TEL - Earnings call transcript Q1 2019

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Operator

Ladies and gentlemen thank you for standing by. Welcome to the TE Connectivity First Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder this conference is being recorded. I would now like to turn the conference over to your host Vice President of Investor Relations, Sujal Shah. Please go ahead.

Sujal Shah

you first our quarter thank discuss call and Connectivity's TE results. morning for conference joining to Good With me today and Chief are Chief Executive Officer, Mitts. Officer, Heath Financial Terrence Curtin;

and be During we included in the providing we release. statements ask press certain forward-looking this cautionary you will forward-looking call, today's review to information,

use of Investor the release non-GAAP SubCom that first our and call we on you sections the guidance. to certain Note reflect our in business that these and accompanying this presentation measures it of press slide our remarks quarter as discontinued the addition, or results the press is Relations included found the In sale related use morning, The discussion website not will address at review along of We in tables, te.com. be operations will slide our release and portion ask of our items. operations. our and TE we can during today's on presentation, continuing reflected and all the completed with

due give ask allotted you of We're to the a rejoin sure today's willing can take have if portion of but one opportunity an everyone participants we’re the second themselves make number to asking the Q&A call, question to queue questions, follow-up ask we on questions limit Finally, during question. to the everyone increasing to you to time. that

opening Terrence, Now let me for comments. turn to over call the

Terrence Curtin

revised our for and quarter Sujal XXXX. Thanks you our joining to everyone thank outlook first today for results and us cover

key I’m of messages call. going today's Before to I provide the slides, get overview into in the an

continued the earnings of quarter. soften our our through quarter. at with high per our range end market We pleased the guidance very delivered in results am that adjusted a I our in off, guidance the to of share and first midpoint revenue, First

stress our quarter the and of results our to offsetting one conditions reduce segments, resulting the market having with while we're our at execution, our guidance is outlook that than is XX if change solid expected transportation. to versus you lower Industrial experiencing sales softness entirely than our well demonstrated auto want resiliency, China, our as portfolio, for of change view softer Our year. global and and to And primarily environment due that by reflected region, are diversity us fiscal as anticipated our Communications market production along look I in a prior by results this driven with we rest days ago. it slower in the

focused levers markets, be on outperform in we'll success while business profitability this other slower through as let you drive model financial improvements we’re execute tell me on growth thinking backdrop, We content about these with how this and continue on move the And we non-growth to XXXX. in year. our to

portfolio drive have FX committed As as I well demonstrate weaker growth exit that to content as our remain XXXX, with rate our company when above outgrow, allow We opportunities market a the in we've in per years two believe over we the performance business partially the we're just we seeing. finally that And demonstrated XXXX and call. that this to return success to conditions model the will mentioned, absorbing to is while talk the be the to future us about buffer and invest which expect second we'll backed while huge to growth. growth. half we earnings long long levers share in content of will term earnings the position we’ll fiscal we're markets power, performance pull we improve non-growth business EPS, term the at ensuring to When look we in margin opportunities model, headwinds experiencing past

by up the highlight I'll was and in offset let in that billion our first the year-over-year quarter a commercial, that a production sales a a production. X% our auto, slight Industrial the even auto auto details in and as guidance X. X% XX.X% revenue operating decline basis on $X.XX margins. transportation content by of Transportation, delivered to quarter during on And Sales in driven and both X% with basis sensors. me X% Communication it down were being growth we get and Global which Slide on X% get top decline in environment. down auto in in slide compared demonstrates our with In the resiliency into our organically, expectations. reported business organically quarter, sales well growth backdrop flat quarter In and flat So the adjusted on only organic production the first an growth our segments. more were In was below were

revenue repurchases end in $X.XX high volume. a Our was to quarter the and $XX the through a last share Adjusted year of flat $XXX were one quarter per that in which essentially similar the we which we perspective, $XXX to maintain flow generated earnings shareholders sales much over was quarter with expected as returned XXXX cash line and sequentially during From we guidance. and of in million million, dividends was free down pleased rate our quarter. in share exit that expectations at was a on a million margins operating lower I'm could the our from

the first quarter October turn highlighted that entering in the Now, were slower we a environment. for and market guidance we when me talk let revised about year, our Back we issued from outlook.

levels in During our the order and lower Transportation China expectations were segments. below Communication first with oil global trends quarter, our weaker order and our production, in

China auto primarily billion some our Versus is basis $XXX well. reduction first year guidance by with Based midpoint view, orders $XX.XX expect in This with $XX.X billion. change orders declining year-over-year driven prior X% orders the sequentially China European a of down million prior quarter versus the upon over revenue. midpoint overall were were a of total we this on trends, the our of XX%. weakness at X% sales now down and at in in is as these Our fiscal

our with is at by remaining as you look weakness primarily the segment, in transportation the now are our the in impacted segment, fiscal transportation X% the in auto approximately communications compared our two-thirds year. we will to If assuming fiscal flat In X% change being communications and our of global by prior that are year Transportation in in both to production decline China. of production reduction outlook

the midpoint, share earnings now $X.XX market at at segment in is the be view. revised are is in we on With ongoing commercial, sales for are our air, view this entirely $X.XX in our Our that as defense and expectation This the $XXX EPS to from effects end strength by prior markets the a and medical. $X.XX with exchange the of currency well outlook, this expected with that is and essentially experiencing headwind we're highlighted as the million consistent driven industrial change per adjusting reduction our we unchanged sales on last our remains guidance prior EPS. quarter specifically change

I So chart, could please turn highlight to X, you XX But days. changed you what On order has past the if Slide details. over the this find at to let's can want look trends.

continue When of North declines orders in sequentially at offset America by see in our to $X.X expectations. X orders were to remained in view. book-to-bill as by we down year-over-year a XX%, that on X% in I below to orders we partially support were by of As X X% and our declines industrial declined that growth But you our orders is with of XX the see our X.XX. would segment, basis, were that growth well X%. outlook billion. driven instead, China expecting quarter can orders in consistent levels organic slide got X% similar strong days we Europe our mentioned earlier, On the our prior it continue quarter be By ago, quarter at

see can experienced see in weakness we’ve you and to impacting primarily communications, that's you However, transportation our can relate outlook. which orders China and in as the

by were Slide with will me you to X if organically Transportation turn year-over-year. segment could into things let So flat sales I and start transportation. get

assumption X% down Even especially weak Americans from was production our this weaker auto declines auto in sales outperform years. much offset China expected. China guided. we've lower was auto the versus transportation, X% Europe. worse We strengths and was the quarter, the in prior in it organically the we to did environment, production X% moderate and production decline in production we fiscal production. which growth we commercial when and auto than sales auto our expecting of had we declined driven by growth that XX% year-over-year see Our this well forcibly in below have been in In were first expected results our

are discussed With well we Europe, both opportunities electric design levels. applications, as China and in our industrial in new organically as levels you, growth running sensor were XX.X%, expected. the production be be margins with margin content this target by cost gains. investments while sensors grew and we that versus applications. In and continue that declined a near-term win driven considerably margin with was target will with this increase to also back we X% technologies including by strong balance to autonomous and share sensors applications. quarter year-over-year our falling continuing pipeline driven and to growth continues in value the the driven markets currently actions we're we Adjusted as we segment flat wins increased and of driving XXXX X% we margins in long During we spectrum we term across those China, we our this segment, broad business design for support area vehicle operating in enable to expect essentially organically by auto our sequentially In that grew X% performance and to below our as growth taking to in

our with the here strength as business expanded growth organically segments an our seen And automation. some XX.X% of lastly, market, business. X. Let defense, growth industrial strong as platforms with grew organically well in with energy of growth business the down Slide sales Adjusted margins X% product factory its me driven America. favorable growth by X% marine line the expectation. were being in XX% in in driven aerospace, and basis each In for driven past North Industrial defense was offset year, as to cycles. industrial In our we've across year-over-year that's grew on in aerospace, and expected on operating by by over share XX double-digit was new expected with businesses. delivered turn segment in content solutions gains points Aerospace, nice and basis over and as defense equipment, by the our new deceleration energy medical organic sales commercial organic and well to growth X% growth ramp and across expansion

continue plans remain to industrial margins Our optimize segment high teens over in the factory to expand track footprint to the adjusted on time. the operating our to

So with connectivity organically appliances. applications. into driven grew data X% please grew partially Communications by turn as with segment. growth offset and high-speed in X% get our data being to strong and Slide X organically by devices Communications expected being devices growth I’ll center Data and

appliance segment with was XX.X% was America. growth across to due North X% offset margin organically Our Adjusted in weakness partially line expectations. by the in down operating our business Asia, for

I Before Heath financials turn more in quarter. the to first into going to it more detail, guidance into to in details get the over on I'm get

Heath Mitts

million good included and margin $XXX of on other of $XX with the GAAP income X, operating income operating to and and was million million charges, where Thank turn $X charges. financials. XX.X%. Adjusted operating acquisition Please $XXX more I’ll and restructuring details of you, million adjusted an Terence, QX provide was Slide morning, everyone.

our of cost result accelerating and of business our and market are consolidation broadening initiatives we weakness, factory a the footprint cost As reduction plans. across scope

$X.XX $X.XX. year, range our quarter currency we're $X.XX rate XX% pursue and You future our adjusted with to structure, the incremental enable these which headwinds of at ahead, more And update us tax year through restructuring acquisition charges included that in $X.XX restructuring EPS as investment our will included of balancing related slight a the earnings should exit adjusted Adjusted in rates. we'll and charges XX.X%. guidance these future a and our the for to to do fixed of initiatives, in was from margin a the to decline tax looking rate And opportunities the currently to in expect the with We're of confident the aggressively be expect was $X.XX while and year full-year range. EPS restructuring The nimble rate effective which QX estimates we expect we tax the QX, cost was high expect reduce and for tax cost we XX% growth. enable GAAP and end growth. progresses. other working options effective structure, a expansion and

to Now on exchange and a organically. were negatively year-over-year by turn X% sales million if you billion X, flat prior Currency of year. impacted the basis $X.XX $XX Slide rates sales reported up versus

$XXX hold operating full-year quarter. course modestly could in completed repurchases as the the includes consistent with cash proceeds million, million $XX is do drop net the return Also levels of with as $XXX mentioned earlier, adjust our shareholders we $XXX as expected be was million impact quarter. operations And through of free the share expect business sequentially $XXX currency last rates to that lower We sale operating Terrence the flows typical outlook. flat revenue expect in year-over-year to QX of that's seasonality the million decline. exchange and up of In fourth from nearly continuing CapEx. cash I'm from over our prior margins which SubCom view. sequential of And XX% to and we in we for with which line dividends quarter million that to million, flat returned operations we our quarter, QX with were We XX.X%. of pleased margins margins Adjusted this at our $XXX is the

sustainable pursue to is As be back over also cash to our cover the guidance. balance will to With investments allowing you to I expect shareholders I’ve in return and provide acquisitions. past, to that, drive us organic capital which long-term still bolt-on told we growth to provides the the us and growth sheet ability strong, turn Terence to flow healthy call

Terrence Curtin

me And things Slide let the Thanks he the on with second said. some Heath. start XX, of on quarter build

we to earlier. quarter revenues do conditions experiencing, share chart adjusted quarter earnings talked about certainly be two and orders flat I the roughly With slower building the we're market per with one, expect on

Second quarter the to for quarter. earnings X% year-on-year $X.X adjusted sales revenue reported and represents the $X.X $X.XX per this a declines to and with is billion billion of $X.XX X% expected share respectively. of organic to At be a midpoint,

as again, Once production digits top versus to expected line by low-single grow Europe. and mid-single China expect our a medical dollar, in with By do benefit both year-over-year and the will approximately the ongoing of we outperform softness AD driven expect factory strength we top exchange U.S. shows the on million to Given the decline Auto by production content. versus organically Solutions is Transportation to revenue down weakness in organically expected it be and by from down in EPS line derive $X.XX single-digits solutions communication be auto we currency being $XXX in headwinds a digits organically to offset then to auto segment, And in driven partially growth the automation of low be down applications. we the is quarter. organically. mid-digits of Asia. expect segment a second X%, applications global Industrial

XX I'll both be prior our million. my XXXX. from full This details share foreign full market billion. consistent sales a rates the tax. trends, $X.XX billion sales of to $XXX $X.XX said as the in expected around into per this and please as currency includes impact get exchange revenue fiscal well for earlier exchange before of is headwind of Building guide view. This to year reported with organically flat decline is due currency per earnings And $X.XX as guidance negative headwinds we I range Adjusted share. to on order If Slide on represents to $XX.XX year more comments you of could the expect and X% $XX.XX turn and to

these digits adjusted per organic growing Excluding share at and be would top sales midpoint line. low-single flat earnings a headwinds,

get Now some let our me full-year. color the on segments for

We expect to segment flat Transportation Solution be our organically.

now this production you vehicles be to our will to about, levels North be We content in auto that one production organically global reflects America think which When to also and quarter auto XX% at we auto to down flat. global production growth sales mid-single offset our China remain auto XX when year. fiscal decline be per throughout quarter enabling year, And to XX% look be expect expect fiscal Europe production flat down global to in with we roughly production. around around in XX%, million is our remain units digits, and was assumption outperformance

We are to In talked wins that also in expecting the applications industrial the auto our outlook new about. ramp you driven view. Solutions, Industrial continued both our growth in of design and sensors prior unchanged auto from we've is by

and single-digit clearly markets driven by well quarter defense to outlook. up and single-digits an We is applications, Communications, unchanged aerospace, devices, the low the expect low growth in In and down be sales support our order organically as organically, Asia medical appliance. data first expect both be with to driven by growth X% in we as

reduction quarter in weaker as Communications. primarily So, revise just European driven as one, positive end. takeaways with first weakness and I some portfolio the reiterate our marketing the revenue I’ll at is This with some line of and the me two-thirds the quarter, XXXX of EPS despite front let things impact in I'll auto by with questions, in is well segment, a driven In you motorman. said soft diverse by entirely before kind we go the approximately is of summarize in in and key our by China markets. guidance the to some with from of of Transportation saw guidance the remaining

we reduction the return and go past, non-growth aggressively in to to and above committed the after powers sales And in markets demonstrate pulling to market revised we and markets and expect to activities, in have taken of cost as growth. going earning have half exit per When rate second emerge outlook. consolidation conditions. the seen earnings our to to increased our we model We opportunity plan to also be respond same we remain business even weaker fiscal performance the XXXX I we're advantage long is approach levers term our stated with when to upfront, our that follow share with

safer, a continued their customers for We world model also before but are first the quarter, want across that ensuring to and thank And back future I their employees on our is only business return I in to close, focused be and and markets also growth. will to the productive not execution performance connected. TE, do lastly, the when to our commitment company sustainable,

open with So questions. that, Sujal, let’s now for

Sujal Shah

All please you Thank Craig, session? right. Q&A Terrence. could you, the the give for instructions

Operator

Instructions] [Operator go from comes question the Your first Kelley Please of ahead. line from David Jefferies.

David Kelley

the autos. as China a in regional connectivity September quick down approach production the in most fiscal to you into I the line think guess in year, to Solutions guess and and think for customers' electrification softer seems more Just we like the downturn it X the changed cadence, year? your and if it’s on of there? importantly, the one orders anyway expecting in back maybe at we X, seeing How your then And given building global full look vehicle recent macro about you're both where your I year-end. you're half should the Transportation assumption are - I sit related

Terrence Curtin

David. piece let's your So, get the it second I’ll and into the with regional then question, Thanks if I'll for okay. that's take - start

amount worse even capitalize those sales this those car also sure I softer things our to of content or our all and in that will continue comes where autonomy of tell has balance changed. I to make rates to a outperformed the The production to even where benefit weaker on when have would connected we think in and see going the first we trends were the we it's electrification you're down environment. environment of that see we And of you to First quarter, and you vehicle, nothing one that trends much period growth in production. it

year environment. in question, in flat We were we thought auto. first down the flat about car relatively and me the flat very XX guided sales go a let we slower talk adjusted think year. about seeing first in relatively the of of guided be Clearly production When your here you than we part we in back production started rest we little thought to is and so and we're was when a Asia, China quarter, Clearly Europe. your what to ago, expected. days going Now production and for the been North slightly also weak in in adjusted America bit

at what look North see. hear Actually mid-single staying than slightly to when going it, XX% down our more going than digit production China how year, we seeing be worse see think America versus we more So, be when year, prior and expect you is the going this to do you down our customers that guidance where be about expecting auto to European we that the throughout down slightly we’re the normally is. set we core, production we it constant from actually throughout year would and from to

going So expect in production fiscal to units million XX quarter per little with quarter is units, around this minus bit. plus that year or XX our week a first stay we million around do

we others is one I more talk stress year do which basis, you different our to about calendar about basis. very on mentioned is So in anything how which than and talk your production thing auto is comment want fiscal

Operator

ahead. Please Your Mohan Merrill of Wamsi next from line from question go comes the Lynch.

Wamsi Mohan

even show auto a really in you're X% Terrence, to says production revenues able organically. actually flat decline that environment,

over here. Your fiscal X XXXX like guide obviously to growth point content a X implies

could of and restructuring helpful? impact are because taking segment incremental restructuring was already this industrial clarify the you. if can about which why down or just that on not magnitude just that, the do mix to X%? of that'd seeing that you and and talk actually will Thank is you And can assuming So you're you within are areas to be this some that's doing customers down maybe clarify, the is that the assuming pipeline you Heath talk you that X% what content might charge I'm that to so be suggests about that just mixing customers

Terrence Curtin

half. do talk talked Sure. for and Number about growth me couple years, take constructive of how had the it been and we've to one X% question X% over content it. first the about we environment. Wamsi, and content And go And the in back range. to past you we think thanks production a has let's about to is how let how we’ve a

some You year. certainly towards typically saw that in chain always that overachieved our of later as hit at and don't year of a us see typically it, the growth that actually to guidance those around it's of I X%over well. that's think you, that's effect, autonomy around product continues X% that purchase past There range and our supply as hit towards take ounces we little long will vehicle a see there, up later year, as typically up, new new to they quarter-by-quarter what see see bit When assume X% basis, also to couple bit trends our the see growth. X% and bit say that vehicles, the We're cycles And lower see, the and our why well be little look more happen you’ll of we a on term, and to in also, may vehicles guide, and matter supply this a adjust still supply early you we've content a of you you effect, value in pick the end the but in content and electric end slower content as all I lower due environment. the environment, little chain of chains in going included it And would told years. like our the launches you're cycles no to year, separation exactly who fiscal right. us lower a product launches. the but

turn So over I’ll to with Heath. that,

Heath Mitts

a on question restructuring. it’s Wamsi, good

so, you is half we our had a in opportunities within what prior already which and and As last year publicly had with about some our guidance over of segment. consolidation had mentioned, industrial talked the we assumptions consistent or the with footprint some

as and opening the comments, some of I advantage driven weaker it things part We part have of able we revenue would in of segments, capacity the taking after volume get where have that opportunities portions of are broadening the been that that in two otherwise. environment, mentioned to other rest is this stood may to not do, across is

which to addition SubCom thing your And the million in of business quarter. broadened. remove the hasn’t to as have middle the P&L did you that the in we stranded we is are operating tackle of that Industrial, some do costs represented will then going think roughly the to sell And and SubCom what out closed other P&L to $XXX and we us about, it corporation, expenses when those of you and on expect revenue well. So after last

from point but call to you and charge terms certainly about now, both savings an of of update the several profile We're initiatives. the will in want In dwell where you over together number not back in terms the XX progresses days, a expect now. what from quarter of and guided, should the as give and I of quantifying it, in above of get in we this what process these we'll magnitude we're still the we with

Operator

the of Your next Glynn question Please comes from Oppenheimer. go line Christopher from ahead.

Christopher Glynn

a look lower you feel the de-risk run it might been is like? think ring about of kind here. kind rate weaker for market a able or of what Does at had searching expectations question still or levels like you've how fence to Just much stable

Terrence Curtin

you around are tell I book-to-bill. order you, Chris, No. this know rates staying one right would

our it little it's and and I a needed stable say orders softer to sort due at And our we of about stay So, a to quarter, China. would other first around if you billion $X.X than think to that first does quarter, China meaningfully was feel, our than lower in change, weaker up we in which rate. step expected guide bit

talk on about. even So, watch it. to does lower what continuing feel we're need at we we're rate focus can to a Certainly, we our in order Heath control clearly And rate. looking early that January, stable at

orders it's and only you aerospace, the strength see very orders, industrial good very in and is So, we in medical. mixed, up our see - X%, were it

see to the continue also in We States. broadly, strong United growth very

So, there was it. views across due China adjusting look you to are adjustment that is angles we're between China But the primarily at mixed weak and different the to. Board

Operator

from line from go comes Morgan Please question next ahead. Stanley. the Hettenbach of Craig Your

Craig Hettenbach

Terrence, question end but through supply which which you likely just the has inventory just management evident markets weakness of in clearly broad-based been happening. have a are But also China kind slowing, there's chain. on the

with and they're can customers your you at color managing and they weaker shed inventory you that from an additional demand distributors any point the So as discussions environment, the perspective? on think are terms to in this of where how

Terrence Curtin

China, the down relook said decline. chain supply people call, the that's were going chain, And always production at to in to we’re adjustment orders supply to due auto weaker I some the have was you're as Well, our happening their end their customer. on weak, and planning XX% as

buyer to work do the a going they six be supply we else months it an it. whether that they as So, or anything and that’d car appliance is to Typically, and chain to three buyer, months. as happening element are through so, that last

through. places some We that like are say normal in going we would like we is say certainly say sort as industrial, just in innings environment America. contractions, see see early globally contraction in a So, behavior. pretty healthy I not don't is would depending seeing that we’re market, we're people I I have demand in but it's China orders. North of would of the the consistent in upon healthy we what

Operator

Your line W. next from from Leiker David comes question Robert go Baird. of ahead. Please the

Joe Vruwink

been potentially gone escalating Have has kind last When Asia fiscal explores orders there's and how business your year middle trade last of high-single you a underlying year, the David. down from China's Asia for to come And calendar maybe monetary of quickly rising or resolution could about not the thought, heavily. I tensions China it's get since Vruwink economy digits trade we your slowed. stimulus, more aggressive middle pretty Joe given if in since now just in some is This of obviously think stimulus, back?

Terrence Curtin

That a that's probably question beyond me.

thinking everybody we our world, moving to we do a way is of because in might in the of there's those but got clearly But be we we like to free And it, that's about parts they we've at guidance, we matters what moving would doing. it. constructive traders, all and plan the resolution us the environment give to able look to it, look we're parts, we we’re when at we're confidence. would lot when front stimulus not should global the like and in So what's have seeing

Operator

from Research. Your Shawn the next from comes question line Harrison Longbow

Shawn Harrison

return question for specifically I on guess buyback. A Heath capital and

- buyback than in first buying was greater and So was the greater all quarter. back

over with you about, next get I under-levered was comp aggressive more you bottom for guys to the mainly think quarters here, do the is the the one in tough is are, But the and and it be there is is that the think this that guidance? buyback proceeds. right couple if to your going could in argue, year a business, – number

Heath Mitts

question. the for all, of first - guidance thanks our in Shawn, assumed What's

proceeds, the You're correct. million was SubCom $XXX And about We’ve remember quarterly, come was the in roughly $XXX $XXX of million. did returned which $XXX proportion, that the this million that from buyback. million

that So back to we as obviously of that announced getting when terms that we shareholders put committed had in the to we transaction. work to

As our you generally cash buyback. about terms the of year a in third goes think towards the buyback, we about say free the of flow

that's in about let's that layer gives million, that, can top of and about you million $XXX SubCom you number. up amount $XXX on the to the So assume

out. frame probably think a to that I that's fair way

at are going is looking will and we intrinsic our will terms stock from deployed higher look does capital suggesting but the to anything not of do the leverage, sense. value in in price terms at time strong flows, cash a bit create free our dislocation capital, time to additional opportunity company times, and of, flex to on relative that when we it to of to of deploy with that always where at Now, of opportunities we're flex our time as makes from terms in we time that's intelligently we based

use we'll the proceeds. one-third you So normal but kind posted, perspective, of I'd the plus you a say keep can modeling SubCom from

Operator

Your next Mark Goldman Please the ahead. Delaney from question comes go from of line Sachs.

Mark Delaney

which I is noted data it quarter and question quite is devices well data the Thanks for taking and center. which from think this benefiting I on segment,

in of there's much coming now forward seems understand of like up is slides how that read devices and if some a that's center? for help can data data your us And devices weakness correctly. So go particular it data you a view and data to and tied maybe in Asia if devices, I

balance view Thank the talk So incremental devices weighing may some be data in the can for what about year. the you. and you of of on

Terrence Curtin

Mark, it’s the Terrence, question. for thanks

think but supply to their expect nicely. do not we continue you at has down little unit saw thing data at you broadly lever and year. high of chain that in look chain we've unit orders First quarter certainly other devices last being how around of hyperscale over the Asia of rate see to hyperscale supply down later about sure very the into around we we supply ODM off know some like making that the speed And if to hyperscale in market dollars that that bit But declining due really a elements think that that quarter you’d - grow capital we which high tie see chain to was entire was is we the how done to speed. the lot whole that get We Certainly it did the it, repositioning during much a the conservative. growth pointed about is when around the slightly it. and do

business segment would we're businesses. XX% above seeing that to strong. segment more I what of like So And I very say that in Asia broader our it’s Certainly revenue weakness do touching well - the think is of is around in is we're other the experiencing the well positioning Asia is Asia. XX% the in which sorry, what above tied that revenue the

is caught are some being the with of region. that other that up weakness seeing we're So we something in it

Operator

Cowen. from Your Giordano the comes go from next ahead. Please line of Joe question

Joe Giordano

me. for one Quick

than of there auto XX% landscape decline OEM. and I'm different the in with China first a is been that are has curious just I and in, very just Europe terms lot So to U.S. know of how like orderly

declines, spread be as then I guess the from environment. But So are Chinese there's part we and producers more some share opportunistic of content - more companies will you non-Chinese do than And question of they from kind competitive and of markets towards kind position start grow as to this too. gravitate others some a think local and and of those to ultimately in during markets these of recover these own? communications of fundamental our change take like again, trying more to the in you seeing this second the

Terrence Curtin

our period the Well, our in let our the position than we with we base. start and have no different you while automotive, me automotive week had. share automotive cost Certainly, in We gained in share take and we will when last piece. we adjust did

are other China the and we're very the the our things very through when about landscape the broad of important same in that time in XX technologies. cover One we that also at think of entire that's focused on China, much OEMs winning you is coverage where

shares. gaining on focus will We

typically much devices market which around impact don't support how I there globe. In when then and think that actually the other what China China see these element change share adjustments is scale don't some I So, around there’s in the a we're is the piece goes of very very environments, dynamic back. data supports an and discussions and that will certainly the gain much are competitive share parts we certainly side, and competitors OEMs. the support globe making there

about continue in we I of question. technologies space. to as long just think But right dynamics some bring the think we as now watch key our to have the with the to we earlier when that competitors

local continue in advantage trenched competitive low we to that keep a we invest well and have and in companies significant will to forward. innovation over think that I the going high-speed area

Operator

Your next the Fox Cross from comes Steven Please Research. from question go ahead. of line

Steven Fox

whether activity balance seeing your how and My in strategy helped some going talk to any for forward looks much you face quarter of hurt about this your inventories it sheet during recent unusual the one question Can inventories. sort you the Thanks. of project? like on declines. even this these some is and It guys built of in you’re own then inventory quarter

Terrence Curtin

the Steven, on slowdown talked areas we've driving half the given the some did across of back severity pressure Europe quarter the call and particularly see of inventory in up. certainly, already the China of parts the we about in

correct well revenue as pretty quickly around structure inventory as both comes from expectations Fortunately, to that terms our expectations that a out our has of ability in needed. in our model both what's reduce we our as side cost

fairly to short of about of type that bit a handle in does of amatory that there facility a So, we're down And those inventory over and activity places. that's year. have segment does you're the other drive where few tend our a cases higher buffer in should locations. come producing in time order in a any nothing terms the do as where couple consolidation have talked significantly that and little of period for the middle are into we facility new transition systemic we instances industrial see the there's and anything now pretty you of consolidations between There within in levels openly end

that. that the of other just the you'll that continue have terms some and a drove than bumps going sporadically So But see slowdown little little we will year on that. nothing of bit as well in during of that otherwise

Operator

of Your Daryanani Please ahead. next RBC line Amit from question Markets. go Capital comes from the

Amit Daryanani

just guess, to you right, my back points just points implied that? guide, first margins half touch not I If for margin reduction the the this lever operating year? just back don’t quantify half. want on cost reductions guide, curious half to are taken XX enables you months basis what the but I’m in assuming initiative get higher up is pay enable think I I I'm XX on versus a question your by operating versus go you’re And front or the HX Could that's the guess. going back. guys expansion what but historically a basically of XX margin I seeing you your math’s cost to half basis to in have

Heath Mitts

is Heath. this Amit

to bit a half, I We in to of embedded of first comes in margins. half think have natural half as with it. of to an restructuring revenue very revenue you've on. on got in relative we've that things terms a That's that little The normal our second going impact going we years, do that had pointedly on. but there's and seasonality first the a second maybe think prior has huge number guidance, have a seen seasonality not we've activities little bit half of the and about couple leverage upward the does

of Some that been fiscal costs do particularly the in the segment, for as expenditure’s things our non-facility-wise things operating the of relative benefit divestiture. some undertaking rather we are activities as end of we're year, well we've to restrained after towards going as the get of industrial our that SubCom some that we from some the

half are year. there structuring So the the of some in activities are certainly back us that benefit

well You are have tackle for the certainly near-term set of you correct, now next don't running that, that some much get will the don't help the we're very that things us as up but several newer – years. on

Operator

Raghavan Fargo. Deepa go of line the from ahead. Please comes question Wells next Your from

Deepa Raghavan

have mean, is assume the that margins of which be still the there Industrial that hit auto It the Thank pushed more will XX% follow-up margin given guidance protection sales helped you. be track little but cost auto will on A looks sense this in out was ramp a bit? and participation half, here, or in still question does on the second especially QX? will And margin just the a cuts especially the mixed in will be margin good downside. there like term, longer in SG&A

Heath Mitts

Deepa, I think good is a question your one.

relative and our the segment, which for overall that target last at couple below company, XX% for impact quarters margins that's about of terms given the here In disproportionate running margin size. for we're its of has on a our Transportation, the certainly

you'll And I actions that is right as year in year. historically see driven target of back you XX% number the see would by closer way segment. move you'll margins be under of that As business, our begin cost you'll our sequentially exit as that end our has been now. And are rate, prevail for that the of those think it about through way think terms towards the Transportation much improve some to about that that is, Transportation we the

way unchanged. is days we really XX talked of you ago was years. significant -- are over that won't margins you And sizable two segment. call year, terms the these activities segment your right underway footprints, Industrial on In last things up as in these we've within seen are fairly this relatively that that consolidation work the through and segment, Industrial our When step that, about our now

as line. higher are expect function off go the as these improvement modestly step another stay come as margins go see relatively going we to flat, should Industrial, You that we facilities through into the but year maybe this next within you'll years, several

a not to Certainly, we a within has expectations. So Transportation. of relative year would the margins changed lot Industrial the side towards end in on our see recovery the

Operator

Stein line comes from go from of question ahead. next SunTrust. Please William the Your

William Stein

understood was I relative of surprise reiterating guidance any generally the defense all to or bit is at believe China full I wins, well triggering into and I think is helpful? be clarity you new new you're would for Thank that’s a that bit better current environment dig sort fiscal year. the Can these aerospace technology, content what's pretty least volumes, greater that that March quarter well I the than expecting programs, the think automotive industrial surprising a looks for guidance what little the for as don't was anyone, and of in a what’s weakness that you.

Terrence Curtin

China businesses, industrial is Asia it, a to America. weighting to as Couple not heavier a as has frame - Europe North of it's let weighted more it things, our does me it other have and our segment it position, China just wallet first, and

slide I think versus I that’s around industrial on the it X it you and X. I of the that our that you is think back above to part if the mix at in was go of trends. should book-to-bill So orders do it's look our I'll other indicated, Also earlier X, mentioned,

go also strong the - trends back talked it markets we're commercial in seeing does having see seeing at and you medical good goes very includes to our where we to which pretty our we're equipment back defense slightly. that medical strong investments and continually aerospace the aerospace, broad while order look unit, benefit is also market is So down a It we our defense very that about. is it seeing very in of industrial

about well is wells we months we to business medical Our a nine even slower talked line. probably what get about automation above factory of you ago trend little expected that offsetting because running

know working we perspective it key I from look an and the And see around came industrial was where honestly for So, markets when continuing one those we industrial quarter good you where expected momentum has in order the talked the and in really orders to segment not about. year first changed. orders at

Operator

ahead. line next from Please Your Jim go from the question Citi. Suva comes of

Jim Suva

year referring In that that of to should to company margins you one share comment stronger. to? your in comments, in or and each we be exit prepared reference segment, the about the totality or operating about Was made expect every you as per the how earnings you think what was

Terrence Curtin

made we earnings that I segments. Jim, comment know made was you our but is at company to operating different as a do and comment. our a expect compare exit have highlighting going truly he power, the point that you that the talked levers a share we are per I we of had comment. levers, view did by And that that And company we when we're versus certainly made we about, to level. total total viewed, good Certainly, when margin improve also certainly half And to think earnings improve as a continue we year-on-year. second job

Operator

from of Your Matt ahead. comes line from go Please Sheerin Stifel. next question the

Matt Sheerin

question you're have between sort some slowed and in down. on of went improving that down though the you through particularly your WLTP as should another think regarding testing modestly. guiding in auto year in and are given Asia know get Just the I guide. We Europe America we comps I year-over-year North things

relative So between production, on relative Europe that Asia? the and but into also relationship to perspective what's your to market exporting

Terrence Curtin

that have When January. went of really get lingering been into extended you're of shutdowns you incremental think is right couple we and Well, WLTP some about also a things. has it customers that decline certain our around.

tone weaker bulk shutdowns auto outlook. I gets reflected And the fourth the whether point more sort whether to see your WLTP just which environment or a to see due we just and is it's with of the bill it WLTP, would in first quarter, little of then whether production did sort seeing Europe normal are you're But a that expecting off fiscal and quarter it's due our quarter our third But we around it's were in in going bit our there. overall off European is schedules. tell So in sort probably year. to Brexit, cars three of of the in from are production what mid-single-digits the traditional sort Europe Asia, you'll you we of quarters certainly be the in typically we fiscal shape still takes down happening slower fourth of Europe

Operator

Christopher the Oppenheimer. next Please Your line go question ahead. from of from comes Glynn

Christopher Glynn

outlook curious working the on CapEx of but missed a working year? couple for organic then be source would given a and that, dynamics, Just cash on if flow outlook I would capital capital this expect the you cash sorry

Heath Mitts

Let's take CapEx first.

a that's of activities the around of down fit-up win some we So generally a really last or that's bring But was expected range CapEx not customer to that a production. across know just quarter to customer to program board. majority some got the we and And our we tooling that slow vast be $XXX within programs. We'll commit CapEx of guided When that in the and down. seen win auto customer to program as million fortunately tied you year. level commercial us as for we've is transportation, of the in advance our certain

capital, the that's has committed that to that's that, best opportunities given about because return - out and the So been - of strength we're still out because on there. horizon long-term other just the any

million, that if million, should expect $XXX in So you necessary. it will $XXX prune somewhere

natural other mentioned robust inventory this point and down - Particularly impact cash on down. a have earlier capital well needs inventory, coming payables as that of I sales though. right source We’ve is bring we're on The already. that exactly year. be payables. target with see a to receivables part But drive good the of you'll will at as improvement, won't pretty program the to correct as Working a

that that quarters make the fiscal of way to our be So three we through year towards our would expect a the as we capital. continue will next of end source

Operator

go Mark question Delaney next the Goldman from comes Sachs. Your of from line Please ahead.

Mark Delaney

just defense, ability Thanks been About of the question. of curious rates order to change did but I for new or in win you. quite quarter, aerospace any taking the that this U.S. the and operating in programs overall environment shutdown, if government know follow-up well nature? given or which there's terms Thank things

Terrence Curtin

No. and and design we we're really. Good do with actually forth. times question, How the so

that's really how space. with our primes due having not just us we do on So the work impact and we are to in an that where design

Operator

Daryanani comes go the question from from next Your Markets. ahead. Capital of RBC Please Amit line

Amit Daryanani

do margins a side trajectory and of the Thanks for that does with growth on little was more there or way could is what XXXX think of and I sensor margin guess growth fiscal talk the sort fiscal XXXX then the headwind in side how you follow-up like bit to looks diminish I what you sort on trends the guys. the to business in Heath, sensors hoping a XXXX. transportation about in think

Heath Mitts

of pretty segment small part, it's total on couple latter Amit. weighting due the the things of to the A

we into those rate go growth happen the had business growth over of auto those industrial it year, industrial macro the by On you But focus we global around as going won't on year there in go that those wins transportation, pipeline year that today. rate we’ve of sort the the sensors. about bit the it as that. to and launches of the go - a saw piece is little go through the you're I some see into being what helped big because a applications sensor later impacted your is down really like So this is point

just XXXX of year They getting due see we you'll told to are we you. benefit events the through So those today. than and have on hits hits, the the to sensors side as we in auto where are later and as were there those continue positives the more so production we go launches auto

Operator

Raghavan Deepa Your from question the of next Please ahead. go line Fargo. comes from Wells

Deepa Raghavan

the questions, is you. rate the Thank headwind it just like more Thanks guidance. Two for flow cash housekeeping the the assumption, conversion and updated what's tax follow-up. lower than embedded of looks to free rate quick the QX within the event what's

Heath Mitts

tax in between the the comments, for noted the as XX%. rate prepared expected year XX% I is Deepa, and effective

from So modestly we guide, was closer did original drop which the out level. our XX% to

As some around, points have our hit that you quarters in of you swing complexity going to the particularly year. would structure, expect, have explorations statute you're given different us the to when at

math We've it it'll in will the on would In bit model that that be catch up terms of in to still be can range our end there’s increased XX% years - as in XX% take work of cash of lag for it free numbers assumption see the there's that terms works, terms to the the up a think cash. in as but CapEx depreciation over be last or the range could you I conversion, up year and how little two of through. you for still we in our higher the

Operator

Your Please comes Cross line Fox next go question from the from of ahead. Research. Steven

Steven Fox

clarification. Not really quick a a question, just

Your prior Thanks. help? more relative more like it or plan XXXX assume does new savings that fiscal guidance, is cost to your

Heath Mitts

ability tied of restructuring flow through on incremental business. withstand the this to the original pretty largely our half revised benefit that's able from the year, our lower down Steven, reasons in we to back is one get growth, and a certainly low that to our of out is we're EPS, some of relative cost guidance to the revenue there to will

what in of there of after Now years. have improvement will in the taking go step we to have this the a advantage structure in part Terrence overall mentioned the said I and function more that, will aggressively much that of the to call, us environments profitability terms be and had having cost earlier business - are out slower of enable fixed

income up both forward. cash this for profitable preserving ourselves for as we’re as well flow it year, sets to going So, what and on drive business focused

Operator

comes from ahead. line question William next Your from go Stein the of SunTrust. Please

William Stein

for follow-up. the Thanks taking

geopolitical current tariffs do from customers contemplated as that Thank of, of way, going or already to XX% the the for what we XX%, to but sure up We're to estimate across uncertainty rate all another resolution I'm sort tick trade You think is talked you we're it's you discussions that's aware see customer with asked when your on. risks to if orders outlook that of demand? is your customer about or their you. customers, in you the assumption relative incremental many when different negotiations the look spectrum at of them have the would you

Heath Mitts

have, how you customers we over well million. it’s know basically many X.X Well

about it's as where the well sympathize opinions world, very pending in as to that they have. other are So they different

So I really answer can't that.

I think a color versus customer from working that's you aggressive people and planning the to the the discussions. give us, side and and has all conservative tariff around I side, really so our been only everybody environment go uncertainty that for I of creates can think do

Sujal Shah

It Will. like no is questions. further you, Thank Okay. there looks

a us this So if you have Investor please morning. at contact questions, day. Relations And you TE. for Thank joining nice have additional

Operator

this gentlemen, January after for be Eastern and Time XX. today through conference replay available Ladies XX:XX will

code replay entering participants with Those Teleconference. XXX-XXX-XXXX And by conclude the using X-XXX-XXX-XXXX dial conference teleconference or that international AT&T and dialing code You for X-XXX-XXX-XXXX you and your again XXXXXX, access at numbers may the XXXXXX. does your access for are for AT&T once Executive time access participation Thank XXX-XXX-XXXX. system any the today.

now You disconnect. may

TE Connectivity (TEL) 23 Jan 192019 Q1 Earnings call transcript