TE Connectivity Q1 Earnings Call Highlights

Key Points

• TE reported a beat in fiscal Q1 with $4.7 billion in sales (up 22% reported, 15% organic), record adjusted EPS of $2.72 (up >30% YoY), record orders of $5.1 billion (book-to-bill 1.1), and $608 million free cash flow while returning roughly 100% of FCF to shareholders.
• AI momentum drove Digital Data Networks growth of 70% YoY and TE raised its fiscal 2026 AI revenue outlook by about $200 million, prompting management to increase planned CapEx to roughly 6% of sales to support customer program ramps.
• For Q2 TE expects sales of ~$4.7 billion and adjusted EPS around $2.65 (~20% YoY), with the quarter shaped by stronger Industrial Solutions, typical global auto seasonality (a ~3 million unit production decline), and ongoing metal inflation being managed via pricing while maintaining an expected ≥100% FCF conversion for FY26.

TE Connectivity NYSE: TEL reported first-quarter fiscal 2026 results that management said reinforced the long-term strategy and growth framework it outlined at its Investor Day last quarter, pointing to broad-based demand tied to rising needs for data and power connectivity. The company posted double-digit growth in both operating segments, record quarterly orders, and record adjusted profitability, while raising its expectations for artificial intelligence-related revenue and increasing planned capital spending to support customer program ramps.

First-quarter results beat guidance as orders hit a record

For the fiscal first quarter, TE reported sales of $4.7 billion, up 22% year-over-year on a reported basis and 15% organically. Chief Executive Officer Terrence Curtin said both segments exceeded internal expectations and contributed to sales coming in above guidance.

The company delivered record adjusted earnings per share of $2.72, which Curtin said rose more than 30% from the prior year and was above guidance. Adjusted operating margin was 22%, up 180 basis points from the year-ago period. TE also generated free cash flow of $608 million (with $865 million of cash from operations) and returned roughly 100% of free cash flow to shareholders through buybacks and dividends during the quarter.

Orders increased by more than $1 billion year-over-year to a record $5.1 billion, producing a 1.1 book-to-bill ratio. Curtin said order growth was broad-based, with double-digit organic order growth in all regions.

Second-quarter outlook reflects segment mix and auto seasonality

For the fiscal second quarter, TE expects sales of about $4.7 billion, representing 13% reported growth year-over-year and 6% organic growth. Adjusted EPS is expected to be around $2.65, which management described as approximately 20% growth year-over-year.

Executives attributed the sequential dynamic to divergent segment trends: management expects the Industrial Solutions segment to grow sequentially, partially offset by typical global auto seasonality in Transportation Solutions. Curtin cited a roughly 3 million unit decline in global auto production from fiscal Q1 to Q2 as a key factor in the quarterly cadence, noting the company’s full-year view of auto production remained around 88 million units.

Chief Financial Officer Heath Mitts added that the sequential step-down in EPS versus flat sales includes about $0.04 to $0.05 of impact from taxes and higher interest expense between Q1 and Q2.

Industrial Solutions led growth, with AI driving Digital Data Networks

Industrial Solutions sales rose 38% year-over-year and 26% organically. Segment adjusted operating margin expanded by more than 500 basis points to 23%, which management attributed to strong operational performance and volume leverage.

• Digital Data Networks (DDN): Curtin said the business grew 70% year-over-year and that AI revenue came in higher than expected. He noted that customer awards were building backlog for the second half of fiscal 2026 and into 2027. TE now expects AI revenues in fiscal 2026 to be $200 million higher than its view from 90 days earlier, with growth expected across every hyperscale customer.
• Automation and Connected Living (ACL): The business grew 12% organically year-over-year. Curtin said TE is seeing recovery in factory automation applications with improvement across regions, though areas such as residential HVAC and appliances remained soft.
• Energy: Sales rose 88%, including the impact of the Richards acquisition. Organically, sales increased 15%, driven by customer investments in grid hardening and renewables, with strong growth in both the U.S. and Europe.
• Aerospace, Defense & Marine (AD&M): Sales grew 11% organically, supported by favorable demand and supply chain improvements, according to Curtin.
• Medical: Sales increased 5% organically, which management said was in line with expectations.

Transportation Solutions grew, while commercial markets showed signs of recovery

Transportation Solutions sales increased 10% year-over-year and 7% organically. Adjusted operating margin was above 21%, which Curtin said was in line with expectations.

In Automotive, sales grew 7% organically, driven by content gains in Asia and Europe. Curtin said the company’s growth above market was at the high end of its four to six point target range, supported by data connectivity, e-mobility, and broader “electronification” trends.

Commercial Transportation delivered 16% organic growth year-over-year, driven by Asia and Europe. Curtin said the market had been in a cyclical decline for two years but is now recovering outside the United States, while North America remained a key variable that management is monitoring. He also said TE expects global truck builds to be up about 200 basis points for the year and that the company expects to outgrow that.

TE’s Sensors business was essentially flat, consistent with expectations.

Capital spending increases to support AI ramps; metals inflation addressed through pricing

Mitts said TE is increasing fiscal 2026 capital expenditures to support the “growing pipeline of customer awards for AI programs,” with CapEx now expected to be closer to 6% of sales. He said spending is tied to specific program wins and will largely go into tooling in existing production facilities, primarily in Asia and some in North America. Mitts also reiterated expectations for at least 100% free cash flow conversion in fiscal 2026 and said TE’s balance sheet provides flexibility for investment and M&A.

On costs, executives said they are seeing inflation in metal-related inputs, TE’s largest purchase category, and are working to pass increases through pricing or other mechanisms. Management said the company’s ability to pass through pricing has improved over time, with the timeline depending on whether products move through distribution channels or direct OEM arrangements.

In other financial details, Mitts reported GAAP operating income of $963 million, which included acquisition-related charges, restructuring and other charges, and amortization. He said TE continues to expect approximately $100 million of restructuring charges for fiscal 2026. The adjusted effective tax rate was about 22% in Q1 and is expected to be similar in Q2, with a full-year adjusted tax rate of roughly 23%.

About TE Connectivity NYSE: TEL

TE Connectivity NYSE: TEL is a global industrial technology company that designs and manufactures connectivity and sensor solutions used to enable the flow of power and data in a wide range of applications. Its product portfolio includes electrical connectors, cable and wire harness assemblies, sensors, relays and switches, fiber-optic and coaxial interconnects, and other passive and active components that provide mechanical and electrical connections in complex systems.

The company's products and engineered solutions serve diverse end markets such as automotive and transportation, industrial equipment, data communications and networks, aerospace and defense, medical devices, and energy.

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