Terrence R. Curtin
Chief Executive Officer and Board Member at TE Connectivity
Thanks, Sujal. And thank you, everyone, for joining us today to cover our results for first fiscal quarter, along with our outlook for our second quarter. Before, Heath and I take you through the details on the slides, I do want to take a moment to discuss our performance within the backdrop of the current environment, along with what we're seeing since our call 90 days ago.
Clearly, we're all experiencing a lot of moving pieces in the global macro-environment. While this volatility is creating cyclicality in specific end-markets, we continue to benefit from secular trends leading to outperformance across many of the markets we serve. The strategic positioning of our portfolio and our team's execution enabled us to deliver sales and adjusted earnings per share that exceeded our guidance, and we also delivered strong free cash flow in the quarter. We generated high-single digit organic growth year-over-year with organic growth in all businesses in our Transportation and Industrial Solution segments. The growth in these two segments offset incremental weakness in our Communications segment.
While we can't control the macro-environment or the headwinds from currency exchange effects, we are taking actions on the elements of our business model that we can control. Our Industrial segment continues on its journey to expand margins towards its high-teens margin target, and we'll talk through that in the call, as well as we continue to implement price increases to offset inflation in our Transportation segment. In addition, we continue to drive cost reduction and footprint consolidation efforts and are now implementing additional structural reductions in Communications to ensure we stay in line with the target margins in that segment as we go forward.
So, let me provide some additional color on our markets and other updates since our call 90 days ago. Our view of the Transportation end-markets remains unchanged. Our growth will continue to be driven by content outperformance from our global leading position in electric vehicles and electronification trends even in an environment where auto production, we expect to remain flat this year. Our view of the Industrial end-markets is also consistent with our prior view. We are seeing continued strong recovery in the commercial air and medical markets, as well as continued momentum in renewable applications in our energy business. In our Communications segments, this is where we're seeing changes versus our prior view. Last call, we highlighted that we were expecting moderation in cloud demand in our data and devices business, and we're now seeing incremental weakness in enterprise and telecom applications, along with inventory adjustments across the broader supply chain that serves the data and device market. And as typical, our expectation is that this inventory adjustment will last a few quarters.
Turning to orders, from a Company perspective, our book-to-bill level remained below 1 as we expected due to the strong backlog coverage from our customers and increased stability in the broader supply chain. And I do want to highlight that our backlog remains near record levels and is almost 2 times higher than we were in pre-COVID.
Lastly, I do want to comment on the inflationary environment and just want to stress that we continue to be in an inflationary environment, and we negotiated additional price increases with our customers in Transportation, which will take effect as we move through this year. These increases will partially offset these inflationary costs and we expect to have positive contributions to the Transportation margins later in '23 from the price-cost dynamic.
So with that as a quick overview, let me now get into the slides and discuss additional highlights, and we'll start on Slide 3. Our first quarter sales were $3.8 billion, and this was up 8% organically year-over-year. We saw market outperformance in Transportation and continued growth and recovery in the Industrial segment, which offset the sales decline in our Communications segment. Our sales were up 1% year-over-year on a reported basis and was impacted by approximately $300 million of currency exchange headwinds. Order backlog trends continue to reflect a strong demand environment in both the Transportation and Industrial segments, and I'll get into more details about order trend dynamics by segment on the next slide.
Adjusted earnings per share was ahead of our guidance at $1.53 and included $0.25 of currency exchange and tax headwinds versus our prior year. Adjusted operating margins came in as expected at 16.2%.
Our free cash flow was strong at $400 million, and we returned approximately $410 million to shareholders. And we'll continue to be aggressive with share buybacks, taking advantage of market dislocations and our share price.
As we look forward, we are expecting second quarter sales to be approximately $3.9 billion and adjusted earnings per share to be around $1.57. Our guidance represents sequential growth in sales, driven by the Transportation and Industrial Solutions segments, and this will offset a sequential decline in our Communications segment. Our teams remain focused on how we innovate with customers around the key secular trends that reposition TE around such as electric vehicles, renewable energy and datacenters, just to name a few.
Now, I would like to move away from the financials just for a moment, and I'm pleased that TE was named to the Dow Jones Sustainability Index for the 11th consecutive year. This recognizes our positive environmental, social and governance policy and puts TE in the top 10% of the largest 2,500 companies in the S&P Broad Market Index based upon long-term ESG criteria.
So, let me get into the order trends and markets, and I would appreciate if you could turn to Slide 4. For the first quarter, our orders were $3.6 billion. And I think the key takeaway by segment is that we are seeing stability in Transportation, strength in the Industrial Solutions segment, and we've seen incremental weakness in Communications. I also want to highlight that as you look at this slide and you compare orders versus the prior year, there are some key moving pieces I want to highlight. First off is, while currency impacts sales, they also do impact orders. And so, the compare -- we're comparing different currency rates year-on-year. And the prior year also has higher-than-normal order levels due to the broad supply chain challenges we were dealing with. I do also want to highlight, as I stressed earlier, that our backlog remains at near-record levels.
So, let me get to the orders by segment. Our Transportation book-to-bill was 0.95, reflecting ongoing stable environment and strong backlog levels. On an organic basis, our Transportation orders grew 9% year-over-year and it reinforces our ongoing strong content growth momentum in what is essentially a flat production environment.
In our Industrial segment, the book-to-bill of 1.02 reflects strong demand across most of the served end-markets we're in. We continue to see momentum around renewable applications in energy, and we are also continuing to see improving order trends in commercial air and medical as those markets continue to recover.
Turning to Communications, the orders reflect the incremental weakness in data and devices that I talked about. And the other thing I want to highlight on the orders is, the appliance market is moderating as we expected and we've been talking to you about. As we continue to move through this year and continue to see supply chain improvements and a reduction of backlog levels, we expect book-to-bill levels to remain below 1, which is consistent with what we've been talking to you about.
So, with that as a brief overview of orders, let me now briefly discuss year-over-year segment results in the quarter that are laid out on Slide 5 through 7, and you can see the details on each of those slides. Starting with Transportation, sales growth was strong. It was up 14% organically year-over-year with organic growth across all businesses.
Our auto business grew 20% organically versus auto production that was roughly flat versus the prior year. The outperformance was driven by our global leading position in electric vehicles. We're benefiting from electronification trends in the vehicle, as well as some benefits from our pricing actions. While overall auto production is expected to be flat for this fiscal year, we expect production of hybrid and electric vehicles to grow approximately 25% of the total global auto production in 2023. And as you know, we generate two times the content in EV platforms versus combustion engine vehicles. So we expect our content per vehicle to continue to expand as we move through the year.
In the commercial transportation business, we saw 3% organic growth, driven by growth in North America and Europe, and this growth was partially offset by declines driven by a continued China market that's weak. And in our sensors business, we grew 3% organically, and that was driven by our growth in automotive applications.
At the Transportation segment level, adjusted operating margins were 15.8% as expected, reflecting the lag in the timing of price actions to offset inflation. Over the past three to four months, we took incremental cost actions and are implementing additional price increases to improve margin performance. We expect adjusted operating margins to improve sequentially in the quarter two and get back to high-teens in the second half of this year, as we mentioned last quarter.
Now, let me turn to the Industrial segment. In this segment, sales increased 7% organically year-over-year with organic growth across all businesses. Our industrial equipment business was up 3% organically, driven by continued benefits from automation applications. Our AD&M business was up 14% organically with growth driven primarily by ongoing improvement in the commercial air market. In energy, we saw 8% organic growth with continued momentum in renewable applications. And our medical sales were up 5% organically, and we're benefiting from the recovery in interventional procedures. As you can see on the slide, from a margin perspective, we expanded adjusted operating margin by almost 200 basis points, and we continue to make progress towards our high-teens margin target for this segment.
Now, let me turn to Communications, and in this segment, our sales were down 11% organic. The appliance market is down as we expected. And as you would expect, with the benefit we got during COVID, as it turns, we saw declines across all regions in this business. Our data and device business was down 6% organically, and this was driven by broad market weakness, which I already discussed. In the Communications segment, adjusted operating margins were 17%, driven by lower volume, including declines in higher-margin distribution sales. We are taking additional cost actions to improve margin performance in this segment as we go forward. We will balance these actions with investments for growth as we continue to see strong design win momentum in next-generation platforms serving the cloud datacenter market.
So, with that as a quick overview of our performance by segment, let me turn it over to Heath and he will get into more details on the financials as well as our expectations going forth.