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Operator
ladies and gentlemen thank you for standing by and welcome to the te connectivity second quarter earnings call for fiscal year 2021 at this time all lines are in a listen only mode later we will conduct a question and answer session at that time if you would like to ask a question please press star then the number one on your telephone keypad if you would like to remove your question please press the pound key as a reminder Please ask one question and then jump back into queue to ask a second in accordance with time. I would now like to turn the conference over to your host, Vice President of Investor Relations, Sujel Shah. Please go ahead.
Scott
Good morning, and thank you for joining our conference call to discuss TE Connectivity's second quarter results. With me today are Chief Executive Officer Terrence Curtin and Chief Financial Officer Heath Mitz. During this call, we will be providing certain forward-looking information. We ask you to review the forward-looking cautionary statements included in today's press release. In addition, we will use certain non-GAAP measures in our discussion this morning, and we ask you to review the sections of our press release and the accompanying slide presentation that address the use of these items. The press release and related tables, along with the slide presentation, can be found on the investor relations portion of our website at te.com. Due to the large number of participants on the Q&A portion of today's call, we are asking everyone to limit themselves to one question to make sure we can give everyone an opportunity to ask questions during the allotted time.
TE Connectivity 's
We are willing to take follow-up questions, but ask that you rejoin the queue if you have a second question. Now, let me turn the call over to Terrence for opening comments.
Scott
Thank you, Shuzo, and thank you, everyone, for joining us today to cover our results for the second quarter, as well as our expectations for the third quarter of our fiscal 2021. Before I get into slides, let me give you some perspective on our second quarter. And I think as you'll see in our results, we are continuing to demonstrate the strength of our diverse portfolio and the benefit of content growth across our businesses. We are delivering organic growth ahead of our markets, as well as strong operational performance and free cash flow generation. I would say this performance is in a world with an improving economic backdrop, That is dealing with global supply chains that are trying to keep up with the broader macro recovery. We are continuing to execute to our business model. And you can see this in our second quarter results, as well as the guidance that we provide for the third quarter, and I'll talk about a little bit more today. So let me also provide some key messages about today's call. First off, I am very pleased with our execution in the second quarter. We delivered sales growth of 17% and generated record quarterly adjusted earnings per share of $1.57. And this EPS represents growth of 22% year over year. Our sales were ahead of our expectations, and it was brought across each segment, driven by the continued recovery in most end markets we serve, our broad leadership positions, and the benefits of the secular trends that we've strategically positioned TE to capitalize on. Also, our adjusted operating margins expanded 80 basis points year-over-year to 17%, and this was driven by margin expansion in both our transportation and communications segments. I also believe that you're going to continue to see us demonstrate our strong cash generation, and truly evident of that is our year-to-date free cash flow, which was approximately $1 billion, which is also a company record for the first half of a fiscal year. And as we look into our third quarter, we are expecting our strong performance to continue with sales and adjusted earnings per share at similar levels to what we just delivered in the second quarter. But that is a little bit of a backdrop. I do want to take a moment to frame out the curtain mark environment and our business relative to where we were just 90 days ago when we last spoke. In our transportation segment, Consumer demand in autos continues to remain strong, and auto production is remaining stable in the range of 19 to 20 million units per quarter globally, even with the well-documented semi-shortages. And we've also seen further strength in our commercial transportation and markets. The trends around content growth remain strong as we continue to benefit from increased electronification of vehicles and higher production of electric vehicles, which will enable us to continue to outperform auto production going forward. In our industrial segment, we see increased momentum in the recovery of industrial equipment markets due to factory automation and increasing manufacturing capital expenditure trends. Also in our industrial segment, the commercial aerospace and medical businesses are still being impacted by COVID, and this is similar to what we mentioned last quarter, but we do continue to see indicators of stability in our orders in both of these businesses. In our communication segment, the market trends we mentioned last quarter are continuing. Consumer demand is getting stronger, and globally we've seen an increase in appliance demand. We continue to see strong ongoing capital expenditure trends in the cloud applications as well as acceleration of demand around the data center. And when you think about these trends I just covered in our segments as a backdrop, the faster than expected recovery in the markets that I mentioned has resulted in some challenges as the industries we serve replenish their supply chain and look to further secure supply. While this dynamic has benefited our orders, which remains strong, it has caused broader supply chain pressure. And the pressure we're experiencing is factored into our expectations for the third quarter guidance, and Heath will provide more color on this in his session. And the last thing I want to highlight is let's all remember that we are still in a world that's dealing with COVID. We continue to see countries go into lockdown again, and this is impacting some of our customers and their supply chains. And certainly while vaccines are getting rolled out in certain parts of the world, the pace of the deployment and availability of the vaccines varies greatly by country, so some uncertainty remains. Our focus has been and will continue to be on keeping our employees safe while also helping our customers capitalize on the improving economic conditions. So with that as a backdrop, let me get into the slides and I'd appreciate that you could turn to slide three to provide some additional details for our second quarter and our expectations for the third quarter. Second quarter sales of $3.7 billion were better than our expectations in each of our segments. They were up 17% on a reported basis and 11% organically year over year. We had 15% organic growth in our transportation segment with double-digit growth across all businesses. We also had very strong performance in our communications segment with organic growth of 29%, which was strong double-digit growth in both of the businesses in that segment. And in our industrial segment, sales were down 4% organically due to the ongoing weakness in the commercial aerospace market. From an orders perspective, second quarter orders were $4.6 billion, and this was up 36% year over year. It reflects both the improvement in the markets that I mentioned, along with inventory replenishment in the supply chain by our customers. Our earnings per share was a record at $1.57 in the quarter, and this was up 22% year-over-year and was driven entirely by our operating performance, resulting in adjusted operating margins being up 80 basis points year-over-year. I am pleased that we were able to manage the broader supply chain pressures, which all companies are dealing with, and had margin expansions. From a free cash flow perspective, in the second quarter, free cash flow was $477 million, with approximately $340 million being returned to shareholders. As we look forward, we expect our strong performance to continue into the third quarter, with sales and adjusted earnings per share being similar to our second quarter levels. For the third quarter, we expect sales to be approximately $3.7 billion, and this is up significantly year-over-year on both a reported and an organic basis. And we expect adjusted earnings per share to be $1.57, which is in line with the levels we just saw in the quarter we just closed. So let's turn to slide four, and I'll cover the order trends that we're seeing. As I already stated in the quarter, you know, our orders were very strong at approximately $4.6 billion, and we had a book to build of 1.22. Orders in transportation and in communications were up 50% and 45%, respectively. And this increase reflects both market recovery and supply chain replenishment in both of those segments. In these segments, customers are not only placing orders to meet current production needs, but also replenishing the supply chains that were depleted during fiscal 2020. I would also highlight that with some of the shortages in semiconductors and certain passive components, we are seeing some areas where customers are placing orders to secure supply beyond their lead times. You know, in our industrial segment, it is a different picture than what we're seeing in transportation and communications. But what is nice is that despite the year-over-year sales decline we had in this segment, we have seen orders growth of 7%, and that's driven by the continued recovery in the industrial equipment market, partially offset by the weakness in commercial aerospace that I mentioned. Let me also, in order, add some color to what we're seeing organically on a geographic basis. And I'm going to do this on a sequential basis to show where order momentum is. In China, our orders were up 3% from a strong base from fiscal quarter one. And that growth was really driven by our industrial and communication segments. Orders on a sequential basis in Europe were up 14%, and North America sequential orders were up 22%. And that was broad-based growth across all our segments in those two regions. So let me get into our year-over-year segment results, and they're on slides 5 through 7. I'm going to touch upon each segment briefly before I turn it over to Heath. Transportation sales were up 15% organically year over year with growth in each of the businesses. In auto, our sales were up 14% organically. And year to date, we are generating content outperformance over production in our expected 4% to 6% range. We continue to benefit from our leading global position and increased production of electric vehicles. And as you've probably seen, the number of EV launches are increasing by our customers around the world. In commercial transportation, similar to our first quarter, we saw 25% organic growth driven by ongoing emission trends, content outperformance, and ongoing share gains. We are continuing to benefit from stricter emission standards and the increased operator adoption of Euro 5 and 6 in China, which reinforces our strong position in that country. We saw growth in all regions in our commercial transportation business, along with double-digit growth in all market verticals that we serve in this business. The other nice thing that we continue to see is we see increased wins on electric powertrain platforms and trucks, which give us confidence about the future content potential in this market and out years. In our sensors business, we saw 13% organic growth with growth in all markets and double-digit growth in auto applications. We do continue to expand our design wind pipeline and auto sensing and expect growth From a margin perspective, adjusted operating margins for the segment expanded 80 basis points to 18.1%, driven by higher volumes versus the prior year, and despite the supply chain pressures. So if we now turn to the industrial segment, as I said earlier, our sales did decline 4% organically year over year. During the quarter, the segment continued to be impacted by the decline in the commercial aerospace market, with our aerospace, defense, and marine business declining 21% organically year over year. As I covered already, based upon the order patterns, we do believe this business is showing signs of stabilization at the current order levels. When you think about our industrial equipment market, It was very strong and up 16% organically, with growth in all regions and increasing strength in factory automation applications, where we're benefiting from accelerating capital expenditures in areas like semiconductor equipment, as well as along the auto manufacturing supply chain. We continue to see weakness in our medical business in our industrial segment, and it was down 13% organically year over year. And this is being driven by ongoing delays in interventional elective procedures caused by COVID. And the dynamics we're experiencing in medical are consistent with what our customers are saying. And we expect this market to return to growth as these procedures start to increase later in the year. And lastly, in the industrial segment, our energy business, we saw 4% organic growth. And this was driven by increase in penetration of renewables, especially benefiting from solar applications around the world. From a margin perspective in industrial solutions, our margins declined year-over-year to 12.5%. And that was really driven by the significant drop in commercial aerospace volumes. So let me cover... the communication segment. And in this segment, we continue to benefit from both the market recovery and share gains while delivering very strong operational performance. Sales in the segment grew 29% organically year-over-year with strong growth in both data and devices and appliances. And data and devices are sailed through 24% organically year-over-year due to the strong position we have built in high-speed solutions for cloud applications. Favorable secular trends in cloud services are leading to increased capital expenditure to buy our customers, and our content and share gains are enabling us to grow on cloud-related sales at double the market rate today. Now, just to give you an example, at one of the major cloud providers, we are now providing 6x the content on the next generation server applications versus the prior generation. In our appliances business, we are also seeing strong growth trends. Sales grew 35% organically year over year, driven by our leading global market position, share gains, and ongoing market improvement across all regions. From a margin perspective, our communications segment and team delivered very strong execution in the quarter, and it delivered 21% adjusted operating margins, and these were up 720 basis points versus the prior year. I am pleased with the way our team has worked through the supply chain pressures to deliver these strong operating margin expansion in this environment. And our communication teams are capitalizing on growth trends in their end markets while delivering strong operational execution. And you see this reflected in our results. So with that, let me turn it over to Heath to get into more details on the financials and our expectations going forward. Well, thank you, Terrence, and good morning, everyone. Please turn to slide 8, where I will provide more details on the Q2 financials. Adjusted operating income was $637 million, up approximately 23% year-over-year, with an adjusted operating margin of 17%. Gap operating income was $612 million and included $17 million of restructuring and other charges and $8 million of acquisition-related charges. We continue to optimize our manufacturing footprint and improve the cost structure of the organization and continue to for fiscal 21. Adjusted EPS was $1.57, and GAAP EPS was $1.51 for the quarter and included restructuring, acquisition, and other charges of $0.06. The adjusted effective tax rate in Q2 was approximately 17%. For the third quarter, we expect our tax rate to be up slightly sequentially and continue to expect an adjusted effective tax rate around 19% for fiscal 21. Importantly, we expect our cash tax rate to stay well below our reported ETR for the full year. Now turning to slide 9. Sales of $3.7 billion were up 17% versus the prior year and 6% sequentially, demonstrating the strength of our portfolio. Currency exchange rates positively impacted sales by $150 million versus the prior year. Adjusted EPS of $1.57 was up 22% year-over-year and 7% sequentially, reflecting our strong operational performance. Adjusted operating margins were 17% and expanded 80 basis points versus the prior year. While we would have expected higher fall-through on this level of sales growth, we saw impacts of higher freight charges and other supply chain pressures in the quarter, and these will continue into the third quarter. And as you are aware, these supply chain issues are having a broader impact on our customers and suppliers as well. As Terrence mentioned, the supply chain is catching up to the increased level of demand we are seeing in many of our markets. And given these dynamics, I'm pleased with the results we delivered in the quarter and of our momentum going forward as shown in our third quarter guidance. In the quarter, cash from operating activities was $580 million. We had very strong free cash flow for the quarter of $477 million, and a year-to-date free cash flow that was approximately $1 billion, which is a record for the first half of a fiscal year. We returned approximately $340 million to shareholders. The dividends and share repurchases in the quarter are strong. Free cash flow performance demonstrates the strength of our cash generation model, and we continue to expect free cash flow conversion to approximate 100% for the full year. We remain committed to our disciplined use of cash, and over time, we expect two-thirds of our free cash flow to be returned to shareholders and one-third to be used for acquisitions. Before we go to questions, I want to reiterate that we remained excited about how we have positioned our portfolio with leadership positions in the markets we serve, along with organic growth and margin expansion opportunities ahead of us. To summarize, the outlook for many of the markets we serve is consistent with what we are seeing 90 days ago, along with some acceleration of growth in the commercial transportation, industrial equipment, and communications markets. We are continuing to see the benefits of secular trends across our portfolio and are capitalizing on these opportunities. The economic recovery has been faster than expected, and we are seeing the corresponding near-term pressures in the broader supply chain as a result. These impacts will be resolved, and nothing has changed with respect to our growth and margin expansion expectations. We are executing well on the things we can control, and our outlook for Q3 continues to reflect the strength of our portfolio. We expect to continue to generate strong free cash flow, maintain a disciplined and balanced capital strategy, and drive to our business model performance. And we remain focused on value creation for our stakeholders going forward. Now, let's open it up for questions. Okay, thank you, Keith. Michelle, could you please give the instructions for the Q&A session?
Operator
okay one second please thank you at this time i would like to remind everyone in order to ask a question to please press star then the number one on your telephone keypad in order to have time for all questions each participant is limited to one question if you would like to ask a follow-up please press star one to return to the queue and your first question will come from craig from northern stanley your line is open
spk13
Thank you. Question for Terrence. There are a number of references to replenishment on the call. So can you just talk about the strength you're seeing in the business, when customers you think will get caught up on inventory, and importantly, the type of sell-through you're seeing?
Scott
Sure. Thanks, Craig. And let me, you know, you see that in our orders. And I think one of the things is we're all dealing with a recovery across those markets that are seeing that improved recovery at a faster rate than we all expected. And inventory levels are low. You know, when we see the orders breadth that we see, we do see people trying not only to make, get the products in for what they want to make, but also to get the supply chains up that you know ensure that there aren't some of the stresses that we hear about in other components so when you look at that i think we're all in the middle of that real time these are stresses that you get when you have a recovery that's in motion i do think you know we need a couple of quarters for that to play out because you know that it is pretty broad based and you know stocks were taken very low And, you know, even when you think about our channel partners, you know, our channel partners are holding turn levels that are lower than normal, and they're trying to catch up. So it is very broad across those markets that you see the strength in. And, you know, it will take a couple of quarters to get truly everything probably replenished. Okay. Thank you, Craig. Can we have the next question, please?
Operator
Yes. Your next question comes from Wamsi Mohan from Bank of America. Your line is open.
spk15
Yes, thank you. Terrence, you alluded to a few things within the communications segment performance. Can you remind us how much of that is cloud now, and are you expecting this growth to sustain here, and how sustainable are these margins?
Scott
Thanks, Wamsi. In communications, I think one of the things that we have to keep in front of us is it was our segment that was least impacted last year. And so I think that even makes, when you look at the results that segment have, more impressive because they didn't have the dip that our transportation segment had when the Western world shut down auto production. And so the growth that you see, first off, is in D&D, it is primarily driven by cloud applications. And I think it's both the acceleration of Cloud CapEx In addition to where we position ourselves from a market share perspective, and we continue to do a nice job in that team, continue to build more momentum from a share perspective, and that's really driving that growth. The other thing that you have in that segment is our appliance business has a great global position, and we're also benefiting from, as certainly appliances have accelerated globally around the world, you're seeing the benefit of that business, and you're also seeing how global least who businesses are. So certainly, I talked about it in orders, but these businesses are very globally balanced, and you're seeing the growth. So I feel good about the positioning we've done on the top line. I would also say with the volumes that we're at, we would expect that this segment would be higher margin than what we've told you historically. So we always said this is probably middle team. At these types of levels, you'd probably be in the middle higher teams over time. and it just shows that the work that we've done to improve the portfolio here, the trends we've put it around, as well as the operational execution the team's done. So thanks, Wamsi, for the question. Thank you, Wamsi. We have the next question, please.
Operator
The next question comes from Amit Daryani from Evercore. Your line is open.
spk11
Good morning, everyone. Thanks for taking my question. Terrence, I was wondering if you could maybe reconcile the deviation between the strength we're seeing on both the book-to-bill and the order number that you put out worse than the June quarter guide, right? I mean, if I think about the book to bill at 1.22, I would have thought June quarter guide would be north of $4 billion in revenue. So I'd just love to understand what's the delta between the book to bill versus your guide. In relation to that, the audit strength you're talking about, is there any deviation between channel versus OEM there?
Scott
So, yeah, let me just take it. I'm going to take your last piece first, if that's okay. You know, when you look at it, The trends where you're seeing the acceleration and also with some of the supply chain stresses, you do see orders in the channel were probably a couple hundred million higher than what we build. And our channel sales grew similar to what the total company grew. So you do see the channel partners trying. Their inventories are low. They're trying to catch up. But I wouldn't say it's different than what we're seeing direct. It is about how do we make sure – the supply chain levels to support this fast recovery get into place. When you look at our book, The Billet 1.22, as you all know, you know, this is not a business that's typically a backlog business. And, you know, what we're seeing because things are so depleted, you have customers that are sitting out there not only getting orders for production but also trying to replenish. And there's pain points in the world. So, you know, there's certain product sets that, you know, we have some constraints on. There's pain points on some of our input materials, and he talked about some of the pressures on inflation side. So I think what you have is, you know, the orders are a lot higher than our guidance, and our guidance is really the things that we see we're going to schedule out and deliver. And, you know, it will normalize over time that there'll be more in check. But right now you have a supply chain replenishment going on after COVID in 2020 took a lot of supply chains to a full stop. Okay. Thank you, Amit. Can we have the next question, please?
Operator
Yes. Your next question comes from Joseph Spack from RBC Capital Markets. Your line is open.
Joseph Spack
Thank you very much. If we look at the actual incrementals in the quarter and compare that to sort of that low 30s, that delta is about $50 million. So is that order of magnitude what you sort of experience from logistical headwinds? And then I know you mentioned that could continue. So maybe you could talk about some of the puts and takes on the margin as we head into your fiscal third quarter.
Scott
Sure. Joseph, this is Heath. I'll take the question. You're right on with your assumption. We would have expected these volume levels to be north of 30% flow through, as we've talked about. And so the delta on a year-over-year basis to where we came in probably puts you into that type of number in terms of the flow through and then the impact that it had on margins. As we work our way through the year, there's certain things that will continue and that we will continue to expect to feel the pressure on, whether that's free charges, freight inflation, or inflation on input materials otherwise. What the team is hammering through those, we have different levers that we can pull to pass some of those where we deal with the timing issues on some of that. But I would expect our margins to modestly improve as we work our way forward here into the third and fourth quarter based on some of the actions that are underway and our ability to combat some of the inflationary pressures out there. Okay. Thank you, Joe. Can we have the next question, please?
Operator
Yes. Your next question comes from Chris Snyder from UBS. Your line is open.
Chris Snyder
Thank you. My question is on EV wins and the pipeline of demand coming to market. Just given the increased focus on high voltage, are you seeing better share relative to ICE? And for these new awards, should we expect initial unit production will carry a CPV above 120 until scale is reached?
Scott
Thanks. So a couple of things. Let's remember that our share is a leading position in what we do already. So I wouldn't say share is higher. I would say it's in line with our leading share across automotive and transportation. What is nice, and you talked about it, is where do you see the momentum around EV? Just if we went back a few years, it was 5 million electric vehicles if you take pure electric and hybrid. This year, we think it's going to be closer to 10 million vehicles. And you see Europe, you know, continuing with the emission programs there. Certainly, Asia has always been strong in there. And these are both regions that we have very strong presence. So, you know, when we think about content, you know, what's nice is EV, you continue to see the adoption. You see the new models coming out. The models are much more attractive, and the consumer acceptance of those is strong. And, you know, it pulls in line with, you know, our overall content growth and the CPV. We do expect to be that 2x on those hot voltages because of what happens with the hour train. It is one of the things that, you know, with an improving recovery, the secular trends of where we position TE, whether it's the electric vehicle and the car, and as I talked about in my script, was we also are seeing, you know, innovation along the heavy truck fleet. That is becoming more platform-driven. They are going to have more model launches probably out in the 25, 26, and that's going to be a content driver, and we have wins on those. So those secular trends, you know, in the backdrop of an improving economy just creates more growth opportunity for us. Okay. Thank you, Chris. Can we have the next question, please?
Operator
The next question comes from Sam McChatterjee from J.P. Morgan. Your line is open.
Sam McChatterjee
Great. Thank you for taking my question. I wanted to ask on automotive as well. You had strong results in automotive despite the uncertainty we're seeing there with the semiconductor shortages. Just wanted to ask students, what are you hearing from your automotive OEMs in terms of how they want to manage the supply chain? Are they still sticking to a substantial model, or are they ordering ahead? And when to start to expect some of these shortages in terms of impact on production to start to moderate?
Scott
Well, I think when every OEM, you know, number one is happy with where the consumer is showing up. And if we were here six months from now while we were ramping, one of the things we would talk about is the consumer showing up. And I think that's just great for the industry. And our OEMs are trying to work through the supply chain pressures, you know, at a bigger extent than even we're dealing with. So, you know, what was nice, and certainly semiconductors are the big news out there, as is very well documented, you know, that impacted production, you know, a little bit less than a million units in quarter two. I think it's going to be a similar number in quarter three. But global auto production is staying in that 19 to 20 million unit range. And what's nice is probably this year, auto production will be back to 2019 levels. And that's a little bit quicker than we would have said six months ago. So the OEMs are very much working hard to get the cars out to the consumers. We're all working very much together. knowing that right now as it's ramping back up to a very high level, and we're all trying to make sure how do we keep the OEMs going. And so the discussions today are very much around how do we work together to make sure our OEM customers get to capitalize on this opportunity. And there is a lot of volatility right now due to the supply chain. And I think we're going to have to continue to work through that through the rest of our fiscal year. All right, thank you, Sumit. Can we have the next question, please?
Operator
Yes, your next question comes from Mark Delaney from Goldman Sachs. Your line is open.
Mark Delaney
Yes, good morning. Thanks very much for taking the question. Heath, you reiterated the view that free cash flow conversion for this year could be approximately 100% of net income. Can you talk about whether or not there's anything unusual benefiting free cash flow conversion this year? And I recognize there's going to be some puts and takes in any given year going forward, but is that the right type of approximate level to be expecting on free cash flow conversion going forward? Thank you.
Scott
Mark, thanks for the question. You know, I think one of the things that, as I look at the free cash flow and the components and leverage we get to pull there, as we've worked our way through the last few years, one of the things you have seen is CapEx's percentage of sales moderating a bit more, closer to that 5% number versus higher than we were running a couple, three years ago. That capacity that we have put in place is certainly we are benefiting from that now. And particularly as we move forward, I think that number of 5%, maybe a tad under that this year, flow. The other thing that we obviously benefit from is the way we manage our tax structure and our ability to pay our cash tax rate being much lower than well below our ETR. And so there's a few of those types of things. But working capital this year has been a good story for us. And our ability to maintain receivable days and payable days, improving year-on-year environment has been good. So nothing unusual in our FY21 numbers or outlook from a cash flow perspective. We continue to monitor it, and we're not starving the businesses for investments. I think it's first priority, as you can imagine. So we feel good about how we've positioned that and going forward. Now, if there's a year coming forward that we have, you know, a more significant step up in terms of an investment or restructuring or something, you know, we'll highlight that. But I think we're in a good position right now. All right. Thank you, Mark. We have the next question, please.
Operator
Your next question comes from Joe Giordano from Cohen. Your line is open. Hey, Joe.
Joe Giordano
Hey, so something's been happening. little bit of that here. Just if I look back in auto last quarter, last year in the QQ, I think he had some basis points of benefit from supply chain replenishment then. So if I look at the results from this quarter, and I assume that you grew kind of like in your, you know, basis points of like, is that is that how I should think about this, that supply chain this quarter was like 900 basis points, and it should still be like a pretty favorable number for the next few quarters.
Scott
I think it's very difficult to just look at content in one quarter, Joe. And you're right. Last year in this quarter, we did have supply chain benefit because we saw people sort of getting into COVID. We were all trying to secure supply. You need to look at it over longer term. And I think that's the more appropriate way to look at it. As we said on last quarter, and when we sort of look at mix of vehicles this year, we sort of view it should be in the mid-70s without supply chain effects this year. And that's something that is, if you look at what's driven that versus the lower to mid-60s a few years ago, Half of that is due to our positioning around electric vehicle and certainly data as autonomy infrastructure gets put in the car. And then the other half is just electronification as our core product set continues to be sourced in as the car gets more features on it. So I still think, you know, this year, without supply chain, where you are, you know, in that same figure we told you last quarter, I think when you get into where supply chains are trying to move it, it is difficult to get it into one number in a quarter. Okay, thank you, Joe. Can we have the next question, please?
Operator
Next question comes from Scott Davis from Mellius Research. Your line is open.
Scott Davis
Hey, good morning, guys. Hi, Scott. How do you handle, how are the contracts handled when you have kind of these excess orders of the, you know, double ordering or folks that are, you know, more? I mean, can you get additional price and help offset some of the cost issues and such?
Scott
Sure. So I'm pricing, Scott, so, you know, When you think about in distribution, which is about 20% of our business, we did price increases, and we do them every six months. We did some in January. We have other ones rolling out in July for some of the inflation pressures. What we do have with some of our larger customers, you know, metal riders that have adjusters for metal. So as he talked about, we do expect modest margin expansion as we go into the third quarter. Some of it is as those things kick in, as we continue to try to manage through it. So it is very different by the markets we plan, but there will be price increases aligned with how we have the mechanisms set with our customers. Okay. Thank you, Scott. Can we have the next question, please?
Operator
Your next question comes from Christopher Glenn from Oppenheimer. Your line is open.
Christopher Glenn
Okay. Thanks. Good morning, everybody. A higher-level question on industrial automation cycle, how you see that shaping up. The comparisons and the macro are helping you, but during COVID, a lot of people learned to do more with personnel disruptions, and robotics has been a pretty emerging category. I'm wondering if you're seeing the makings of an automation super cycle in terms of investment over the next handful of years.
Scott
What I would tell you is, if you went back certainly last year, that space got hit. The year before that, it wasn't a positive cycle. There were elements around auto production going down. um that that we're impacting and so what we see and what we we see it pretty consistently globally you know you're going to have many many semiconductor manufacturing equipment you know that's accelerating you're seeing the investments around the auto supply chain you see a lot of those around the electric vehicle it's at the battery side of it certainly warehousing is no no surprise either so What we have seen pretty consistently globally is an acceleration that, you know, last quarter we told you we saw some emerging signs. I hope we really saw an acceleration this quarter in it. And I do think just with the backdrop we're in, I do think you're going to have a positive cycle here around automation investment. as people see an economic recovery that continues. And, you know, let's face it, the two markets where we haven't seen it are in Comair and, you know, medical, which are, you know, both impacted by COVID, where we plan medical. So I do think you could have a stronger leg here of an industrial capital equipment cycle that's stronger coming out of COVID. All right. Thank you, Chris. Can we have the next question, please?
Operator
And your next question comes from David Kelly from Jefferies. Your line is open.
David Kelly
Hi, thanks, and good morning, Terrence, Heath, and Tujul. Hi, David. Hi. A quick follow-up question on the prior distribution channel exposure. Just hoping you could maybe give us a deeper sense of the order trends there. And if you don't mind, could you remind us of your distribution mix within communications and industrials as well?
Scott
Sure. When you take our distribution mix, it is about 20% of the total company. But what you do have, that mix is higher in our industrial segment as well as our CS segment. In those cases, you're up 40% plus. In automotive, there's not a lot of distribution. You don't have that. So you do have higher weightings in communications and industrial. And, you know, our revenue growth was in line with the total company revenue growth, you know, sort of mid-teens. But we did see, you know, our book to bill in that area was higher than total company. It was more like a 150 growth. book to bill, and their inventory levels are low. And, you know, it's not surprising with as the world accelerated, people are trying to secure inventory. They're also trying to rebuild their inventory levels to more appropriate terms. So the book to bill was very strong there. And, you know, I just think it's another positive sign of an improving economy and certainly as we look forward. All right. Thank you, David. Can we have the next question, please?
Operator
Next question comes from Jim Suva from Citigroup. Your line is open.
Jim Suva
Thank you. And Terrence, in your prepared comments, you made a comment about the orders being stronger than your lead times. You know, when there's chip shortages and the lead times are stretching out, you normally see that a lot. So can you just help us kind of bridge why would customers be ordering a lot more beyond your lead times? Is it just inventory replenishment, or do you think that they're, you know, fearful of more supply chain issues? Because if your lead times are normal, it seems like they could just put in normal orders versus stretched lead times. Thank you.
Scott
Yeah, Jim, a couple of things. So let's realize in automotive, it's a just-in-time system. There really isn't lead times. So in that part of our business, it is just-in-time. In the rest of our business, our lead times are four to six weeks. On typical, we do have some pain points, and I would probably say in some areas we're a little bit further out than that, but not anywhere close to some of the semis. I think you do have replenishment going on. People did take volumes down low, and the economy is doing better. In addition, people see semis and some other passives have that people are saying, hey, I want to make sure I get my orders on to make sure I don't get surprised in other components and Tier 2 products. So, you know, I think that's why you see what's happening with distribution. I think it's also, you know, in some of those markets that are very hot that you see that happening. And, you know, honestly, our lead times aren't moving out significantly, except in very finite product sets where we have some pain points. All right, thank you, Jim. Thanks, Jim. Thank you. Can we get the next question, please?
Operator
Your next question comes from Luke Junk from Baird. Your line is open.
Luke Junk
Good morning. Good morning. Terrence, I was hoping you could discuss some of the key opportunities in your energy business as it relates to the proliferation of electric vehicles, increasingly an area that we're getting questions on. If you could just speak to the role that TES has to play in terms of grid hardening, which of course is in focus following the Texas storms this winter, renewables, you mentioned solar in your comments and similar.
Scott
On our energy business and our industrial segment, it is important where we play in that is really along the grid. It is very much around the electrical infrastructure, and it is very global. The key factors that really drive growth there is hardening, as you said. But also where we pivoted our portfolio and our team has done a nice job has been, you know, how do we get our share when you deal with wind applications where you have very high voltage connections that need to come back and hook into the grid, as well as the solar applications, which are not in panel connections, but really taking the energy that comes off the solar grid. into the core grid. And what's nice is, you know, the growth that we've seen in our energy business that has been pretty consistent over the past year is really due to our repositioning around renewables. Historically, this would have been, you know, a very slow growth business. You have seen it. You saw the 4% this quarter. And that exposure to those renewables is really driving the growth there. And certainly how EVs drive into energy usage would also benefit that. So we are benefiting from all the carbon neutral initiatives on the planet, and certainly how do we make sure we get our fair share with our pretty broad product set to make sure those connections into the grid occur is what we get excited about. Okay, thanks, Lou. We have the next question, please.
Operator
Next question comes from Nick Tortorov from Longbow Research. Your line is open.
Nick Tortorov
Yeah, thanks. Good morning, everyone. Terrence, we've seen some reports that some auto OEMs are doing much better than others in the current environment because they have shifted away from just-in-time over the years. As we deal with broader supply chain issues, and I know that's more on the semi side, but how do you see customer inventory policy on the auto side changing? Do you see any structural shift away from just-in-time?
Scott
What I would tell you is, you know, with what we're dealing with currently, you know, we're trying to meet demand. You know, we have not seen significant shifts. You know, do the OEMs reflect, you know, after this? You know, it will be interesting. I think that will be a discussion we have with our customers. But right now our customers are really focused on making sure they get product out the door. And, you know, in some cases just realize we don't have, you know, some of the production lead time that a semiconductor company would have when they think about their fab. So, you know, what we do is different. But certainly there is stress and strain in the system. And, you know, some of the tier ones that are also in that equation play a pretty big role, not just the OEMs. And, you know, they took inventory levels down very low. And, you know, that's what we're all trying to catch up on. Okay, thank you, Nick. We have the next question, please.
Operator
And your next question comes from William Stein from Tourist Securities. Your line is open.
TE Connectivity 's
Terrence, I think it was you who used the word inflation to describe something that's happening to at least part of your costs. Maybe it was Heath, but whomever takes is fine. I'd like you to maybe tell us about whether that's something that you're seeing in input costs, material costs, for example, or labor, or if it's just supply chain related costs. And I think you also noted that you'd expect this to be clawed back over time. Is that through essentially, let's say deflation in those costs, or is it something you think you're going to be able to pass on to customers? Thank you.
Scott
I'll take the question. Certainly, you know, where we're feeling the biggest inflation right now is on the freight side. The freight inflation has been significant as we battle through there. And there's a variety of reasons for that, including higher air freight and And that's not unique to TE. Certainly, I think that's being as well publicized across the overall supply chain. We are, as we move towards the... Second half of our year, we are seeing a little bit higher input costs, particularly with resins, and some of that's pretty directly attributable to the weather issues that were in Texas here earlier this past quarter. And then copper prices, as we've continued to monitor those, we've seen those creep up. Now, in some cases, we have hedges in place in terms of how we hedge our metals costs. little bit slower in and out of the P&L as we hedge about 50% of our exposure out about 18 months for metals. So as we get through there, labor cost is not a major issue on the inflation side, but labor availability in certain places that are still being more impacted by COVID continues Otherwise, we still are battling through than inflation. In terms of the clawback, I think Terrence outlined it a couple of questions ago. In some cases, we have contractual ability to do that in terms of passing through riders as we've seen inflation come in more aggressively. In some cases, it's a broader pricing discussion with a customer. And then within channel, certainly, you know, we'll utilize our ability to take prices up tied with inflation for that piece of the business. And then, you know, depending upon the business, there's surcharges and different types of mechanisms that are put in place. But I'd say the timing issue is a portion of it. There's no way I'm going to sit here and say we're going to claw back 100% of what we're pounding through right now. But we also have productivity engines in place to help offset some of these things. So, you know, more to come. Okay, thank you, Will.
Matt Sheeran
Can we have the next question, please?
Operator
Next question comes from Matt Sheeran from Stifel. Your line is open.
Matt Sheeran
Yeah, thanks. Good morning, everyone. My question is around the industrial solutions area, particularly how we should be thinking about operating margin going forward. You were down year over year for reasons you talked about, particularly weakness in the aerospace area. Sounds like that's bottoming. It sounds like you're continuing to see growth in the broader industrial market. So what should we be thinking about a margin expansion from here? I know you've been targeting high teens. And is it a function of volumes here or there's still some restructuring benefits that we should be expecting? Thanks.
Scott
Matt, this is Steve. I'll take the question and thank you. First of all, nothing has changed in terms of our outlook as we've been on a multi-year journey to get the footprint right in the industrial segment. Nothing has changed there in terms of our multi-year plan to get to mid-to-high teens operating margin. Certainly within the quarter, we were impacted by the mix of businesses where the growth or lack of growth is coming from. Commercial aerospace is a very profitable piece of the segment, and as that's down, year-over-year has a pinch point in terms of margins. However, there's other things that factor into this as well in terms of how we think about, you know, the restructuring that's going on in some cases when we do have costs ahead of some of the savings as we're moving factories into new locations. In addition, the segment was not immune for some of the supply chain challenges. So a variety of things. I am confident as we move into the second half of our year that we will see improvement there, though. Okay. Thank you, Matt. Can we have the next question, please?
Operator
The next question is from Stephen Fox from Fox Advisors. Your line is open.
Stephen Fox
Hi, thanks. Good morning. I might have misinterpreted this, but it sounded like you mentioned market share gains more than normal. I was just curious if there's any common thread across why you're gaining share or if there's anything you would point to within the different segments that are driving share gains. Thanks.
Scott
No, what I would say, Steve, I think one of the things that's important is we did want to highlight those areas where we do feel there's share gain, not just market improvement. And there are areas that I think we've differentiated during COVID where they created some opportunities. And I think you see that in both units in the CS segment, certainly in regard to, you know, our industrial transportation business and, you know, how we continue to gain share there. So there are some of the bigger highlights, but we did want to make sure in those areas, you know, not only market recovery, we also had took advantage of market share in some key markets that are also contributing to our results. Okay. Thank you, Steve. We have the next question, please.
Operator
The next question comes from Rod Blachy from Wolf Research. Your line is open.
Stephen Fox
Hey, this is Shreyas Patel on for Rod. You talked about, you mentioned the content opportunity that you're seeing in battery electric vehicles versus ICE. It's about a 2X opportunity, and I think in the past you've talked about $60 of content on an ICE vehicle increasing to $120 on BEVs. But, you know, with certain programs, it seems like you're you're actually, the actual content on those vehicles is much higher. So I'm trying to get a sense of, you know, amongst the programs that you're winning, you know, how do you think about the content, you know, on those vehicles? You know, how should we be thinking about that and what's the opportunity there going forward?
Scott
When the vehicles are winning, one of the things that you have along as the architecture continues to get scaled and aligned, there is a broader breadth of content per vehicle on electric vehicles for us than you have on a traditional ICE. We get excited about that. And, you know, there are some electric vehicles, you know, it's the traditional 2X, and there are some that are much higher where our customers have asked us to do more. So there is a broader breadth than you have on a traditional ICE, where in a traditional ICE it really comes down to feature set. But what's nice is the number of EVs that you see are accelerating. And at TE, what we get really excited about is as this continues to need to all consumers, not just on the higher end. That's where we continue to provide scale. And we've always said that, you know, as we think through price as it scales, you know, some of these very high CPV elements we talked about will come down a little bit because they have to for the affordability of the car. So I feel very good about the adoption, that it is as global as it is. I think it really stood the test of COVID. But also is when you look at how the architecture in the car needs to continue to scale. That's what we get excited about because automotive is still a scale business. And I think we've proved that with our leading position and what we've done in the ice. And what's nice is our ice products carry over because they're mainly in the electrical architecture that carries over into the EV. So there isn't real cannibalization because the powertrain is not as big from an electrical side. From an ice, it just goes way up when you get to a PEV or hybrid. Okay, thank you. Can we have the next question, please?
Operator
Next question comes from David Williams from Loop Capital. Your line is open.
David Williams
Hey, good morning, and thanks for letting me ask the question. I wanted to ask maybe on the mixed shift from the automotive OEMs, obviously they've pivoted to the higher end, maybe even more luxury vehicles. Do we see that shift maybe move back towards mid-range, lower-range vehicles as the semi-shortage eases? How do you think that impacts maybe revenue and a margin impact there?
Scott
Well, when you look at that, certainly the OEMs are getting to make the vehicles they want to make and they make money on. And I think that's one of the things that are nice about this improving economy. But I would also say many of the OEMs also have changed their platform pretty dramatically about what vehicles and platforms they make. increase options out of pro and cars, we would get a little bit of benefit and content in our traditional product. And that's what I have some flows over time. And I would also make sure we take a global perspective of it. You know, I know that very much in the U.S., there's a view of a pickup charts, and that has more content. But when you think about TE, you need to really think globally. And, you know, some of those trends aren't as real elsewhere in the world as they may be in the North American market. Okay. Thank you, David. Can we have the next question, please?
Operator
The next question comes from Wamsi Mohan, Bank of America. Sorry, your line is open.
spk15
Yes, thanks for taking my follow-up. Terrence, I was wondering if you could comment. I know it's still early days, but if you could comment on any puts and takes associated with the infrastructure plan, particularly given the amount of investment in EV infrastructure, how that might be a tailwind for TE versus any potential tax headwinds from the proposed tax hikes. Thank you.
Scott
Well, on both sides of those equations, obviously, there's a lot of things out there. So, you know, sizing that today is very difficult, knowing that there's a lot of things being thrown around. So let's just keep that as an overlay. But I think if you think about any You know, certainly I answered a question earlier about energy infrastructure. Certainly there's investments that have to happen there that would benefit our energy business. If you get infrastructure put in for battery electric capacity in North America versus relying on other parts of the world, certainly our factory automation team would do it. And any other infrastructure, I think the other benefit should be is, and we've been very clear on it, we all view acceleration of Asia and Europe are going to happen quicker than the United States because there has not been as much government support around getting those vehicles adopted. So that could also benefit our auto business. So they're just some of the bigger elements. And then you get in your traditional infrastructure where you would have a very strong position in commercial transportation. Depending upon what happens with roads and if that creates a machinery cycle, we would participate very well on increases around certainly the heavy equipment side due to our industrial transportation. There are some deposits that could occur. Certainly, we got to see how the bills and the plan shake out. I'll let Heath handle tax. My help then for that piece of it. Thanks, Terrence. You probably recall on the tax side, again, there's a lot of things that are still to be determined. But as you recall, when the last tax reform lowered the corporate rate, it didn't have a big impact on us given our structure and structure. you know, where we're domiciled and where our profit pools lie. So, you know, early look at any of this proposal kind of indicate we probably wouldn't have that much of an impact on us in the other direction either. So, you know, more to come as things get solidified there. But I think it's important to look at not just the impact there, but, you know, where we pay cash taxes. And so not a huge concern at this point, but stay tuned. Okay, we have no further questions. I want to thank everyone for joining us on the call this morning, and if you have further questions, please contact Investor Relations at TE. Thank you, and have a great day.
Operator
Ladies and gentlemen, your conference will remain available for replay beginning at 11.30 a.m. Eastern Time today, April 21, 2021, on the Investor Relations portion of TE Connectivity's website. This will conclude your conference for today. You may now disconnect.
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