TE Connectivity Announces Fourth Quarter and Full Year Results for Fiscal Year 2016
Company Posts Strong Fourth Quarter GAAP EPS and Record Quarterly Adjusted EPS
PR Newswire, SCHAFFHAUSEN, Switzerland – November 2, 2016
TE Connectivity Ltd. (NYSE: TEL) today reported results for the fiscal fourth quarter and year ended September 30, 2016.
Fourth Quarter Highlights
- Net sales of $3.3 billion
- Diluted earnings per share (EPS) from continuing operations were $1.22
- Adjusted EPS were $1.27, above the high end of the guidance range
- Cash flow from continuing operating activities was strong at $782 million and free cash flow was a record for the company at $594 million
Full Year Highlights
- Net sales were $12.2 billion
- Diluted EPS from continuing operations (GAAP EPS) were $5.26
- Adjusted EPS were $4.08, up 13 percent versus the prior year
- Cash flow from continuing operating activities was $2 billion; free cash flow was $1.6 billion
- $3.1 billion returned to shareholders through dividends and share repurchases
- Strengthened harsh environment portfolio with acquisitions in interventional medical (Creganna), industrial connectors (Intercontec), and automotive sensors (Jaquet)
- Strong performance and momentum in the SubCom business, with $1 billion of backlog
Fourth Quarter Results
For the fourth quarter, the company reported net sales of $3.3 billion, with diluted EPS from continuing operations (GAAP EPS) of $1.22. Adjusted EPS were $1.27, cash flow from continuing operating activities was strong at $782 million, and free cash flow was a record for the company at $594 million. Excluding SubCom, total orders were $3.2 billion and the book-to-bill ratio was 1.03. All metrics include the impact of an additional week in the fourth quarter.
“The fourth quarter was a strong finish to a solid year for TE, despite a challenging macro environment,” said TE Connectivity Chairman and CEO Tom Lynch. “Our performance was led by strength in several businesses including Automotive, Commercial Transportation, SubCom, Aerospace and Defense, and Energy. We continued to build our harsh environment portfolio with the acquisition of Intercontec, which expanded our product range in the industrial equipment market. Our SubCom business continued its momentum by being awarded a contract in October for the Pacific Light Cable Network, a trans-pacific cable installation for Google and Facebook.”
Full Year Results
For the full year, the company reported net sales of $12.2 billion and diluted EPS from continuing operations (GAAP EPS) of $5.26. Adjusted EPS were $4.08, cash flow from continuing operating activities was $2 billion and free cash flow was $1.6 billion for the year. All metrics include the impact of an additional week in the fourth quarter.
“Our strategy to focus on harsh environment applications and our strong execution delivered solid results for the full fiscal year,” said Lynch. “At a segment level, results were driven by excellent performance in our Transportation Solutions segment and a solid second half of the year in our Industrial Solutions and Communications Solutions segments. We also continued our disciplined capital allocation strategy, returning $3.1 billion to shareholders.”
2017 Outlook
For the fiscal first quarter 2017, the company expects net sales of $2.95 billion to $3.05 billion, reflecting an increase of 6 percent on an actual basis and 3 percent on an organic basis year over year at the mid-point. GAAP EPS are expected to be $0.84 to $0.88, including net restructuring, acquisition-related and other charges of $0.14. TE expects adjusted EPS of $0.98 to $1.02 which represents a 19 percent improvement at the mid-point versus the first quarter of 2016.
For the full year, the company expects net sales of $12.3 to $12.9 billion, reflecting 5 percent actual and 3 percent organic growth at the mid-point versus the prior year, excluding the additional week in fiscal year 2016. GAAP EPS are expected to be $3.84 to $4.14, including net restructuring, acquisition-related and other charges of $0.35. TE expects adjusted EPS of $4.19 to $4.49, reflecting 10 percent growth at the mid-point compared to 2016, when excluding the additional week.
“These are exciting times for TE, and we have never been better positioned to capitalize on the strong underlying trends of a safer, greener, smarter and more connected world,” said Lynch. “We expect a good start to fiscal 2017 due to strong order momentum in the fourth quarter of 2016. Our guidance for 2017 implies 5 percent growth in sales, and another year of double-digit improvement in adjusted EPS.”
Information about TE Connectivity’s use of non-GAAP financial measures is provided below. For a reconciliation of these non-GAAP financial measures, see the attached tables.
Chief Executive Officer Transition
On October 3, 2016, the company announced that its Board of Directors appointed Terrence Curtin to succeed Tom Lynch as the company's chief executive officer, effective March 9, 2017. Upon completion of the transition, Lynch will continue as executive chairman of the board.
Conference Call and Webcast
The company will hold a conference call today beginning at 8:30 a.m. ET. The dial-in information is provided here:
- At TE Connectivity's website: https://investors.te.com.
- By telephone: For both “listen-only” participants and those participants who wish to take part in the question-and-answer portion of the call, the dial-in number in the United States is (800) 230-1059, and for international callers, the dial-in number is (612) 332-0107.
- An audio replay of the conference call will be available beginning at 10:30 a.m. ET on November 2, 2016, and ending at 11:59 p.m. ET on November 9, 2016. The dial-in number for participants in the United States is (800) 475-6701. For participants outside the United States, the dial-in number is (320) 365-3844. The replay access code for all callers is 403245.
About TE Connectivity
TE Connectivity (NYSE: TEL) is a $12 billion global technology leader. Our connectivity and sensor solutions are essential in today's increasingly connected world. We collaborate with engineers to transform their concepts into creations – redefining what's possible using intelligent, efficient and high-performing TE products and solutions proven in harsh environments. Our 75,000 people, including over 7,000 engineers, partner with customers in close to 150 countries across a wide range of industries. We believe EVERY CONNECTION COUNTS – www.TE.com.
Non-GAAP Measures
“Organic Net Sales Growth,” “Organic Net Sales Growth Excluding the Impact of the Additional Week,” “Net Sales Excluding the Impact of the Additional Week,” “Net Sales Growth Excluding the Impact of the Additional Week,” “Adjusted Operating Income,” “Adjusted Operating Income Excluding the Impact of the Additional Week,” “Adjusted Operating Margin Excluding the Impact of the Additional Week,” “Adjusted Operating Margin,” “Adjusted Other Income, Net,” “Adjusted Income Tax Expense,” “Adjusted Income from Continuing Operations,” “Adjusted Earnings Per Share,” “Adjusted Earnings Per Share Excluding the Impact of the Additional Week,” and “Free Cash Flow” are non-GAAP measures and should not be considered replacements for results in accordance with accounting principles generally accepted in the U.S. (“GAAP”). These non-GAAP measures may not be comparable to similarly-titled measures reported by other companies. The primary limitation of these measures is that they exclude the financial impact of items that would otherwise either increase or decrease our reported results. This limitation is best addressed by using these non-GAAP measures in combination with the most directly comparable GAAP measures in order to better understand the amounts, character and impact of any increase or decrease in reported amounts. The following provides additional information regarding these non-GAAP measures:
- Organic Net Sales Growth – is a useful measure of our underlying results and trends in the business. It is also a significant component in our incentive compensation plans. The difference between reported net sales growth (the most comparable GAAP measure) and Organic Net Sales Growth consists of the impact from foreign currency exchange rates and acquisitions and divestitures, if any. Organic Net Sales Growth is a useful measure of our performance because it excludes items that: i) are not completely under management’s control, such as the impact of changes in foreign currency exchange rates; or ii) do not reflect the underlying growth of the company, such as acquisition and divestiture activity.
- Organic Net Sales Growth Excluding the Impact of the Additional Week, Net Sales Excluding the Impact of the Additional Week, and Net Sales Growth Excluding the Impact of the Additional Week – represent Organic Net Sales Growth, net sales (the most comparable GAAP measure), and net sales growth (the most comparable GAAP measure), respectively, excluding the impact of the additional week in the fourth quarter of the fiscal year for fiscal years which are 53 weeks in length. The impact of the additional week was estimated using an average weekly sales figure for the last month of the fiscal year. We believe these measures are useful to investors because they provide insight into our underlying operating results, trends, and the comparability of these results between periods.
- Adjusted Operating Income – represents operating income (the most comparable GAAP measure) before special items including charges or income related to restructuring and other charges, acquisition related charges, impairment charges, and other income or charges, if any. We utilize Adjusted Operating Income to assess segment level core operating performance and to provide insight to management in evaluating segment operating plan execution and underlying market conditions. It also is a significant component in our incentive compensation plans. Adjusted Operating Income is useful to investors because it provides insight into our underlying operating results, trends, and the comparability of these results between periods.
- Adjusted Operating Income Excluding the Impact of the Additional Week and Adjusted Operating Margin Excluding the Impact of the Additional Week – represents Adjusted Operating Income and Adjusted Operating Margin, respectively, excluding the impact of the additional week in the fourth quarter of the fiscal year for fiscal years which are 53 weeks in length. We believe these measures are useful to investors because they provide insight into our underlying operating results, trends, and the comparability of these results between periods.
- Adjusted Operating Margin – represents operating margin (the most comparable GAAP measure) before special items including charges or income related to restructuring and other charges, acquisition related charges, impairment charges, and other income or charges, if any. We present Adjusted Operating Margin before special items to give investors a perspective on the underlying business results. This measure should be considered in conjunction with operating margin calculated using our GAAP results in order to understand the amounts, character and impact of adjustments to operating margin.
- Adjusted Other Income, Net – represents other income, net (the most comparable GAAP measure) before special items including tax sharing income related to certain proposed adjustments to prior period tax returns and other tax items, if any. We present Adjusted Other Income, Net as we believe that it is appropriate for investors to consider results excluding these items in addition to results in accordance with GAAP.
- Adjusted Income Tax Expense – represents income tax expense (the most comparable GAAP measure) after adjusting for the tax effect of special items including charges related to restructuring and other charges, acquisition related charges, impairment charges, other income or charges, and certain significant special tax items, if any. We present Adjusted Income Tax Expense to provide investors further information regarding the tax effects of adjustments used in determining the non-GAAP financial measure Adjusted Income from Continuing Operations (as defined below).
- Adjusted Income from Continuing Operations – represents income from continuing operations (the most comparable GAAP measure) before special items including charges or income related to restructuring and other charges, acquisition related charges, impairment charges, tax sharing income related to certain proposed adjustments to prior period tax returns and other tax items, certain significant special tax items, other income or charges, if any, and, if applicable, the related tax effects. We present Adjusted Income from Continuing Operations as we believe that it is appropriate for investors to consider results excluding these items in addition to results in accordance with GAAP. Adjusted Income from Continuing Operations provides additional information regarding our underlying operating results, trends and the comparability of these results between periods.
- Adjusted Earnings Per Share – represents diluted earnings per share from continuing operations (the most comparable GAAP measure) before special items, including charges or income related to restructuring and other charges, acquisition related charges, impairment charges, tax sharing income related to certain proposed adjustments to prior period tax returns and other tax items, certain significant special tax items, other income or charges, if any, and, if applicable, the related tax effects. We present Adjusted Earnings Per Share because we believe that it is appropriate for investors to consider results excluding these items in addition to results in accordance with GAAP. We believe such a measure provides insight into our underlying operating results, trends, and the comparability of these results between periods, since it excludes the impact of special items, which may recur, but tend to be irregular as to timing. It also is a significant component in our incentive compensation plans.
- Adjusted Earnings Per Share Excluding the Impact of the Additional Week – represents Adjusted Earnings Per Share excluding the impact of the additional week in the fourth quarter of the fiscal year for fiscal years which are 53 weeks in length. We believe Adjusted Earnings Per Share Excluding the Impact of the Additional Week is useful to investors because it provides insight into our underlying operating results, trends, and the comparability of these results between periods.
- Free Cash Flow (FCF) – is a useful measure of our ability to generate cash. The difference between net cash provided by continuing operating activities (the most comparable GAAP measure) and Free Cash Flow consists mainly of significant cash outflows and inflows that we believe are useful to identify. We believe Free Cash Flow provides useful information to investors as it provides insight into the primary cash flow metric used by management to monitor and evaluate cash flows generated from our operations.
Free Cash Flow is defined as net cash provided by continuing operating activities excluding voluntary pension contributions and the cash impact of special items, if any, minus net capital expenditures. Voluntary pension contributions are excluded from the GAAP measure because this activity is driven by economic financing decisions rather than operating activity. Certain special items, including net payments related to pre-separation tax matters, are also excluded by management in evaluating Free Cash Flow. Net capital expenditures consist of capital expenditures less proceeds from the sale of property, plant, and equipment. These items are subtracted because they represent long-term commitments.
In the calculation of Free Cash Flow, we subtract certain cash items that are ultimately within management’s and the Board of Directors’ discretion to direct and may imply that there is less or more cash available for our programs than the most comparable GAAP measure indicates. It should not be inferred that the entire Free Cash Flow amount is available for future discretionary expenditures, as our definition of Free Cash Flow does not consider certain non-discretionary expenditures, such as debt payments. In addition, we may have other discretionary expenditures, such as discretionary dividends, share repurchases, and business acquisitions that are not considered in the calculation of Free Cash Flow.
Forward-Looking Statements
This release contains certain “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations and are subject to risks, uncertainty and changes in circumstances, which may cause actual results, performance, financial condition or achievements to differ materially from anticipated results, performance, financial condition or achievements. All statements contained herein that are not clearly historical in nature are forward-looking and the words “anticipate,” “believe,” “expect,” “estimate,” “plan,” and similar expressions are generally intended to identify forward-looking statements. We have no intention and are under no obligation to update or alter (and expressly disclaim any such intention or obligation to do so) our forward-looking statements whether as a result of new information, future events or otherwise, except to the extent required by law. The forward-looking statements in this presentation include statements addressing our future financial condition and operating results. Examples of factors that could cause actual results to differ materially from those described in the forward-looking statements include, among others, business, economic, competitive and regulatory risks, such as conditions affecting demand for products, particularly in the automotive and data and devices industries; competition and pricing pressure; fluctuations in foreign currency exchange rates and commodity prices; natural disasters and political, economic and military instability in countries in which we operate; developments in the credit markets; future goodwill impairment; compliance with current and future environmental and other laws and regulations; and the possible effects on us of changes in tax laws, tax treaties and other legislation. More detailed information about these and other factors is set forth in TE Connectivity Ltd.’s Annual Report on Form 10-K for the fiscal year ended Sept. 25, 2015 as well as in our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports filed by us with the U.S. Securities and Exchange Commission.
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Contacts:
Media Relations:
B.J. Talley
TE Connectivity
610-893-9553
[email protected]
Investor Relations:
Sujal Shah
TE Connectivity
610-893-9790
[email protected]