TE Connectivity Ltd

Ladies and gentlemen, thank you for standing by and welcome to the TE Connectivity third quarter 2022 earnings call. At this time, all lines are in a listen-only mode. Later, we will conduct a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. As a reminder, today's call is being recorded. I would now like to turn the conference over to our host, Vice President of Investor Relations, To Jill Shaw, please go ahead.

Good morning, and thank you for joining our conference call to discuss TE Connectivity's third quarter 22 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, and 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. 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.

Thank you, Sujal, and I also want to thank everyone for joining us today to cover our results for the third quarter, along with our outlook for the fourth quarter of fiscal 2022. You know, as I normally do, and before Heath and I get into the details on a slide, I want to take a moment to discuss our performance within the backdrop of the current environment. We delivered strong performance again in the third quarter with record sales and this represents 11% organic growth year-over-year. We had growth in each of our three segments and organic growth across all nine of our business units. Adjusted operating margins were in the mid-18% range, and this is at levels similar to where we've been running through the year, despite incremental headwinds that we've been experiencing. And we also delivered record adjusted earnings per share that was above our guidance. I feel our performance is a result of how we strategically positioned our portfolio around secular growth trends, as well as the execution of our teams, both from a manufacturing perspective and in our ability to effectively manage pricing in this inflationary environment. I'm also proud of our teams as they continue to overcome broader macro challenges to effectively serve our customers and deliver the strong financial results we're going to talk about today. Now let me provide some color on the supply environment, key end demand trends, and the developments since our call 90 days ago. When we provided our guidance last quarter, we told you about an anticipated impact on our sales to the COVID lockdown in China. And even though these lockdowns extended further into the third quarter than our original expectation, our teams were able to recover. and the sales impact of the quarter was negligible. When you think about the global supply chain challenges and specifically around material availability, I would tell you they're about the same as they were 90 days ago, and inflationary pressures continue to linger. One element that I want to highlight that has changed since the last time we spoke is the strengthening of the U.S. dollar. This strengthening has significantly increased the headwind we're facing from foreign currency exchange rates, both year-over-year and sequentially, and Heath will talk about that a little bit more later. Turning to the markets, customer demand remains strong as evidenced by our order levels and our strong backlog position. And just to highlight, our backlog has grown over 20% versus the prior year. And we are seeing some consumer facing markets like appliance moderate, but we continue to see broad strength across our industrial segment. And we still have a number of markets that we serve that are not yet back to pre-COVID levels. And this includes automotive, commercial air, as well as medical devices. And we expect growth in these businesses as supply constraints are alleviated and those markets continue to recover. The other thing that I want to highlight and we've consistently talked about, and it has not changed, is the benefit we continue to see from the secular trends in our markets and the outperformance that we're generating from content growth and share gains. We are benefiting from our position as an industrial technology leader with growth from electric vehicles, smart factory applications including automation, renewable energy, and high-speed cloud and artificial intelligence applications. The other thing that I want to highlight as we continue to navigate through this noisy macro environment is that we remain committed to our business model and long-term value creation by driving further growth, margin expansion, and strong cash generation.