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TE Connectivity (TEL) Tops Q3 Earnings, Raises View Again

TE Connectivity Ltd. TEL scored its seventh consecutive earnings beat as it reported third-quarter fiscal 2017 adjusted earnings of $1.24 per share, beating the Zacks Consensus Estimate of $1.17 by 6%.

The bottom line fared phenomenally in year-over-year comparison, jumping 14.8% from the prior-year tally of $1.08. The figure also steered past the projected range of $1.14–$1.18.

The impressive earnings were driven by continued progress on strategic priorities, solid execution and impressive top-line growth. Encouraged by the successful execution and all-round growth, the company raised its earnings and revenue guidance once again.

On GAAP basis, the company’s earnings from continuing operations came in at $1.21 per share, down significantly from $2.19 reported in the year-ago quarter.

Inside the Headlines

Net sales in the quarter grew 7.9% year over year at $3,367 million and also topped the Zacks Consensus Estimate of $3,251 million. Solid performance across all three segments drove the quarterly top-line growth. Excellent traction in the company’s harsh environment businesses, which has been a staple profit churner over the past quarters, contributed significantly to the top line.

Segmental Performance

Transportation Solutions revenues came in at $1,652 million in the quarter, up 6.8% on a year-over-year basis. Orders in the transportation segment came in at $1,887 million, up 14% on a year-over-year basis. Organic growth in automotive, commercial transportation,and sensors across all regions boosted the top line.

Industrial Solutions revenues had another strong quarter, rising 6.6% year over year to $849 million. Orders in this quarter rose 9% to $951 million. The impressive growth was driven by strength in industrial equipment, factory automation & medical applications. Solid energy business in EMEA and Asia, and robust Industrial Equipment organic growth contributed to the segment revenues. Also, the previously completed Creganna and Intercontec acquisitions added significantly to growth.

Communications Solutions revenues rose 12.1% year over year to $620 million. Orders were up 10% year over year to $432 million. Growth of this segment was bolstered by strength in Asia in both Data and Devices, and double-digit growth in appliances.

The company’s adjusted operating margin for the quarter expanded 50 basis points from the year-ago quarter to 16.6%.

TE Connectivity Ltd. Price, Consensus and EPS Surprise

Liquidity & Cash Flow

TE Connectivity exited the quarter with cash and cash equivalents of $755 million, higher than $647 million a year back.

The company generated free cash flow of $408 million in the quarter, down from $589 million in the prior-year quarter.

Share Repurchase Program/Dividend

During the reported quarter, the company returned $324 million to shareholders through dividends and share repurchases.

Acquisition

The company enhanced its harsh environment portfolio with bolt-on acquisitions in the Automotive and Medical business.

During the fiscal third quarter, the company inked a definitive agreement to acquire Hirschmann Car Communication, which focuses on vehicle connectivity technology used in antenna and infotainment systems.

TE Connectivity also acquired MicroGroup, which makes specialized shafts for medical applications. These acquisitions will unlock expansion opportunities, and advance content growth in key applications for the automotive and medical markets.

Guidance

TE Connectivity projects fourth-quarter fiscal 2017 adjusted earnings per share in the range of $1.14–$1.16. It expects revenues to lie in the range of $3.2–$3.3 billion (which reflects growth of 5% year over year at mid-point).

Concurrent with the fiscal third-quarter earnings release, the company once again raised its fiscal 2017 earnings and revenue guidance. It now expects net sales in the range of $12.85–$12.95 billion compared to the earlier range of $12.60–$12.80 billion. The range reflects 8% year-over-year growth at mid-point. Adjusted earnings per share are projected in the band of $4.72–$4.74, as opposed to the earlier guidance of $4.58–$4.66. It reflects 20% year-over-year growth at mid-point.

To Conclude

TEL Connectivity came up with yet another impressive quarter with strong top- and bottom-line beats. The company’s 2017 bottom-line guidance hike, third time in a row, and robust sales forecast are likely to go very well with investors. Most of the company’s operating margin expansion in the past few years have been driven by the transportation segment.

Encouragingly, in recent times we observed that both the Communications and Industrial segments are contributing significantly to the operating margin expansion as well, thus adding to the company’s strength.

Going forward, we believe the previously completed Creganna and Intercontec acquisitions will continue to unlock significant opportunities in the transportation and industrial segments. Overall, we believe strong demand in end markets, along with an overarching business model, will continue to drive TE Connectivity’s future growth.

Zacks Rank & Other Stocks to Consider

TE Connectivity currently holds a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the same space include Kemet Corporation KEM, Nikon Corp. NINOY and Littelfuse, Inc. LFUS. While Kemet and Nikon sport a Zacks Rank #1 (Strong Buy), Littelfuse carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kemet Corporation generated three huge beats over the trailing four quarters, for an average positive surprise of 72.9%.

Nikon also has an impressive earnings surprise history, with an average beat of 133.1% for the trailing four quarters, beating estimates twice.

Littelfuse has a striking earnings surprise history for the last four quarters, having beaten estimates thrice, for an average beat of 2.1%.

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