TE Connectivity Fourth Quarter and Final Year Earnings Webcast - TE CONNECTIVITY PLC

Financial Performance:

• Full Year 2026 sales reached nearly $20 billion, up 15% reported and 12% organically; Q4 2026 sales were $5.3 billion, exceeding guidance.
• Adjusted earnings per share (EPS) grew 24% YoY to $11.52 for the full year, with Q4 adjusted EPS at $3.14 (up 21%).
• Adjusted operating margins expanded 120 basis points YoY to 22% for the full year and 22.1% in Q4.
• Free cash flow for FY2026 was $3.4 billion (100% conversion of adjusted net income), with strong Q4 generation of $1.2 billion.
• Cash from operations totaled $4.5 billion; $2.8 billion returned to shareholders via buybacks/dividends and $1.6 billion allocated to acquisitions.
• Q4 revenue included an $87 million reduction due to IEPA tariff refunds, with an additional $50 million reduction expected in Q1 2027.

Guidance and Future Outlook:

• Q1 2027 revenue guidance is $5.35 billion (15% YoY growth) with adjusted EPS around $3.30 (21% YoY growth).
• Management expects double-digit organic sales growth of ~12% in fiscal 2027, driven by broad-based momentum.
• Digital Data Networks (DDN) revenue is projected to grow by over $1 billion in fiscal 2027, with growth back-weighted to the second half.
• Full-year FY2027 adjusted effective tax rate is estimated at 22% (vs. 21% in FY2026).
• Currency is expected to provide a slight headwind in FY2027 compared to the tailwind in FY2026.
• Restructuring charges for FY2027 are anticipated to be under $100 million (FY2026 was $110 million).

Business Segments and Product Lines:

• Industrial Segment: Q4 sales grew 20% organically; strong performance in Digital Data Networks (DDN), Automation, Connected Living, Energy, and Aerospace/Defense.
• Digital Data Networks (DDN): Orders grew ~70% in FY2026; business expected to double in size again in the next few years, targeting >$1B annual growth. Growth driven by AI infrastructure, power connectivity (30% of DDN), and evolving architectures (800V DC, liquid cooling).
• Energy Business: Achieved 12% organic growth in Q4 (18% for FY2026), fueled by grid hardening and data center build-outs.
• Transportation Segment: Overall sales grew 8% reported/7% organic. Automotive grew 6% organically despite global production declines; Commercial Transportation surged 18%.
• Humanoid Robotics: Identified as a new growth vector with potential content up to $500 per unit, leveraging automotive and industrial connectivity expertise.
• Acquisitions: Pending Astrodyn TDI acquisition expected to close by end of Q1 2027; earlier bolt-on acquisitions expanded optics and power filtering markets.

Market and Competitive Landscape:

• TE is positioned at the intersection of accelerating AI data/power trends, benefiting from infrastructure investments ranging from the grid to the chip.
• DDN backlog grew ~30% YoY to $8 billion; hyperscale customers are securing capacity, serving as a strong growth indicator.
• AI Trends: Shift towards inference and agentic AI drives demand at the edge; architecture evolution requires both copper and fiber, with TE supplying hybrid solutions (e.g., recent NVIDIA/Cisco spec).
• Automotive: Content growth outpaces market in Asia and Europe; North American production remains challenging but commercial transportation is recovering.
• Competitive Position: Strong design wins with hyperscalers and OEs; expanding TAM through optical technology (RAMP Photonics) and power connectivity.

Risks and Challenges:

• Inflation: Persistent headwinds on resin, metal, and freight costs are expected to continue into FY2027, limiting margin expansion levers.
• Production Volatility: Global vehicle production expected to decline slightly in FY2027, though TE expects to grow via content penetration.
• Macro/Economic: Elevated interest rates and gas prices pose risks to broader economic activity, particularly in North American industrial transportation.
• Technology Evolution: Constant debate and experimentation between copper vs. fiber architectures require continuous engineering adaptation.

Management Commentary and Tone:

• Tone was highly confident and optimistic, emphasizing "strong execution," "record results," and positioning TE as a primary beneficiary of AI and infrastructure build-outs.
• Management highlighted the "broader than AI" growth story, with non-AI trends contributing half of FY2026 sales growth.
• CEO Terry Curtin emphasized the long-term potential of the DDN business to double again in size over the next few years.
• CFO Heath Mitz noted the business remains "ahead of guidance" with disciplined capital allocation and robust cash generation.

Analyst Questions and Answers:

• DDN Architecture: Management clarified that 30% of DDN revenue is power (agnostic to tech changes) and expects power connectivity to grow faster than overall DDN; copper and fiber will coexist, expanding TAM.
• Backlog/Seasonality: Q1 2027 will build above seasonal norms due to industrial segment strength; backlog growth is heavily concentrated in DDN and Aerospace/Defense.
• Copper vs. Fiber: Copper addressable market expected to grow >100% as AI moves to the edge/inference; RAMP Photonics validation is underway with hyperscalers for fiber-to-chip solutions.
• Humanoid Robots: Content per unit varies by complexity; TE leverages automotive supply chain capabilities (charging, motors, data) and has strong China presence.
• Margins: Management expects margin consistency year-over-year; pricing mechanisms (metal riders, backlog repricing) are used to offset inflation, but significant price hikes are not the primary driver.
• DDN Revenue Shape: FY2027 DDN growth will accelerate in Q2 and step up significantly in H2 as customer programs ramp.

Other Key Points:

• TE delivered record sales, orders, margins, and free cash flow in FY2026.
• The company is investing in capacity and engineering resources to support the anticipated growth in AI and data center infrastructure.
• Recent industry specifications (e.g., NVIDIA/Cisco) highlight the shift toward hybrid optical/copper solutions, validating TE's technology roadmap.
• Commercial aerospace and defense continue to show strength, contributing to the diverse growth portfolio.
• The "three pillars" of future automotive growth are data connectivity, powertrain electrification, and vehicle electronification.