The paragraph is an introduction to TE Connectivity's second quarter earnings call for fiscal year 2025. The call is led by Vice President of Investor Relations, Sujal Shah, with CEO Terrence Curtin and CFO Heath Mitts present. It covers forward-looking statements, non-GAAP measures, and directs participants to additional resources on their website. During the Q&A session, participants are asked to limit themselves to one question. Terrence Curtin mentions the complexities in the global environment due to trade dynamics in his opening comments.

The speaker discusses the company's strong financial performance and strategic approach to mitigating the effects of recent tariffs. They highlight the global nature of TE's business, with three-quarters of sales outside the U.S. and a manufacturing strategy that localizes over 70% of production. This reduces the impact of tariffs, mainly affecting the industrial segment. The company is working with customers to minimize impacts through sourcing changes and price adjustments. Despite tariffs, third-quarter earnings are not expected to be significantly affected, thanks to these mitigation strategies.

The paragraph highlights the company's strong performance and positive results for the second quarter, emphasizing its ability to effectively execute its business model. Key achievements include a 5% organic increase in sales, reaching $4.1 billion, with notable growth in the industrial solutions segment. Adjusted earnings per share were $2.10, exceeding expectations and up 13% from the previous year. Adjusted operating margins improved to 19.4%, bolstered by operational strength, particularly in the Industrial segment. Orders increased by 6%, supporting growth forecasts for the third quarter. The company also generated $1.1 billion in free cash flow in the first half of the year, returning approximately $1 billion to shareholders and announcing a 9% dividend increase, highlighting its robust cash generation capability.

In April, the company completed the Richards acquisition in the industrial segment, deploying $2.3 billion. They anticipate a sequential increase in third-quarter sales to $4.3 billion, a 5% organic rise year-over-year. This outlook includes the Richards acquisition and tariff recovery pricing adjustments, with adjusted earnings per share expected to grow 8% to $2.06. Orders for the quarter grew to $4.25 billion, with a book-to-bill ratio of 1.02. In transportation, orders remained flat compared to the previous year, with 18% growth in Asia offset by declines in Europe and North America. The industrial segment showed strong order momentum, with 13% year-over-year growth, fueled by demand in artificial intelligence, energy, and AD and M areas. Early April showed stable order patterns, supporting the Q3 guidance. In transportation, the auto business was flat organically, with a 16% growth in Asia offset by an 11% decline in Western regions.

The paragraph discusses the company's strong sales growth in Asia, surpassing a 5% increase in regional car production, and highlights expectations for global content growth at the low end of their projected range due to a decline in global auto production. The growth is expected to be driven by electronification and software-defined vehicle architecture. A 20% growth in hybrid and electric vehicle production is anticipated, largely in Asia. The commercial transportation business saw a 5% organic decline due to market weakness in Europe and North America, with an expectation of continued slow sales. The sensors business also experienced sales decline in Europe and North America. Despite these slow conditions, adjusted operating margins in the transportation segment remained above 20% in the second quarter. In the industrial solutions segment, the company experienced 17% growth, driven by an 80% organic growth in the digital data network, with expected revenue from AI applications to exceed $700 million by fiscal 2025.

The paragraph discusses the recent financial performance of various business segments within a company. The automation and connected living segment returned to growth with a 2% organic increase, although sales are expected to be flat in the upcoming quarter. The aerospace and defense sector saw an 11% organic sales increase due to strong demand and supply chain recovery. The medical business experienced a 14% decline because of inventory normalization, but showed double-digit sequential growth. The energy segment achieved an 8% organic sales growth, particularly in grid hardening and renewables, aided by the Richards acquisition. The industrial segment's adjusted operating margins improved to 17.9%, reflecting effective management of sales volumes. Overall, the adjusted operating income for the quarter was $805 million with a 19.4% adjusted operating margin.

In the reported quarter, the company achieved a GAAP operating income of $748 million, with $12 million in acquisition-related charges and $45 million in restructuring and other charges. The adjusted EPS was $2.10, while GAAP EPS was $0.04, reflecting a one-time non-cash tax charge and additional charges. Strong operational performance led to results exceeding guidance. The adjusted effective tax rate was 22% in Q2, expected to rise to 24-25% in the third quarter and second half due to new global tax regulations. Sales grew 5% organically to $4.1 billion, with adjusted operating margins at 19.4%, driven by revenue growth and margin expansion. Cash from operations was $653 million, with a free cash flow of $424 million, adding up to $1.1 billion in the first half of the fiscal year. The company expects free cash flow conversion to exceed 100%, maintaining a strong financial position despite a dynamic environment.

In the first half of the fiscal year, the company returned approximately $1 billion to shareholders and announced a 9% dividend increase. They recently spent $2.3 billion on acquiring Richards in their energy business, reflecting a strong balance sheet and confidence in cash generation. The acquisition will add about $70 million to sales but will be neutral to adjusted EPS after financing impacts. For the third quarter, they have accounted for tariff impacts estimated at 3% of sales, expecting to mitigate a third through sourcing changes and recover most of the remaining impact via pricing actions. The company is focused on delivering strong results and navigating the dynamic environment effectively. They are now opening the floor for questions.

In the paragraph, Scott Davis questions Terrence Curtin about the impact of tariffs and anti-American sentiment on the supply chain, particularly in favoring local over US suppliers. Curtin explains that the tariff impact is more significant in their industrial segment than in their transportation segment due to global scale and regional manufacturing. To mitigate this, they are implementing surcharges and adjusting supply strategies. Regarding anti-American sentiment, Curtin emphasizes that their business model operates with local teams handling design and manufacturing, which helps mitigate geopolitical challenges.

The paragraph discusses a global company's focus on localization across different markets, highlighting its strategy to operate locally in places like China, Germany, Japan, and Brazil. Despite being American-led, the company prioritizes local supply chains and design centers, minimizing tariff impacts by avoiding exporting U.S.-made products elsewhere. The U.S. operations constitute about $4 billion of the company's $16 billion revenue. The speaker addresses the need to possibly shift tooling locally to mitigate tariff effects. The paragraph concludes with a cue for the next question from Mark Delaney of Goldman Sachs.

In the paragraph, Terrence Curtin addresses a question from Mark regarding the impact of tariffs on business outlook and customer behavior. Curtin explains that despite discussions with customers about potentially advancing orders due to tariffs, there hasn't been any significant change in order patterns. The supply chain and inventory levels are stable, and there is no increased urgency to pull orders forward. Instead, companies are focusing on strategies to mitigate the impact of tariffs, including localization options. Curtin emphasizes that while his company plays a role in these discussions, their influence is limited as customers face larger challenges. The business is being managed based on current order stability and ongoing customer interactions.

The paragraph discusses the current trends and outlook across various industrial sectors, noting strong momentum in areas like AI and energy, with increased projections for AI-related growth. Aerospace, defense, and space applications are performing steadily, while the ACL business has returned to growth, but future growth is expected to be flat. The transportation sector may not see immediate improvements, and automotive production is projected to decline, especially in the West. The environment remains mixed with growth in Asia and declines elsewhere. Despite the challenges, the team is operating well. The discussion then transitions to a question about margin expansion over recent quarters and years.

Heath Mitts discusses the company's ability to sustain margin expansion and EPS growth amidst market volatility. He highlights that while some markets are growing, others remain stable or weak, leading to an uncertain overall market environment. The company has implemented a localization strategy and reduced its manufacturing footprint, which he believes positions them well for continued margin improvement. The focus will be on further progress in the industrial segment through volume growth and site rationalization. Meanwhile, the transportation business is maintaining margins above 20%, despite softer markets, until revenue growth resumes.

The paragraph describes a business discussion regarding the company's strategies for protecting profit margins and achieving growth, particularly in the industrial segment, and its impact on earnings per share (EPS). The company had a strong quarter and anticipates finishing the fiscal year 2025 well, despite uncertainties in market conditions. Wamsi Mohan from Bank of America asks about content growth given worsening production trends and a slow start in the year. In response, Terrence Curtin highlights regional differences in content performance, noting that European production is weak, affecting content, whereas other regions are performing better. Additionally, Heath is asked about the 3% cost impact related to tariffs and operational expenses for the next quarter, but the response to this specific query isn't explicitly given in the paragraph.

In the paragraph, the speaker discusses expectations for growth in data connectivity in cars, driven by Internet architecture essential for autonomy and software-defined features. They anticipate reaching the lower end of their projected four to six range for progress, supported by positive developments in Asia. However, they face challenges due to weak performance in Europe, a region where they have higher content per vehicle. The speaker also addresses tariff costs, which account for 3% of sales, resulting from where they source components, with tariffs impacting costs due to certain localization strategies. The conversation then shifts to a question from Luke Junk.

In the paragraph, Terrence Curtin discusses the growth trends in automation and connected living, noting that the appliance segment has been growing consistently across all regions. The automation side had been lagging but showed improvement in the recent quarter, with orders picking up in Europe and Asia, and remaining stable in North America. Curtin mentions taking a conservative outlook on sales due to uncertainty around tariffs and their impact on supply chains, despite the positive order trends. He expresses hope that the momentum in orders continues in the next quarter. Finally, the operator introduces the next question by Samik Chatterjee from JPMorgan.

In the paragraph, Terrence Curtin addresses a question regarding AI momentum and investor concerns about data center spending. He mentions that in the second quarter, there was a significant increase in orders, with a 150% rise, leading to approximately $50 million more than anticipated. This increase is attributed to rapid program ramps with customers, particularly hyperscalers, and higher-than-expected demand. Curtin emphasizes that while there were initial conservative estimates, the company's ability to quickly meet customer demands has contributed to this growth, indicating progress towards a substantial revenue milestone.

The paragraph features a conversation discussing the state of automation and supply chain uncertainty. Joe Giordano from TD Cowen inquires about the apparent pause in customer movements due to policy uncertainty in the U.S. Terrence Curtin responds, acknowledging the general uncertainty as companies grapple with supply chain issues at a time when workforce numbers have remained constant pre-tariff to present. He mentions that U.S. orders in automation have increased, but there is caution in guiding for future capital expenditures (capex) due to this uncertainty. Despite this, he notes that their own capex plans remain stable as they focus on ramping up AI and other critical programs.

The paragraph is a part of a Q&A session during a conference call. Saree Boroditsky from Jefferies asks about the medical market, specifically regarding channel inventory and market expectations post-COVID. Terrence Curtin responds that their medical business operates around a mid-single-digit market and highlights that after a significant customer pullback in the December quarter due to supply chain inventory issues, they saw a sequential business increase of about 20%. Curtin expects further sequential improvements in the second half of the year as inventory issues are resolved. The session then moves to a question from Colin Langan of Wells Fargo about tariff risks and potential regional advantages.

In the article paragraph, Terrence Curtin discusses the competitive advantages their company holds due to localization efforts and restructuring, including taking capacity offline in certain regions to become more localized. This approach is viewed as beneficial in dealing with competitors and working with customers on mitigation strategies. The conversation then shifts to Christopher Glynn of Oppenheimer, who inquires about the company's involvement and growth potential in the space market. Curtin acknowledges the importance of the space sector, particularly within aerospace defense and marine segments.

The paragraph discusses the convergence of changes in the space field and the construction of current space vehicles, emphasizing the evolving nature of space applications and the specialization required in materials and standards. It highlights the significant impact of advancements in data speeds, AI, and redundancy for space applications, noting the rapid multiplication of these technologies, albeit from a lower base. The discussion touches on the increasing computation power and specialized packaging needs in space applications, which benefits the company's AV and M space, leading to favorable outcomes. This progress is described as a smaller but beneficial vector, with expectations of continued growth and updates. Following this, the conversation shifts to Asiya Merchant from Citigroup asking about the commercial transportation segment's trajectory, margins, and potential recovery, to which Terrence Curtin responds by noting the environmental observations over numerous quarters.

The paragraph discusses commercial transportation, including Class A trucks, agricultural and construction equipment. It notes challenges in the agricultural sector, particularly in Europe and North America, due to financing issues. However, India and China have seen increased production. Upcoming emission changes in North America are anticipated to impact the market, potentially leading to an inflection point, although the timing is uncertain. Current orders remain stable. Joe Spak from UBS asks about the impact of Richard's acquisition on industrial orders and mentions a pickup in the US, despite factory automation equipment primarily coming from overseas. He also alludes to potential cost increases in the current regime.

In the paragraph, Terrence Curtin discusses the strong year-over-year growth in orders within their industrial segment, highlighting that the growth is widespread, geographically diverse, and spans across various business units, including automation and appliances. He notes that this growth is evident in both European and US markets and emphasizes that their order trends were robust, with sales rising sequentially from the first to the second quarter. Joe Spak then invites the next question, which comes from Steven Fox, who asks Curtin to elaborate on their pricing power considering potential demand issues with large OEMs and various competitors.

The paragraph is part of a dialogue involving a discussion on pricing strategies and the impact of tariffs and input costs on different segments of a business. The speaker emphasizes the company's efforts in managing pricing in the face of rising material costs and tariffs, highlighting mitigation actions like localization and supply chain adjustments to provide value to customers. Steven Fox then invites the next question, which comes from William Stein of Truist Securities. William Stein shifts the focus to his interest in the AI data center business, questioning the speaker's earlier comments about not observing significant shifts in activity and inquiring about their visibility on this matter.

In this exchange, Terrence Curtin addresses questions about customer concentration in AI and confirms that there has been no pull-in from AI customers; they are confident in reaching over $700 million through customer collaboration and ramp-up. Shreyas Patil then inquires about the pace of recovery in the automotive market compared to industrial recovery and the company’s capital allocation priorities, especially after a recent acquisition. Curtin reiterates that most tariff exposure affects the industrial segment rather than transportation, while Heath Mitts has nothing additional to add about capital allocation.

The paragraph discusses TE Connectivity's capital allocation strategy following a $2.3 billion deal with Richards, which has slightly increased their debt levels. Despite this, the company remains confident in its cash generation capabilities. They emphasize the continuous nature of mergers and acquisitions (M&A) and their ongoing activity in this area, though future deals may not match the size of the Richards acquisition and are more likely to be smaller, bolt-on additions. Meanwhile, TE Connectivity is also actively engaging in share buybacks. The paragraph concludes with conference call logistics and contact information for further inquiries.

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