TE Connectivity Plc Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Delivered revenue and adjusted earnings per share ahead of guidance driven by solid segment execution.
• Achieved strong margin expansion and double-digit earnings growth in a dynamic market backdrop, with record operating margins, earnings per share, and free cash flow in fiscal 2024.
• Generated over 200 basis points of adjusted operating margin expansion and double-digit earnings growth against a flattish volume environment.
• Strategically positioned portfolio aligned to secular trends like electrification, data connectivity, renewable energy, aerospace and defense, and AI applications.
• Announced Board authorization of a $2.5 billion increase to share repurchase program.
• Reorganization into a 2-segment structure effective fiscal 2025, with financial results to be reported in new structure starting Q1 fiscal 2025.
• Invested in engineering skills, technology, and operations capacity to support growth, including expanding Asian operations and engineering capacity for AI.

Segment Performance

• Transportation Segment: Fourth quarter auto business declined 1% organically vs. 5% global auto production decline; Commercial Transportation business had 4% organic decline; Sensors business sales decline due to industrial weakness and portfolio optimization. Full year adjusted operating margins were 20%, up 300 basis points year-over-year. First quarter margins expected similar to fiscal year 2024 levels.
• Industrial Solutions Segments: AD&M sales were up 14% organically driven by growth in commercial aerospace and defense markets; Energy sales up 14% organically due to strength in Americas and Europe; Medical declined slightly; Industrial Equipment declined 20% organically. Full year Industrial segment margins were 15.6%.
• Communications Segment: Data & Devices business grew 35% organically; AI revenue was $300 million in fiscal 2024 and expected to double in fiscal 2025; Appliances business grew double digits. Segment adjusted operating margins were 21.7%.

Guidance

• Q1 fiscal 2025 sales expected $3.9 billion, up 2% year-over-year; adjusted earnings per share around $1.88 (including $0.04 tax rate headwind).
• Expect full year 2025 to build on 2024 performance with return to growth, margin and EPS expansion, and strong free cash flow generation.
• Board authorized $2.5 billion increase to share repurchase program.
• AI revenue from $300 million in fiscal 2024 expected to double in fiscal 2025.

Risks

• Sluggish industrial end markets impacting certain segments.
• Regional market variations, such as weakness in Europe for factory automation and building automation.
• Potential impact of global events like strikes on auto production and business operations.

Question and Answer

Q: Amit Daryanani asked about the AI opportunity, customer diversity, and how to think about the billion-dollar AI opportunity longer term.

A: Terrence Curtin responded that AI is a great trend with engineering stickiness, design wins and cloud CapEx spending driving growth, momentum is strong with AI revenue at $300M in 2024 expected to double in 2025, customers are hyperscalers and semi companies across the ecosystem.

Q: Wamsi Mohan asked about content outgrowth in Asia, specifically EV mix vs. increased electronification and sustainability.

A: Terrence Curtin said Asia is the largest revenue region and where most EVs are made, outperformance is from EV momentum and data connectivity in vehicles, expecting EV production growth similar to 2024 in Asia.

Q: Scott Davis asked about visibility on when factory automation business stabilizes.

A: Terrence Curtin said factory automation and building automation are weak, especially in Europe, with some regional mixes, and it's bouncing around the bottom, expecting improvement in 2025 but need more time.

Q: Mark Delaney asked about Tesla's connector architecture changes and implications.

A: Terrence Curtin said architecture changes create content opportunities as interconnects get more complicated and miniaturized, increasing content for TE.

Q: Christopher Glynn asked about the $2.5 billion share repurchase and capital strategy.

A: Heath Mitts said it's about having optionality with cash flow, no change in strategy, just another mechanism to deploy capital to shareholders.