TE Connectivity Ltd

Everyone, thank you for standing by and welcome to the TE Connectivity second quarter earnings call for fiscal year 2026. At this time, all lines are in listen-only mode. Later, we will conduct a question and answer session. If you'd like to ask a question during that time, please press star followed by one on your telephone keypad. 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, Kuzhul Shah. Please go ahead.

Good morning, and thank you for joining our conference call to discuss TE Connectivity's second quarter results and outlook for our third quarter of fiscal 2026. With me today are Chief Executive Officer Terrence Curtin and Chief Financial Officer Heath Mitz. During this call, we'll 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. Finally, during the Q&A portion of today's call, due to the number of participants, we're asking everyone to limit themselves to one question, and you may rejoin the queue if you have a second question. Now, let me turn the call over to Terrence for opening comments.

Thank you, Susil. And also, once again, thank you, everyone, for joining us today. And as I normally do, before I jump into the slides, I do want to frame today's call around a few key messages. And I want to go back to November when we did our investor day. where we outlined how our strategy and business model are driving a broadening of growth across our portfolio while positioning us to deliver sustained margin expansion and double-digit earnings growth. The strategy we laid out we believe will drive ongoing value creation for our owners, and it's based upon the backbone is how we capitalize on the proliferation of data and power by providing leading interconnect products and technologies across our target markets to meet the evolving next generation architectures of our customers. The results we're going to get into today and talk about are further evidence that our strategy is working. Last year, we delivered $1.4 billion of growth as a company. And this year, we expect to deliver well over $2 billion of growth, with the majority of our businesses growing double digits year over year. As we look at our second quarter results, we delivered strong financial performance with sales growth of 15% year over year and continued outperformance versus our key end markets. We also delivered earnings growth of 24% in the quarter. When you underpin this performance, we continue to see strong order trends. In the second quarter, we had record orders of over $5 billion. which was growth of over a billion dollars versus the prior year with growth across both segments and in every business. As we expand sales, we continue to invest and scale the business to deliver consistent margin performance and earnings growth. The performance of our teams combined with our global manufacturing strategy are providing resiliency within a backdrop of an ongoing dynamic global environment And this is reflected in the performance of both segments. We expect our strong performance will continue, and Heath will talk more about that when he gets into his section. So if you could, if you're looking at the slides, I'd ask you to turn to slide three, and I'll get into our second quarter results, as well as our outlook for the third quarter. Our second quarter sales were over $4.7 billion. with performance above guidance driven across our businesses. Sales grew 15% on a reported basis and 7% organically year over year. We saw orders increase to $5.3 billion, and I'll provide more color on the order momentum on the next slide. We delivered record adjusted earnings per share of $2.73, which was above our guidance, and increased 24% versus the prior year. Our operating margins on an adjusted basis were 22%, and this was an increase of 130 basis points over last year due to the execution of our teams. We also continue to demonstrate our strong cash generation model. With free cash flow of $1.3 billion for the first half of this year, And year to date, we return nearly 100% of our free cash flow to shareholders while continuing to support investments for future growth. Also, driven off of this strong free cash flow, in the quarter, we announced that our board approved a 10% increase to our quarterly cash dividend. As we look to the third quarter, we are expecting third quarter sales to be $5 billion. which reflect an increase of 10% versus the prior year with year-over-year and sequential growth in both of our segments. We expect adjusted earnings per share to be up 17% year-over-year to around $2.83. So I'd ask if you could turn to slide four and let me get into more details on the order trend momentum that we're seeing. As I mentioned, Orders were $5.3 billion with a book-to-bill of 1.12. We saw orders growth in every business and in all regions on a year-over-year basis, and our order trend supports the broadening of growth that I've already talked about. For the second quarter, over 70% of the company's order growth was in the industrial segment. Versus the prior year, industrial segment orders grew 40%, and essentially every business in the segment posted double-digit orders growth. In addition to the ongoing momentum in digital data networks where our orders grew over 60% in the quarter, we also continue to see continued momentum in energy, aerospace and defense, as well as automated and connected living. Turning to our transportation segment orders, our orders increased 13% versus the prior year with year-over-year and sequential growth in all three of our businesses. Our order trends are supporting our growth and content outlook for the automotive business in the second half of the year. And in commercial transportation, we're seeing continued recovery in the global market with organic orders that grew year-over-year in every region. So with that as an overview of orders, let me now discuss quarterly segment results. and I'll start with the industrial segment on slide five. Our sales in the industrial solution segment grew 27% in the quarter and 17% on an organic basis year over year. We are benefiting from the secular growth trends that we see in our digital data networks business as well as our energy business, where we continue to see significant demand tied to AI and energy grid investments along with continued growth in aerospace and defense and factory automation applications. In our digital data networks, we had another standing quarter where business grew nearly 50% year over year and sales were as we expected. We continue when new programs with customers and the orders that we have received are building backlog into 2027. We now expect our AI revenues in fiscal 2026 to be about $150 million higher than our view 90 days ago, and this entire increase will be in the second half of the year and reflects the increased momentum that I talked about in orders. As we look out to the longer term, we are well positioned to continue to generate strong growth from AI applications. With our broad portfolio of data and power connectivity solutions, as well as our engagements with the key architects of this space, we expect the addressable market for our AI products to continue to grow, both near-term and long-term. We are innovating with our customers on their roadmaps and architectures and are making both organic and inorganic investments to strengthen our roadmap for both copper and the inflection point for optical solutions. During the quarter, we acquired a leading technology for passive optical connectivity solutions, strengthening our roadmap to offer customer solution for both copper and optical connectivity in the future. As you would expect, we will continue to support our customers' architectures as they evolve. Now let me turn to the other businesses in the segment. And turning to automation and connected living, we grew 8% organically year over year, with growth in each region, and we continue to expect the momentum in the general industrial markets to improve as we move through the year. In energy, our sales grew 60%, including the Richards acquisition, where we're capitalizing on growth opportunities in the U.S. utility market. Organically, sales increased 11%, driven by year-over-year growth across three key application areas, the first being energy grid hardening, second being data center, and the third being clean energy applications. We continue to see increasing investment by our customers in grid hardening as utilities upgrade aging infrastructure and improve resiliency to support more distributed and reliable networks. In the data center, low growth is being driven by the significant build out of power infrastructure to support AI, where our connectivity solutions enable higher power density as well as reliability. And in clean energy applications, we continue to benefit from ongoing investment in utility-scale solar, along with the supporting grid infrastructure required to integrate these energy sources. In our aerospace and defense business, our sales grew 5% organically, driven by growth across both commercial aerospace and defense applications. In these markets, we continue to see favorable demand trends coupled with ongoing supply chain improvements. These trends are supported by increased global defense spending and ongoing modernization efforts that require increased data connectivity and greater power requirements, along with ongoing production ramps in the commercial aerospace field. And lastly, in our medical business, sales grew sequentially as we expected, driven by the continued investment and growth in key therapy applications, such as structural heart and electrophysiology. Excuse me. So turning to margins for this segment, industrial segment adjusted operating margins expanded 260 basis points to nearly 22%, driven by the strong operational performance by our teams and the benefits of a higher volume. So if you could, let me move over to slide six, and I'll get into the transportation segment. Our sales in the transportation segment grew 5% in the quarter, and we're down slightly organically. We are delivering growth over market in both automotive and commercial transportation, reflecting our leading global position and customer co-creation model. And this is resulting in continued content growth across vehicle platforms. Our auto sales grew 2% on a reported basis and declined 4% organically in the second quarter. Our market outperformance against declining auto production was driven by content growth in Asia and Europe. Year to date, we're averaging growth over market at the low end of our four to six point range and continue to expect content growth to be in this range for fiscal 2026 driven by our strong position and content opportunities across data connectivity in the vehicle, the electrification of the powertrain, as well as electronification of the vehicle. Turning to commercial transportation, we saw 21% growth on a reported basis and 17% organically. We are seeing continued improvement in demand trends across regions with growth in Europe and Asia and stabilization in North America. Against this backdrop, we are delivering growth that is significantly above the market, driven by continued share gains from new program wins and increasing content per vehicle. In our sensors business, sales increased 2% on a reported basis and declined 3% organically, which was in line with our expectations. For the transportation segment, the team delivered adjusted operating margins of nearly 22%, demonstrating our team's operational resiliency. So with that, as an overview of our segment performance, let me hand it over to Heath. He'll get into more financial details and expectations going forward.