Terrence R. Curtin
Chief Executive Officer and Board Member at TE Connectivity
Thank you, Sujal, and we appreciate everyone joining us today. As I typically like to do at the beginning of these calls, before we get into the slides, I'd like to spend some time discussing our performance along with some of the developments that we're seeing since our call just 90 days ago.
While there are number of external data points showing cross currents from global economic uncertainty, we continue to perform well and you'll see this both in our fourth quarter and fiscal year 2022 results. Our performance came in ahead of our guidance and continues to demonstrate the benefits for how we strategically positioned our portfolio around secular growth trends as we continue to outperform our markets.
We also are demonstrating operational performance and serving our customers and delivering strong financial results despite the broader macro challenges. Our backlog remains in our all-time high levels and our overall order levels imply solid demand across the majority of the markets we serve. Within this backdrop, we have some markets that are growing, some that are still in recovery mode back to pre-pandemic levels and others that are showing signs of moderation.
At the same time, we're being negatively impacted by a stronger dollar, which will continue to be a significant headwind into 2023. I also want to highlight that our teams continue to proactively implement price increases to keep up with ongoing inflationary pressures. I am confident in our ability to execute in the short term as we navigate these challenges and I am excited about the long-term opportunities as we go forward and Heath and I will go into more details on these moving pieces as we discuss our performance and outlook on the call.
To summarize our financial performance, we delivered strong results again in the fourth quarter with double-digit organic growth and double-digit adjusted earnings per share growth year-over-year. For the full year, our adjusted sales and adjusted EPS were records with sales up 12% organically and adjusted earnings per share of 13% versus the prior year despite headwinds from foreign currency exchange and inflationary pressures.
With this quick backdrop, let me give you some details on what we're experiencing. First, on the orders front. We're seeing some puts and some takes across the different end markets we serve and this is reflected in our orders and our backlog. With the higher backlog levels that we have and the stability we're starting to see in our supply chain for the first time since COVID, it is reasonable to see our book-to-bill below 1 in the quarter. Our backlog remains strong at $6 billion which is almost two times higher than pre-COVID levels.
If you click down on orders by segment, transportation and industrial are continuing to show positive order trends. In transportation, OEM auto production is still constrained by supply chain limitations and then demand remains above current levels of production, so we continue to have a favorable outlook for this market long-term on both production as well as the content growth. In the industrial segment, we continue to expect growth in Com Aer and medical markets as reflected in our orders along with the benefits from wind and solar applications in our energy business. Renewables now represent 20% of our energy sales and the Com Aer market is still recovering to pre-COVID levels and both of these will be growth areas within the industrial segment in 2023.
In our communication segment, we are seeing orders decline in the appliance market. Based upon recent developments, we have seen our orders to cloud customers moderate, reflecting lower capital spending along with inventory adjustments in the data center supply chain. We also continue to experience inflationary pressures and this is particularly true for resins that we use for molding as well as higher energy cost that impact our manufacturing operations globally. We are continuing to implement additional price increases to offset these inflationary costs and expect to have a positive contribution to margin later in '23 from the price cost dynamic.
And the last thing I want to highlight before we turn to the slides, and I think we've consistently demonstrated. We will take actions to ensure our cost structure is in line with what we're seeing in the market environment and Heath will provide additional details on this in his section.
So now let's get into the slides and I'd ask you to turn to Slide 3 and I'll cover some additional highlights for the fourth quarter and the full year as well as get into our first quarter outlook. As Sujal mentioned earlier, our fourth quarter included an extra week. Our fourth quarter sales were $4.4 billion which were up 14% on a reported basis, our adjusted operating margins were 17.4% and our adjusted earnings per share was $1.88, and this was up 11% year-over-year. If you include the extra week to get to a better apples-to-apples comparison,our fourth quarter sales were slightly over $4 billion and this was up 12% organically year-over-year and adjusted earnings per share were $1.75.
A key thing to highlight in the fourth quarter is that we delivered record free cash flow of $745 million in the quarter which demonstrates our strong cash generation model, and we returned over $500 million to shareholders. I do want to highlight, and we've discussed it with you previously. Earlier in the year, we did increase inventory levels to deal with supply chain volatility and ensure we can meet the needs of our customers. As we have begun to see our supply chain improving, we decided to get our inventory more in line and reduce our inventory by approximately $350 million in the quarter and you'll see our days on hand were actually down year-on-year in the fourth quarter.
We do believe this was prudent balance sheet management in the current environment and this action improved our free cash flow in the quarter but does pressure our margin in the short term.
So now, let me touch upon a few additional highlights for full-year results. Our fiscal 2022 results were record at $16.3 billion and this is up 9% year-over-year on a reported basis, despite currency exchange headwinds of approximately $760 million. Sales were up 12% organically with industrial and communications up double-digits and transportation up high single-digits demonstrating the strategic positioning of our portfolio.
Adjusted earnings per share was a record at $7.33 which was up 13% year-over-year and adjusted operating margins were 18.2% with expansion in the industrial and communications segments versus the prior year. For the full year, we returned $2.1 billion to shareholders between share buybacks and dividends as our focus was on our organic investment in the business as well as return of capital to our owners.
Now with as the wrap-up of the financials for 2022, let me touch upon our first quarter guidance, and I want to frame this out by incorporating some of the moving pieces I already highlighted for you. I do want to make sure we have the right baseline together for guidance, so when you look at this the year-over-year comparison would be against $3.8 billion of sales in the first quarter of fiscal '22 and the sequential comparison would be against the 13-week sales in quarter four $4 billion.
So if we look at it going back to quarter one of '22, I mean sorry, '23, we do expect sales of approximately $3.75 billion and this sales in the first quarter of '23 will be up 9% organically and down slightly on a reported basis year-over-year despite approximately $400 million of FX headwinds. Adjusted earnings per share is expected to be approximately $1.50 which includes year-over-year headwinds of approximately $0.25 from currency exchange and a higher tax rate of 21% which will be up from a year ago. When you look at our guidance sequentially versus the 13-week $4 billion, we are declining by $300 million in sales and $0.25 in EPS. Roughly half of our top-line sequential decline is from foreign currency with the remaining balance split between typical seasonality and the decline in the communications volume due to end-market moderation. The EPS decline is driven by foreign exchange and volume declines I just mentioned as well as a temporary impact from the proactive inventory reductions that we drove in the fourth quarter.
While we have some near-term pressures that are non-structural, we have been making progress on what we can control, with our teams driving price increases this past year to partially offset the increasing inflationary pressures. As we've mentioned in the past in transportation, there is a lag between inflation and our ability to recover through price. We have implemented additional price increases which should get transportation margins back up into the high teens sometime in the second half of '23.
While we are working through the cross-currents we are experiencing, one thing that has not changed is the benefit we continue to see from the secular trends in our markets and the outperformance we're generating from content growth. We are benefiting from our position in electric vehicles, smart factory applications including automation, renewable energy and high-speed cloud and artificial intelligence applications. We remain committed to our business model and long-term value creation through growth, margin expansion as well as driving our strong cash generation model.
So with that, wrapping up the highlights slide. Let's turn to Slide 4 and I'll share some more details on orders. For the fourth quarter, our orders were $4.3 billion and this reflects resiliency in both transportation and industrial and also demonstrates moderation in our communications segment. Our backlog of $6 billion is up 11% year-over-year and I want to emphasize that we are seeing very little impact from push-outs or cancellations from our customers.
In transportation, we had a book-to-bill of 1.03 along with a strong backlog position. This reflects favorable demand patterns. End demand for auto continues to be higher than what OEMs can currently produce, providing a favorable backdrop for production increases as our customers' supply chain bottlenecks begin to resolve and dealer inventory get back to historical levels.
Our content growth remained strong with content per vehicle expanding in fiscal '22 to over $80 per vehicle from the $60 range of pre-COVID. We do expect further content expansion due to our global leadership position and increased adoption of electric vehicles globally.
In our industrial segment, we had a book-to-bill of 1.01. Year-over-year order growth was driven by both AD&M and our medical businesses as these businesses continue to recover from pre-pandemic levels. And in our communications segment, orders declined year-over-year and sequentially reflecting expected decline in appliances and moderation and data and devices as the data center supply chain adjust inventory levels for its cloud customers. Despite this market cyclicality, we expect to continue to outgrow the market in the data and devices business due to share gains and benefits from high-speed and AI implementations in the data center and cloud.
Now let me provide a little color of what we're seeing in order geographically. On a 13-week organic basis by region, we saw year-over-year growth of 6% in China and Europe while North America was essentially flat. On a sequential basis, we saw orders grew 18% in China with single-digit declines in Europe as well as in North America.
So with that as a backdrop of orders and backlog, let me turn it over to Heath and he'll get into the segment highlights as well some information on the financials.