Year-over-year EPS growth driven by significant margin expansion; record cash flow generation SCHAFFHAUSEN, Switzerland, April 24, 2024 /PRNewswire/ -- TE Connectivity Ltd. (NYSE:TEL) today reported results for the fiscal second quarter ended March 29, 2024. Second Quarter Highlights Net sales were $3.97 billion, in line with guidance, down 5% on a reported basis year over year and down 3% organically. Sequentially, sales grew 4% on a reported basis and 3% organically. GAAP diluted earnings per share (EPS) from continuing operations were $1.75, and adjusted EPS exceeded guidance at $1.86, up 13% year over year. Orders were $4.0 billion, up 6% sequentially, with sequential growth in all segments. Operating margins were 17.4% and adjusted operating margins were 18.5%, up 250 basis points year over year, driven by strong operational performance. Generated record cash flow in the first half of the fiscal year. Cash from operating activities was $1.4 billion, up 18% year over year. Free cash flow was $1.1 billion, up 32% year over year. Deployed over $1.5 billion of capital year to date, with approximately $1.2 billion returned to shareholders and approximately $350 million used for the bolt-on acquisition of Schaffner. Issued Connecting Our World report highlighting a 72% reduction in Scope 1 and 2 greenhouse gas emissions over the past three years; set Scope 3 reduction targets validated by the Science Based Targets initiative. "Our teams delivered EPS above our guidance this quarter with double-digit earnings growth driven by margin expansion in all three of our segments, while continuing to navigate a dynamic global market environment. I am pleased that our orders improved sequentially across all segments and our cash generation model resulted in strong first-half free cash flow, which was up 32% year over year and set a company record," said TE Connectivity CEO Terrence Curtin. "Building upon our performance this quarter, we expect to deliver strong earnings growth and margin expansion both in the third quarter and for the full fiscal year. We continue to invest in key mega trends, including hybrid and electric vehicles, renewable energy and artificial intelligence, where our global position and industry-leading innovations are helping our customers advance their technology while driving our long-term profitable growth." Third Quarter FY24 Outlook For the third quarter of fiscal 2024, the company expects net sales of approximately $4.0 billion. GAAP EPS from continuing operations are expected to be approximately $1.71, up 2% year over year, with adjusted EPS of approximately $1.85, up 5% year over year. Third quarter guidance includes a $0.15 year-over-year headwind from tax and currency exchange rates. Information about TE Connectivity's use of non-GAAP financial measures is provided below. For reconciliations of these non-GAAP financial measures, see the attached tables. Conference Call and Webcast The company will hold a conference call for investors today beginning at 8:30 a.m. ET. The conference call may be accessed in the following ways: At TE Connectivity's website: 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) 715-9871 and for international callers, the dial-in number is (646) 307-1963 A replay of the conference call will be available on TE Connectivity's investor website at investors.te.com at 11:30 a.m. ET on April 24, 2024. About TE Connectivity TE Connectivity Ltd. (NYSE:TEL) is a global industrial technology leader creating a safer, sustainable, productive, and connected future. Our broad range of connectivity and sensor solutions enable the distribution of power, signal and data to advance next-generation transportation, renewable energy, automated factories, data centers, medical technology and more. With more than 85,000 employees, including 8,000 engineers, working alongside customers in approximately 140 countries, TE ensures that EVERY CONNECTION COUNTS. Learn more at www.te.com and on LinkedIn, Facebook, WeChat, Instagram and X (formerly Twitter).  Non-GAAP Financial Measures We present non-GAAP performance and liquidity measures as we believe it is appropriate for investors to consider adjusted financial measures in addition to results in accordance with accounting principles generally accepted in the U.S. ("GAAP"). These non-GAAP financial measures provide supplemental information and should not be considered replacements for results in accordance with GAAP. Management uses non-GAAP financial measures internally for planning and forecasting purposes and in its decision-making processes related to the operations of our company. We believe these measures provide meaningful information to us and investors because they enhance the understanding of our operating performance, ability to generate cash, and the trends of our business. Additionally, we believe that investors benefit from having access to the same financial measures that management uses in evaluating our operations. 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 financial measures in combination with the most directly comparable GAAP financial measures in order to better understand the amounts, character, and impact of any increase or decrease in reported amounts. These non-GAAP financial measures may not be comparable to similarly-titled measures reported by other companies. The following provides additional information regarding our non-GAAP financial measures: Organic Net Sales Growth (Decline) – represents net sales growth (decline) (the most comparable GAAP financial measure) excluding the impact of foreign currency exchange rates, and acquisitions and divestitures that occurred in the preceding twelve months, if any. Organic Net Sales Growth (Decline) is a useful measure of our performance because it excludes items that are not completely under management's control, such as the impact of changes in foreign currency exchange rates, and items that do not reflect the underlying growth of the company, such as acquisition and divestiture activity. This measure is a significant component in our incentive compensation plans. Adjusted Operating Income and Adjusted Operating Margin – represent operating income and operating margin, respectively, (the most comparable GAAP financial measures) before special items including restructuring and other charges, acquisition-related charges, impairment of goodwill, and other income or charges, if any. We utilize these adjusted measures in combination with operating income and operating margin to assess segment level operating performance and to provide insight to management in evaluating segment operating plan execution and market conditions. Adjusted Operating Income is a significant component in our incentive compensation plans. Adjusted Income Tax (Expense) Benefit and Adjusted Effective Tax Rate – represent income tax (expense) benefit and effective tax rate, respectively, (the most comparable GAAP financial measures) after adjusting for the tax effect of special items including restructuring and other charges, acquisition-related charges, impairment of goodwill, other income or charges, and certain significant tax items, if any. Adjusted Income from Continuing Operations – represents income from continuing operations (the most comparable GAAP financial measure) before special items including restructuring and other charges, acquisition-related charges, impairment of goodwill, other income or charges, and certain significant tax items, if any, and, if applicable, the related tax effects. Adjusted Earnings Per Share – represents diluted earnings per share from continuing operations (the most comparable GAAP financial measure) before special items including restructuring and other charges, acquisition-related charges, impairment of goodwill, other income or charges, and certain significant tax items, if any, and, if applicable, the related tax effects. This measure is a significant component in our incentive compensation plans. Free Cash Flow (FCF) – is a useful measure of our ability to generate cash. The difference between net cash provided by operating activities (the most comparable GAAP financial 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 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 financial measure because this activity is driven by economic financing decisions rather than operating activity. Certain special items, including cash paid (collected) pursuant to collateral requirements related to cross-currency swap contracts, 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 financial 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 release include statements addressing our future financial condition and operating results. In addition, our proposed change of incorporation from Switzerland to Ireland is subject to risks, such as the risk that the change of place of incorporation might not be completed or, if completed, that the anticipated advantages might not materialize, as well as the risks that the price of our stock could decline and our position on stock exchanges and indices could change, and Irish corporate governance and regulatory schemes could prove different or more challenging than currently expected. Examples of factors that could cause actual results to differ materially from those described in the forward-looking statements include, among others, the extent, severity and duration of business interruptions, such as the coronavirus disease 2019 ("COVID-19") negatively affecting our business operations; business, economic, competitive and regulatory risks, such as conditions affecting demand for products in the automotive and other industries we serve; 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, including continuing military conflict in certain parts of the world; 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. In addition, the extent to which COVID-19 will impact our business and our financial results will depend on future developments, which are highly uncertain and cannot be predicted. 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 29, 2023, 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.   TE CONNECTIVITY LTD.  CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the Quarters Ended For the Six Months Ended March 29, March 31, March 29, March 31, 2024 2023 2024 2023 (in millions, except per share data) Net sales $ 3,967 $ 4,160 $ 7,798 $ 8,001 Cost of sales  2,604 2,876 5,111 5,530 Gross margin 1,363 1,284 2,687 2,471 Selling, general, and administrative expenses 444 435 868 827 Research, development, and engineering expenses 184 185 357 358 Acquisition and integration costs 3 8 11 17 Restructuring and other charges, net 40 119 61 230 Operating income 692 537 1,390 1,039 Interest income 19 12 41 21 Interest expense (19) (20) (37) (41) Other expense, net (5) (4) (8) (9) Income from continuing operations before income taxes 687 525 1,386 1,010 Income tax (expense) benefit (146) (100) 959 (187) Income from continuing operations 541 425 2,345 823 Income (loss) from discontinued operations, net of income taxes — 8 (1) 7 Net income $ 541 $ 433 $ 2,344 $ 830 Basic earnings per share: Income from continuing operations $ 1.76 $ 1.34 $ 7.59 $ 2.60 Income (loss) from discontinued operations — 0.03 — 0.02 Net income 1.76 1.37 7.59 2.62 Diluted earnings per share: Income from continuing operations $ 1.75 $ 1.34 $ 7.54 $ 2.58 Income (loss) from discontinued operations — 0.03 — 0.02 Net income 1.75 1.36 7.54 2.60 Weighted-average number of shares outstanding:  Basic 308 316 309 317 Diluted 310 318 311 319   TE CONNECTIVITY LTD. CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 29, September 29, 2024 2023 (in millions, except share data) Assets Current assets: Cash and cash equivalents $ 1,176 $ 1,661 Accounts receivable, net of allowance for doubtful accounts of $38 and $30, respectively 2,874 2,967 Inventories 2,744 2,552 Prepaid expenses and other current assets 710 712 Total current assets 7,504 7,892 Property, plant, and equipment, net 3,799 3,754 Goodwill 5,678 5,463 Intangible assets, net 1,220 1,175 Deferred income taxes 3,813 2,600 Other assets 810 828 Total assets $ 22,824 $ 21,712 Liabilities, redeemable noncontrolling interests, and equity Current liabilities: Short-term debt $ 1,235 $ 682 Accounts payable 1,598 1,563 Accrued and other current liabilities 2,330 2,218 Total current liabilities 5,163 4,463 Long-term debt 2,961 3,529 Long-term pension and postretirement liabilities 736 728 Deferred income taxes 186 185 Income taxes 372 365 Other liabilities 846 787 Total liabilities 10,264 10,057 Commitments and contingencies Redeemable noncontrolling interests 106 104 Equity: TE Connectivity Ltd. shareholders' equity: Common shares, CHF 0.57 par value,  316,574,781 shares authorized and issued, and 322,470,281 shares authorized and issued, respectively  139 142 Accumulated earnings  13,689 12,947 Treasury shares, at cost, 9,695,361 and 10,487,742 shares, respectively (1,295) (1,380) Accumulated other comprehensive loss (84) (158) Total TE Connectivity Ltd. shareholders' equity 12,449 11,551 Noncontrolling interests 5 — Total equity 12,454 11,551 Total liabilities, redeemable noncontrolling interests, and equity $ 22,824 $ 21,712   TE CONNECTIVITY LTD.  CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Quarters Ended For the Six Months Ended March 29, March 31, March 29, March 31, 2024 2023 2024 2023 (in millions) Cash flows from operating activities: Net income $ 541 $ 433 $ 2,344 $ 830 (Income) loss from discontinued operations, net of income taxes — (8) 1 (7) Income from continuing operations 541 425 2,345 823 Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Depreciation and amortization 192 207 386 394 Deferred income taxes 5 (35) (1,212) (70) Non-cash lease cost 33 36 67 70 Provision for losses on accounts receivable and inventories 13 18 55 69 Share-based compensation expense 35 31 69 63 Impairment of held for sale business — 61 — 67 Other  24 25 64 68 Changes in assets and liabilities, net of the effects of acquisitions and divestitures: Accounts receivable, net (55) (170) 72 (224) Inventories 41 51 (241) (273) Prepaid expenses and other current assets 47 61 (1) (25) Accounts payable (73) (45) 55 104 Accrued and other current liabilities (48) (44) (287) (83) Income taxes 3 10 15 35 Other (48) 3 42 197 Net cash provided by operating activities 710 634 1,429 1,215 Cash flows from investing activities: Capital expenditures (167) (189) (318) (372) Proceeds from sale of property, plant, and equipment — 1 2 2 Acquisition of businesses, net of cash acquired 10 1 (339) (108) Proceeds from divestiture of businesses, net of cash retained by businesses sold — 51 38 51 Other (2) (3) (10) 23 Net cash used in investing activities (159) (139) (627) (404) Cash flows from financing activities: Net increase (decrease) in commercial paper 30 54 (39) (85) Proceeds from issuance of debt — 499 — 499 Repayment of debt — (587) (1) (591) Proceeds from exercise of share options 22 9 33 20 Repurchase of common shares (409) (179) (885) (466) Payment of common share dividends to shareholders (182) (177) (365) (355) Other — (4) (27) (28) Net cash used in financing activities (539) (385) (1,284) (1,006) Effect of currency translation on cash (6) 2 (3) 12 Net increase (decrease) in cash, cash equivalents, and restricted cash 6 112 (485) (183) Cash, cash equivalents, and restricted cash at beginning of period 1,170 793 1,661 1,088 Cash, cash equivalents, and restricted cash at end of period $ 1,176 $ 905 $ 1,176 $ 905 Supplemental cash flow information: Interest paid on debt, net $ 27 $ 27 $ 32 $ 39 Income taxes paid, net of refunds 138 125 238 223   TE ...