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TE Connectivity (TEL) Up 1.1% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for TE Connectivity (TEL - Free Report) . Shares have added about 1.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is TE Connectivity due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

TE Connectivity's Q2 Earnings & Revenues Beat Estimates

TE Connectivity has reported second-quarter fiscal 2021 adjusted earnings of $1.57 per share, beating the Zacks Consensus Estimate by 6.8%.

Further, the figure rose 6.8% sequentially and 22% on a year-over-year basis. Bottom-line growth was driven by strong operational performance.

Net sales in the reported quarter were $3.7 billion, which surpassed the Zacks Consensus Estimate of $3.5 billion. Further, the figure rose 6.1% from the previous quarter and 17% from the year-ago quarter.

Top-line growth was driven by strong performance delivered by the Communications and Transportation segments in the reported quarter.

Notably, the company witnessed growth in its total orders, which were$4.6 billion, up 36% and from the prior-year quarter.

However, uncertainties related to the coronavirus pandemic remained overhangs.

Nevertheless, the company’s global manufacturing strategy and continued solid execution of its plans (especially cost reduction) remain key catalysts.

Additionally, TE Connectivity’s growing momentum across hybrid and electric vehicle platform technology, and strength across data connectivity remain other positives.

Top Line in Detail

The company operates in three organized segments.

Transportation Solutions: The segment generated sales worth $2.3 billion (61.2% of net sales) in the reported quarter, up 23% on a year-over-year basis. This can be attributed to strong content growth, which led to a 19% rise in the company’s automotive sales. Further, commercialtransportation sales grew 30% year over year on the back of content growth. Also, positive contributions from the First Sensor buyout led to 39% year-over-year growth in the sensor business.

Industrial Solutions: The segment generated sales of $952 million (25.5% of net sales), which fell 1% year over year. This was primarily due to sluggishness in commercial aerospace, which led to a16%year-over-year decline in sales generated from aerospace, defense and marine markets in the reported quarter.

Moreover, delays in elective procedures due to the pandemic led to a 13%year-over-year decline in medical sales.

Nevertheless, the company witnessed growth of 21% in industrial equipment sales from the year-ago quarter on strong momentum across factory automation applications. Also, energy sales were up 4% from the year-ago quarter, owing to solid momentum across solar applications.

Communications Solutions: The segment generated sales of $499 million (13.3% of net sales), improving 33% year over year. This was driven by 28% growth in data and device sales, owing to solid demand for cloud applications. Further, strong appliance sales, which grew 40%on the back of improving market conditions, remained positive.

Operating Details

Per management, gross profit was $1.2 billion, up 17.6% year over year. As a percentage of revenues, the figure expanded 20 basis points (bps)from the year-ago quarter.

We note that R&D expenses were $174 million, which rose 10.1% year over year. Further, selling, general and administrative expenses were $401 million, up 13.9% year over year.

However, acquisition and integration expenses totaled $6 million, decreasing 50% from the year-ago quarter. Also, restructuring costs were $17 million, down 22.7% from the year-ago quarter.

TE Connectivity’s adjusted operating margin was 17%, expanding 80 bps from the prior-year quarter.

Balance Sheet & Cash Flow

As of Mar 26, 2021, TE Connectivity’s cash and cash equivalents were $1.7 billion, which was higher than $1.1 billionas of Dec 25, 2020.

Long-term debt was $3.6 billion, up from $3.5 billion in the previous quarter.

The company generated $580 million of cash from operations in the reported quarter, which decreased from $640 million in the prior quarter.

Further, free cash flow of $477 million was generated in the reported quarter. Additionally, TE Connectivity repurchased shares worth $140 million and paid out dividends worth $159 million to its shareholders inthe reported quarter.

Guidance

The company expects net sales of $3.7 billion for third-quarter fiscal 2021.

Further, TE Connectivity expects adjusted earnings of $1.57 per share.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 9.79% due to these changes.

VGM Scores

At this time, TE Connectivity has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, TE Connectivity has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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