TE Connectivity Ltd. (TEL) reported third-quarter fiscal 2014 (ended Jun 27, 2014) adjusted earnings of $1.00 a share, which beat the Zacks Consensus Estimate by a penny. The reported figure also rose 13.6% from 88 cents a share earned in the prior-year quarter.
The company reported GAAP earnings from continuing operations of 97 cents per share compared with 79 cents reported in the prior-year quarter.
The continued strength in transportation and industrial markets were the primary growth drivers. This apart, the company’s appliances business for the harsh environment having higher margins compared to other businesses was also a positive.
Quarterly Details
Total revenue in the quarter increased 4% year over year to $3.58 billion. The company’s organic revenues grew 2.6% in the quarter. Revenues rose on the back of strength in most of the end markets including automotive, aerospace, defense, oil and gas, industrial equipment, appliances as well as Telecom and Enterprise networks. However, the reported figure fell short of the Zacks Consensus Estimate of $3.6 billion.
The company’s order level rose 2% to $3.48 billion excluding those from the Subsea Communications, whereas its book-to-bill ratio came in at 0.99.
Segment Revenues
Revenues in the Transportation Solutions segment increased 10.2% year over year to $1,585 million. The segment’s operating margin increased to 21.1% from 19.6% in the prior-year quarter.
Revenues in the Industrial Solutions segment were up 5.7% to $849 million. The segment reported an operating margin of 14.7%, marking an increase from the previous year’s margin of 10.5%.
Network Solutions revenues declined 8.1% year over year to $738 million. The operating margin for the quarter also declined to 5.3% from 6.0% in the year-ago quarter.
Consumer Solutions revenues rose marginally by 0.7% year over year to $408 million. The operating margin for the segment increased to 8.8% from 6.2% in the previous year.
Margins
Gross margin in the quarter increased to 33.6% from 32.8% in the prior-year quarter. The operating margin also increased to 14.9% from 12.7% in the year-ago quarter. The increase in operating margin was attributable to reduction in restructuring and acquisition costs as well as lower costs of integrating the acquired companies.
Cash Flow and Balance Sheet
TE Connectivity exited the quarter with cash and cash equivalents of $1,613 million, up from $1,403 million as on Sep 27, 2013.
Net cash from operating activities for the quarter was $500 million, a decline from $616 million in the prior-year quarter.
Capital expenditure for the quarter was $171 million while the company paid $169 million in dividends and share repurchases.
The company’s free cash flow for quarter came in at $530 million against $431 million as on Jun 28, 2013.
Business Update
Recently, the company completed the all-cash SEACON Group acquisition for $490 million. The addition of this leading offshore oil and gas industry solutions provider extends TE Connectivity’s connectivity solutions in the sector, which has high growth potential. The acquisition will enhance its connectivity solutions business, especially for the applications meant for a harsh environment.
Prior to this, the company had signed an agreement to acquire global designer and manufacturer of sensor and sensor-based systems, Measurement Specialties Inc. for about $1.7 billion. The acquisition is expected to prove accretive to the company’s earnings in fiscal 2015.
Outlook
Along with the earnings release, TE Connectivity provided its guidance for the fourth quarter and fiscal 2014. The company expects the momentum in Transportation and Industrial segments to continue. Further, it expects to achieve strong synergies from its acquisitions.
TE Connectivity expects fourth-quarter revenues of $3.56–$3.66 billion and adjusted earnings per share in the range of 98 cents to $1.02. The company expects GAAP earnings to be in the range of 93–97 cents per share that includes restructuring charges worth 3 cents, acquisition costs of 6 cents and other income worth 4 cents a share.
For fiscal 2014, the company revised the revenue guidance range to $13.9–$14.0 billion from $13.8–$14.1 billion projected earlier. TE Connectivity reiterated its outlook for adjusted earnings at $3.76–$3.80 per share. However, the company narrowed the GAAP earnings guidance to $3.62–$3.66 per share compared with the previously projected range of $3.62 to $3.74. The GAAP earnings guidance is inclusive of restructuring charges worth 10 cents, acquisition costs of 7 cents, 1 cent expense from tax-related items and other income of 4 cents in the year.
TE Connectivity currently has a Zacks Rank #2 (Buy). Some other stocks that look promising in the industry include Nidec Corporation (NJ), Park Electrochemical Corp. (PKE) and Maxwell Technologies Inc. (MXWL). While Nidec Corporation and Park Electrochemical sport a Zacks Rank #1 (Strong Buy), Maxwell has the same Zacks Rank as TE Connectivity.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment