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Why Is TE Connectivity (TEL) Up 3% Since Last Earnings Report?

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A month has gone by since the last earnings report for TE Connectivity (TEL - Free Report) . Shares have added about 3% 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 Q1 Earnings & Revenues Beat Estimates

TE Connectivity has reported first-quarter fiscal 2022 adjusted earnings of $1.76 per share, which surpassed the Zacks Consensus Estimate by 8.6%. The figure rose 20% year over year.

Net sales in the reported quarter were $3.82 billion, which beat the consensus mark of $3.73 billion. The figure rose 8% from the year-ago quarter.

Top-line growth was driven by well-performing communications and industrial solutions of the company.

However, TE Connectivity witnessed a sluggish performance of its transportation solutions in the reported quarter.

Nevertheless, the company’s strong momentum across hybrid and electric vehicles, data and devices, factory automation, renewable energy, and cloud remains a major positive.

Top-Line Details

Transportation Solutions: The segment generated $2.16 billion, which accounted for 56% of net sales. The figure declined 3% year over year. This was primarily due to weak automotive production, which led to a 7% decrease in automotive sales from the year-ago quarter.

Nevertheless, the company continued benefiting from the growing proliferation of electric vehicles and strong content trends of electronification in the automotive space. Further, commercial transportation sales grew 10% year over year. Also, sensor sales grew 3% from the year-ago quarter on the back of solid momentum across transportation and industrial applications.

Industrial Solutions: The segment generated $1.06 billion, which accounted for 28% of net sales. The figure rose 21% year over year. This was driven by robust industrial equipment sales, which grew 57% from the prior-year quarter, owing to the growing capital investment in factory automation applications. Solid momentum across renewable applications led to 9% growth in energy sales. The recovery in interventional procedures led to 7% year-over-year growth in the medical category.

However, weakness in aerospace, defense and marine sales, which were down 3% year over year, was concerning.

Communications Solutions: The segment generated $601 million, which accounted for 16% of net sales. Further, the figure rose 41% year over year. This was driven by solid content growth in high-speed cloud applications, which led to a year-over-year rise of 49% in data and devices sales. Appliance sales grew 32% from the prior-year quarter, which contributed well.

Operating Details

Per management, the gross profit was $1.2 billion, which was up 7.3% year over year. As a percentage of revenues, the figure contracted 30 basis points (bps) from the year-ago quarter to 32.2%.

We note that selling, general and administrative expenses, and research and development expenses of $363 million and $175 million rose 0.5% and 8% year over year, respectively.

The company’s adjusted operating margin was 18.6% in the reported quarter, which expanded 90 bps year over year.

Balance Sheet & Cash Flow

As of Dec 24, 2021, cash and cash equivalents were $982 million, down from $1.2 billion as of Sep 24, 2021.

Long-term debt was $3.5 billion in the fiscal first quarter, down from $3.6 billion in the prior quarter.

The company generated $532 million of cash from operations in the reported quarter compared with $774 million in the previous quarter.

Further, it generated a free cash flow of $370 million.

The company returned $410 million to shareholders.

Guidance

For second-quarter fiscal 2022, TE Connectivity expects year-over-year net sales growth of 2% and 3% on a reported basis and an organic basis, respectively, to $3.7 billion.
    
Adjusted earnings are projected to be $1.70 per share, reflecting growth of 8% from the year-ago quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, TE Connectivity has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, TE Connectivity has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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