Terrence R. Curtin
Chief Executive Officer at TE Connectivity
Thank you. Sujal. And also, I appreciate everyone joining us today to cover our second quarter results as well as our outlook for the third quarter of fiscal '22.
Before Heath and I take you through the slides details, I want to take a moment to discuss the current environment and frame our performance relative to some of the developments that we've been seeing. Since our last earnings call three months ago, we've seen some elements of the macro environment become more volatile. And specifically, we've seen the invasion of Ukraine as well as COVID lockdowns in certain parts of China. While we've seen volatility increase, we continue to see strong end demand trends across the markets that we serve. And I'm very pleased that, despite the incremental pressures, our teams were able to deliver results in quarter two that were ahead of our expectations.
Our continued strong performance is a result of how we strategically positioned our portfolio around secular growth trends, also the resilience of our global manufacturing strategy, where we have invested to produce in region; and the commitment of the hard work of our employees across the world. I'm very proud of our teams as they continue to overcome broader challenges to effectively serve our customers to both manage and present, while also ensuring we're winning programs that will drive future growth for TE.
I'd like to put our performance into perspective a little bit. We've made significant progress towards our business model over the past couple of years. We've been driving top-line growth, despite market headwinds, executing successfully on cost reduction and footprint consolidation plans, and driving margin and earnings per share growth, despite the supply chain and inflationary pressures that we faced. And if you look at TE versus a pre-COVID time frame of fiscal 2019, our auto sales have increased nearly 20% against auto production declines of approximately 10 million units or 15% percent. And this really illustrates our global strength in the automotive space as well as the content gains we've been talking to you about.
Our Industrial Equipment, and Data and Device businesses have both grown approximately 50% over the same time frame, and this is significantly above the markets that we serve, showing the benefit of where we strategically position these businesses, as well as the strong execution of our teams. I do think it's important to separate signal from noise as you look at TE from an investment perspective. While we are in a very noisy environment near term, the longer-term growth signals across our portfolio remain positive. These signals are secular in nature, giving us confidence that we will continue to perform in line with our business model through cycle as an industrial technology leader. We have all three segments contributing to our performance.
For example, in our Transportation segment, we are of the established global leader for EV connectivity solutions. Over the past year, the value of our design win pipeline grew by over 50%, and we are designed in every major electric vehicle and hybrid platform with customers around the world. This positioning has been driving and we'll continue to fuel our content growth and enable consistent above-market performance in our transportation segment.
If you turn to our Industrial segment, we are in the heart of the Industrial automation trend and have grown our sales at double the rate of capital expenditures, as the markets recovered from COVID. We've been working with industry-leading customers to develop engineered solutions targeting higher growth robotic and safety applications, and this is resulting in the robust growth pipeline that you're seeing.
And in our Communications segment, we are expanding content in high-speed cloud applications and gaining share in artificial intelligence deployments as customers implement workload architectures to make data centers more efficient. And these are just a few of the secular trends that we have positioned the portfolio around, which will drive future growth, and we remain excited about the long-term growth and margin expansion opportunities we still have in front of us.
So now let me highlight a couple of few additional takeaways from today's call. Our second quarter results were record in quarterly sales and adjusted earnings per share, with strong results in each segment. On a year-over-year basis, in the second quarter, we delivered organic sales growth of 8% and adjusted earnings per share growth of 15%, along with adjusted operating margins of 18%. Margins expanded in each segment year-over-year, as our teams are effectively managing pricing and cost in an inflationary environment to drive the margin performance across our businesses.
The other key highlight is that the demand environment continues to be strong, and we'll talk about it, and it's evidenced in our orders, which were $4.5 billion in the quarter. Our book-to-bill was well above 1 for each segment, and it reflects the continued strength across our markets.
The other highlight about our organic performance is that in the second quarter, it shows the strength in the positioning of the portfolio with our Industrial and Communications segment growing over 10% and 20%, respectively, and our Transportation segment growing 5%, despite auto production declines in the quarter. We continue to benefit from the ramp of new electric vehicle platforms, which will continue to drive content outperformance for our Transportation segment.
And the last highlight is that we are expecting our quarter three sales to be around $3.9 billion, and this does reflect continued strong performance. We have a strong demand environment, coupled with the broader volatility. I do want to stress our ability to reduce will remain a key factor in our near-term sales performance.
So let me turn now, and I'll provide some additional color on some key end demand trends, as well as talk about the supply environment.
We are continuing to see broad strength in global capital expenditures that relate to factory automation, cloud and datacenter efficiency, as well as renewable energy sources. End demand for auto remained healthy and significantly higher than what the OEMs can produce, and this provides us up for future auto production increases, as supply chain bottlenecks begin to resolve. While we see a demand environment that remains positive, the invasion of Ukraine and COVID lockdowns in China are new development versus 90 days ago. And let's face it, the supply chain challenges and inflation -- inflationary pressures continue to linger.
On the supply chain, the challenges around material availability inflow, I would tell you, are about the same as 90 days ago. But we have seen an uptick in inflationary pressures. I am pleased with how our teams are continuing to manage the supply constraints to meet our obligations to customers, and they're also working additional price increases to partially offset higher costs, so that we can maintain margin performance in each segment. We believe that we are differentiated with our global manufacturing strategy and ability to produce in region, and this is helping us to enable the growth and share gains across our business during these volatile times.
Now, with this as an overview, let me get into the slides and discuss a few additional highlights on Slide 3. Our quarter two sales of $4 billion were up 7% on a reported basis and 8% on an organic basis. And adjusted earnings per share was $1.81, which was up 15% year-over-year, with both being records, as I mentioned. From a free cash flow perspective, we generated approximately $615 million in the first half and we returned approximately $670 million to shareholders in the second quarter. And we did increase the pace of our buybacks during the quarter.
If I turn from financials for a minute, I'm also impressed that we continue to be recognized for our ESG initiatives with TE been named among the World's Most Ethical Companies by Ethisphere for the eighth consecutive year. I am pleased with our commitment and continued progress along our ESG initiatives, and also our employees are really leaning in and being engaged on these important initiatives across TE.
So let me again touch upon our guidance for the third quarter. We do expect sales of approximately $3.9 billion, and this will be up 1% on a reported basis and 3% on an organic basis versus the prior year. This guidance does include approximately 300 basis points of year-over-year headwinds from the expected COVID-related shutdowns in China that we expect in the quarter. And we do expect adjusted EPS to be approximately $1.75 in the third quarter.
So if you could, I'd like to turn to Slide 4, and I'll get into the order trends and markets a little bit further. At an overall level, our second quarter orders were $4.5 billion dollars with a book-to-bill of 1.13, and it highlights the strong demand that I've mentioned already. While TE is not typically a backlog business, we are in an environment where you need to look at both bookings and backlog to get a full picture of demand. Our backlog is up 40% year-over-year and is up significantly in every segment. Importantly, we continue to see stability in the backlog in each segment, and our customers continue to provide order visibility beyond the current quarter to ensure supply certainty in these ongoing volatile markets.
In our Transportation segment, we saw order levels increased sequentially, influenced by concerns around the recent developments in Ukraine and China. Global auto production was in line with our expectations in the second quarter at approximately 19 million units, and we expect auto production to decline slightly in the third quarter on a sequential basis. The trends around our content remained robust, as we continue to benefit from increased electronification and higher production of electric vehicles. And we expect that electric vehicles to be up approximately 30% this year in production.
Given the volatility we're seeing in global auto production and the comparisons that can resolve as we move through the second half, it is important we look at content per vehicle as and additional long-term metric. Our content per vehicle has expanded from the low 60s range in pre-COVID times to roughly $80 in fiscal 2021. As we look forward, we expect continued expansion in our content per vehicle from the first half to the second half of this year. When you look beyond the near-term noise in the auto supply chain, we continue to see a favorable setup for a longer-term auto production growth, with healthy end demand and dealer inventories that remain extremely low.
Looking at our Industrial segment orders. We saw another quarter of strong orders with a book-to-bill of 1.2. We continue to see an improving backdrop with increased capital expenditures for factory automation, manufacturing capacity and renewable energy, and these trends benefit both our industrial equipment and energy businesses.
We're also continuing to see improving order trends in the comm air as well as favorable conditions in our medical business, and we expect to see favorable year-over-year revenue comparisons in those businesses later in this fiscal year.
And lastly, in Communications, orders continue to reflect strong demand as well. We had a book-to-bill of 1.07. In Data and Devices, we're seeing a robust outlook for cloud capital expenditures, and we continue to gain share. As we mentioned last quarter, we continue to expect softening in our appliance business from the first half to the second half of this year, and just add some color on what we're seeing geographically. And I'll do this on an organic basis sequentially. In North America, our orders were up 12%. In Europe, they were up 16%. And in China, our orders were down 4%.
So with that overview about orders and markets and what we're seeing, let me get into the segment results that you can see on slides 5 through 7, and I'll hit on some of the highlights in each of the segments.
In our Transportation segment, our sales were up 5% organically year-over-year. Our auto business grew 5% organically versus auto production declined in the mid-single digits. This continues to show the separation of our sales performance versus the market, which has been driven by our leading position in electric vehicles and their increased adoption. In commercial transportation, we saw 5% organic growth driven by North America and Europe. Even though the market in China is still going to be down this year, we continue to see significant outperformance in all regions driven by content growth and share gains. And in our sensors business, we were roughly flat organically, and we continue to see strong design win momentum in transportation applications. If you look at earnings in the segment, adjusted operating margins were 18%, as our teams continue to execute well and implement price increases to partially offset the inflationary pressures.
So let me turn to the Industrial segment, where our sales increased 11% organically year-over-year. In the industrial equipment business, our sales were up 27% organically, with double-digit growth in all regions and continued benefits from increased capital spending and factory automation. In energy, we saw 5% organic growth driven by increased penetration in renewable applications. And in our AD&M and medical business, our sales were both roughly flat. And as I said earlier, we expect improvement in both markets and more favorable comparisons as we go forward. At the segment level, adjusted operating margins expanded year-over-year by 280 basis points to 15.3%, driven by higher volume, price actions and strong operational performance.
So let me move to the Communications segment. As you'll see on side, our teams continue to execute well while capitalizing on the growth trends in the markets that we serve. Sales grew 23% percent organically year-over-year for the segment with growth in each business, as you can see on slide. In our Data and Devices business, we saw market outperformance, driven by content growth in high-speed cloud and share gains in artificial intelligence applications, which are aimed at improving energy efficiency in data centers. This continues to illustrate how we are enabling a positive impact on carbon emissions across our portfolio through our products and our technologies.
In our appliance business, we performed ahead of our expectations, and this is despite the expected declines we saw in the China market. We saw growth in North America and in Europe, with continued share gains enabled by our manufacturing strategy to produce close to our customers. This resiliency has proven to be a differentiator as customers navigate the challenges in the macro environment. And from an earnings perspective, our communication teams continues to deliver outstanding performance, with adjusted operating margins of 24%, up 330 basis points versus a strong quarter in the prior year. Because of the heavy lifting we've done in the segment around cost reduction and footprint consolidation, we expect segment-adjusted operating margins to remain above 20% through the second half, even as the appliance market moderates.
So with that as an overview of the segments and the markets, let me turn it over to Heath to go into more details on the financials and our expect going forward.