TE CONNECTIVITY LTD. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. The following discussion may contain forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements as a result of many factors, including but not limited to those under the heading "Forward-Looking Information" and "Part II. Item 1A. Risk Factors."
Our Condensed Consolidated Financial Statements have been prepared in
The following discussion includes organic net sales growth (decline) which is a non-GAAP financial measure. See "Non-GAAP Financial Measure" for additional information regarding this measure.
Overview
TE Connectivity Ltd. ("TE Connectivity" or the "Company," which may be referred
to as "we," "us," or "our") is a global industrial technology leader creating a
safer, sustainable, productive, and connected future. Our broad range of
connectivity and sensor solutions, proven in the harshest environments, enable
advancements in transportation, industrial applications, medical technology,
energy, data communications, and the home.
The third quarter and first nine months of fiscal 2022 included the following:
Our net sales increased 6.6% and 7.4% in the third quarter and first nine
months of fiscal 2022, respectively, as compared to the same periods of fiscal
? 2021 due primarily to sales growth in the Industrial Solutions and
Communications Solutions segments. On an organic basis, our net sales increased
10.6% and 9.0% during the third quarter and first nine months of fiscal 2022,
respectively, as compared to the same periods of fiscal 2021.
? Our net sales by segment were as follows:
Transportation Solutions-Our net sales increased 1.5% in the third quarter of
fiscal 2022 due to sales increases in the automotive and commercial
transportation end markets, partially offset by sales declines in the sensors
? end market. In the first nine months of fiscal 2022, our net sales were flat as
compared to the first nine months of fiscal 2021 as sales declines in the
automotive and sensors end markets were offset by sales increases in the commercial transportation end market.
Industrial Solutions-Our net sales increased 13.2% and 15.6% in the third
? quarter and first nine months of fiscal 2022, respectively, primarily as a
result of sales increases in the industrial equipment end market.
Communications Solutions-Our net sales increased 14.7% and 25.3% in the third
? quarter and first nine months of fiscal 2022, respectively, due primarily to
sales increases in the data and devices end market.
? Net cash provided by operating activities was
months of fiscal 2022.
Russia-Ukraine Military Conflict
We are monitoring the military conflict betweenRussia andUkraine , escalating tensions in surrounding countries, and associated sanctions. We suspended our business operations inRussia , and our operations inUkraine have been reduced 21 Table of Contents to focus on the safety of our employees. We have experienced increased costs for transportation, energy, and raw materials due in part to the negative impact of theRussia -Ukraine military conflict on the global economy. The increased costs and supply chain implications resulting from the conflict have not been significant to our business, and we have been able to partially mitigate them through price increases or productivity. NeitherRussia norUkraine represents a material portion of our business, and the military conflict has not had a significant impact on our business, financial condition, or result of operations during the first nine months of fiscal 2022. The full impact of the military conflict on our business operations and financial performance remains uncertain. The extent to which the conflict may impact our business in future periods will depend on future developments, including the severity and duration of the conflict, its impact on regional and global economic conditions, and supply chain disruptions. We will continue to actively monitor the conflict and assess the related sanctions and other effects and may take further actions if necessary.
COVID-19 Pandemic
The COVID-19 pandemic has affected nearly all regions around the world and resulted in business slowdowns or shutdowns and travel restrictions in affected areas. The pandemic had a negative impact on certain of our businesses in fiscal 2021 and continued to impact certain of our operations inChina in the first nine months of fiscal 2022. The pandemic has not had a significant impact on our ability to staff our operations, and we do not expect that it will continue to have a significant impact on our businesses globally in fiscal 2022. Throughout our operations, we implemented additional health and safety measures for the protection of our employees, including providing personal protective equipment, enhanced cleaning and sanitizing of our facilities, and remote working arrangements. The COVID-19 pandemic has impacted and continues to impact our business operations globally, causing disruption in our suppliers' and customers' supply chains, some of our business locations to reduce or suspend operations, and a reduction in demand for certain products from direct customers or end markets. In addition, the pandemic had far-reaching impacts on many additional aspects of our operations, both directly and indirectly, including with respect to its impacts on customer behaviors, business and manufacturing operations, inventory, our employees, and the market generally. We assessed the impact of the COVID-19 pandemic and adjusted our operations and businesses, a number of which are operating as essential businesses, and will continue to do so if necessary. The extent to which the pandemic will continue to impact our business and the markets we serve will depend on future developments which may include the further spread of the virus, variant strains of the virus, and the resumption of high levels of infections and hospitalizations as well as the success of public health advancements, including vaccine production and distribution. While certain of our operations were shut down inChina for a period of time in fiscal 2022, we do not expect the COVID-19 pandemic to have a significant impact on our businesses globally in fiscal 2022. However, it may have a negative impact on our financial condition, liquidity, and results of operations in future periods. In response to the pandemic and resulting economic environment, we have taken and continue to focus on actions to manage costs. These include restructuring and other cost reduction initiatives, such as reducing discretionary spending and travel. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, suppliers, shareholders, and the communities in which we operate.
Outlook
In the fourth quarter of fiscal 2022, we expect our net sales to be approximately$4.2 billion as compared to$3.8 billion in the fourth quarter of fiscal 2021. We expect diluted earnings per share from continuing operations to be approximately$1.79 per share in the fourth quarter of fiscal 2022. This outlook reflects the negative impact of foreign currency exchange rates on net sales and earnings per share of approximately$275 million and$0.11 per share, respectively, in the fourth quarter of fiscal 2022 as compared to the fourth quarter of fiscal 2021. Additionally, this outlook includes approximately$250 million in net sales and$0.10 earnings per share resulting from an additional week in the fourth quarter of fiscal 2022. We expect our net sales to be approximately$16.1 billion in fiscal 2022 as compared to$14.9 billion in fiscal 2021. We expect diluted earnings per share from continuing operations to be approximately$7.04 per share in fiscal 2022. This 22 Table of Contents outlook includes an additional week in fiscal 2022 and reflects the negative impact of foreign currency exchange rates on net sales and earnings per share of approximately$700 million and$0.17 per share, respectively, in fiscal 2022 as compared to fiscal 2021.
The above outlook is based on foreign currency exchange rates and commodity prices that are consistent with current levels.
We are monitoring the current macroeconomic environment, including any continued impacts from theRussia -Ukraine military conflict and the COVID-19 pandemic, and its potential effects on our customers and the end markets we serve. We have taken actions to manage costs and will continue to closely manage our costs in line with economic conditions. Additionally, we are managing our capital resources and monitoring capital availability to ensure that we have sufficient resources to fund future capital needs. See further discussion in "Liquidity and Capital Resources." Acquisition
During the first nine months of fiscal 2022, we acquired two businesses for a combined cash purchase price of$141 million , net of cash acquired. The acquisitions were reported as part of our Communications Solutions segment from the date of acquisition. See Note 3 to the Condensed Consolidated Financial Statements for additional information regarding acquisitions. Results of Operations
The following table presents our net sales and the percentage of total net sales
by segment:
For the For the
Quarters Ended Nine Months Ended
June 24, June 25, June 24, June 25,
2022 2021 2022 2021
($ in millions)
Transportation Solutions
1,134 28 1,002 26 3,268 27 2,827 25
Communications Solutions 663 16 578 15 1,882 16 1,502 14 Total$ 4,097 100 %$ 3,845 100 %$ 11,922 100 %$ 11,105 100 %
The following table provides an analysis of the change in our net sales by segment:
Change in Net Sales for the Quarter Ended June 24, 2022 Change in Net
Sales for the Nine Months Ended
versus Net Sales for the Quarter Ended June 25, 2021 versus Net
Sales for the Nine Months Ended
Net Sales OrganicNet Sales AcquisitionsNet Sales OrganicNet Sales Acquisitions Growth Growth Translation (Divestiture) Growth (Decline) Growth Translation (Divestitures) ($ in millions) Transportation Solutions$ 35 1.5 %$ 192 8.3 %$ (157) $ -$ (4) (0.1) %$ 251 3.7 %$ (255) $ - Industrial Solutions 132 13.2 125 12.7 (53) 60 441 15.6 380 13.5 (101) 162 Communications Solutions 85 14.7 92 15.9 (20) 13 380 25.3 378 25.1 (29) 31 Total$ 252 6.6 %$ 409 10.6 %$ (230) $ 73$ 817 7.4 %$ 1,009 9.0 %$ (385) $ 193 Net sales increased$252 million , or 6.6%, in the third quarter of fiscal 2022 as compared to the third quarter of fiscal 2021. The increase in net sales resulted from organic net sales growth of 10.6% and net sales contributions of 1.9% from acquisitions and a divestiture, partially offset by the negative impact of foreign currency translation of 5.9% due to the weakening of certain foreign currencies. In the third quarter of fiscal 2022, pricing actions positively affected organic net sales by$159 million . 23
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In the first nine months of fiscal 2022, net sales increased$817 million , or 7.4%, as compared to the first nine months of fiscal 2021. The increase in net sales resulted from organic net sales growth of 9.0% and net sales contributions of 1.8% from acquisitions and divestitures, partially offset by the negative impact of foreign currency translation of 3.4% due to the weakening of certain foreign currencies. Pricing actions positively affected organic net sales by$332 million in the first nine months of fiscal 2022.
See further discussion of net sales below under "Segment Results."
Net Sales byGeographic Region . Our business operates in three geographic regions-Europe /Middle East /Africa ("EMEA"),Asia-Pacific , and theAmericas -and our results of operations are influenced by changes in foreign currency exchange rates. Increases or decreases in the value of theU.S. dollar, compared to other currencies, will directly affect our reported results as we translate those currencies intoU.S. dollars at the end of each fiscal period.
Approximately 60% of our net sales were invoiced in currencies other than the
The following table presents our net sales and the percentage of total net sales
by geographic region(1):
For the For the
Quarters Ended Nine Months Ended
June 24, June 25, June 24, June 25,
2022 2021 2022 2021
($ in millions)EMEA$ 1,448 36 %$ 1,413 37 %$ 4,195 35 %$ 4,119 37 % Asia-Pacific 1,402 34 1,384 36 4,283 36
4,013 36
Americas 1,247 30 1,048 27 3,444 29 2,973 27
Total $ 4,097 100 % $ 3,845 100 % $ 11,922 100 % $ 11,105 100 %
(1) Net sales to external customers are attributed to individual countries based
on the legal entity that records the sale.
The following table provides an analysis of the change in our net sales by
geographic region:
Change in Net Sales for the Quarter Ended June 24, 2022 Change in Net Sales for the Nine Months Ended June 24, 2022
versus Net Sales for the Quarter Ended June 25, 2021 versus Net Sales for the Nine Months Ended June 25, 2021
Net Sales Organic Net Sales Acquisitions Net Sales Organic Net Sales Acquisitions
Growth Growth Translation (Divestiture) Growth Growth Translation (Divestitures)
($ in millions)
EMEA $ 35 2.5 % $ 152 10.7 % $ (161) $ 44 $ 76 1.8 % $ 258 6.2 % $ (297) $ 115
Asia-Pacific 18 1.3 76 5.4 (72) 14 270 6.7 319 7.9 (88) 39
Americas 199 19.0 181 17.3 3 15 471 15.8 432 14.5 - 39
Total $ 252 6.6 % $ 409 10.6 % $ (230) $ 73 $ 817 7.4 % $ 1,009 9.0 % $ (385) $ 193
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Cost of Sales and Gross Margin
The following table presents cost of sales and gross margin information:
For the For the
Quarters Ended Nine Months Ended
June 24, June 25, June 24, June 25,
2022 2021 Change 2022 2021 Change
($ in millions)
Cost of sales $ 2,769 $ 2,577 $ 192 $ 8,027 $ 7,481 $ 546
As a percentage of net sales 67.6 % 67.0 % 67.3 % 67.4 %
Gross margin $ 1,328 $ 1,268 $ 60 $ 3,895 $ 3,624 $ 271
As a percentage of net sales 32.4 % 33.0 % 32.7 % 32.6 %
Gross margin increased $60 million and $271 million in the third quarter and
first nine months of fiscal 2022, respectively, as compared to the same periods
of fiscal 2021. The increases were primarily a result of the positive impact of
pricing actions and higher volume, partially offset by inflationary pressure on
material and operating costs.
We use a wide variety of raw materials in the manufacture of our products, and
cost of sales and gross margin are subject to variability in raw material
prices. In recent years, raw material prices and availability have been impacted
by worldwide events, including the COVID-19 pandemic and, more recently, the
military conflict between Russia and Ukraine . As a result, we have experienced
shortages and price increases in some of our input materials-including copper,
gold, silver, and palladium-however, we have been able to initiate pricing
actions which have partially offset these impacts. The following table presents
the average prices incurred related to copper, gold, silver, and palladium:
For the For the
Quarters Ended Nine Months Ended
June 24, June 25, June 24, June 25,
Measure 2022 2021 2022 2021
Copper Lb. $ 4.12 $ 3.41 $ 4.02 $ 3.07
Gold Troy oz. 1,850 1,735 1,826 1,664
Silver Troy oz. 24.72 22.92 24.31 21.11
Palladium Troy oz. 2,383 2,438 2,370 2,229
We expect to purchase approximately 215 million pounds of copper, 135,000 troy
ounces of gold, 2.7 million troy ounces of silver, and 15,000 troy ounces of
palladium in fiscal 2022.
Operating Expenses
The following table presents operating expense information:
For the For the
Quarters Ended Nine Months Ended
June 24, June 25, June 24, June 25,
2022 2021 Change 2022 2021 Change
($ in millions)
Selling, general, and administrative expenses $ 393 $ 366 $ 27 $ 1,172 $ 1,128 $ 44
As a percentage of net sales 9.6 % 9.5 % 9.8 % 10.2 %
Restructuring and other charges, net $ 26 $ 11
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased
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Restructuring and Other Charges, Net. We are committed to continuous
productivity improvements, and we evaluate opportunities to simplify our global
manufacturing footprint, migrate facilities to lower-cost regions, reduce fixed
costs, and eliminate excess capacity. These initiatives are designed to help us
maintain our competitiveness in the industry, improve our operating leverage,
and position us for future growth.
During fiscal 2022 and 2021, we initiated restructuring programs associated with
footprint consolidation and cost structure improvements across all segments. We
incurred net restructuring and related charges of $85 million during the first
nine months of fiscal 2022, of which $16 million was recorded in cost of sales.
Annualized cost savings related to the fiscal 2022 actions commenced during the
first nine months of fiscal 2022 are expected to be approximately $75 million
and are expected to be realized by the end of fiscal 2024. Cost savings will be
reflected primarily in cost of sales and selling, general, and administrative
expenses. For fiscal 2022, we expect total restructuring charges to be
approximately $150 million and total spending, which will be funded with cash
from operations, to be approximately $160 million .
See Note 2 to the Condensed Consolidated Financial Statements for additional information regarding net restructuring and other charges.
Operating Income
The following table presents operating income and operating margin information:
For the For the
Quarters Ended Nine Months Ended
June 24, June 25, June 24, June 25,
2022 2021 Change 2022 2021 Change
($ in millions)Operating income$ 719 $ 714 $ 5 $ 2,096 $ 1,774 $ 322 Operating margin 17.5 % 18.6 % 17.6 % 16.0 %
Operating income included the following:
For the For the
Quarters Ended Nine Months Ended
June 24, June 25, June 24, June 25,
2022 2021 2022 2021
(in millions)
Acquisition-related charges:
Acquisition and integration costs $ 11 $ 9 $ 29 $ 23
Charges associated with the amortization of
acquisition-related fair value adjustments 1 - 9 3
12 9 38 26
Restructuring and other charges, net 26 11 59 195
Restructuring-related charges recorded in cost
of sales 4 - 16 -
Total $ 42 $ 20 $ 113 $ 221 See discussion of operating income below under "Segment Results."
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Non-Operating Items
The following table presents select non-operating information:
For the For the
Quarters Ended Nine Months Ended
June 24, June 25, June 24, June 25,
2022 2021 Change 2022 2021 Change
($ in millions)
Income tax expense $ 116 $ 124 $ (8) $ 362 $ 290 $ 72
Effective tax rate 16.4 % 17.6 % 17.4 % 16.6 %
Income Taxes. See Note 12 to the Condensed Consolidated Financial Statements for
discussion of items impacting income tax expense and the effective tax rate for
the third quarters and first nine months of fiscal 2022 and 2021.
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