Sujal Shah from the company discusses their expectation for margin expansion within the industrial equipment segment, partly due to factory automation's contribution. They anticipate significant margin improvement in this area compared to others by year's end. Samik Chatterjee from JPMorgan then asks about the company's confidence in the improvement of transportation margins, specifically concerning commercial vehicles. Heath Mitts responds that the Information and Communication Technology (ICT) business, which is linked to heavy truck production, is a consistently profitable area for the company, though it does experience cyclical variations influenced by different regional market conditions.

The paragraph discusses the potential for improved margins in the commercial transportation business segment as growth is anticipated towards the end of the fiscal year and into 2026, partly due to upcoming changes in emissions standards for heavy trucks in 2027, which may lead to increased demand. The speaker acknowledges current challenges and a longer-term view but remains optimistic about future margin support. The conversation then shifts to questions from Joe Spak of UBS regarding margins in the automotive sector, specifically about engineering recoveries in the December quarter and investments made in the Digital Data Networks segment.

In the paragraph, Terrence Curtin discusses the impact of AI growth on margins, noting that while they have been investing in capacity to handle business growth, margin variability may occur due to the uneven nature of investment and order volumes. Regarding the transportation sector, Curtin clarifies that their first-quarter margin is traditionally higher due to increased production in Asia, not from engineering recoveries. Joe Spak and Sujal Shah facilitate the conversation, and an attempt to connect with Christopher Glynn faces technical difficulties.

The speaker thanks participants for attending the conference call, encourages them to contact Investor Relations at TE with any additional questions, and concludes the session. The operator then announces the end of the call and instructs participants to disconnect.

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