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

Explicit Guidance:

• Q1 Fiscal 2027 Sales: Guidance set at $5.35 billion, representing a 15% year-over-year increase on both reported and organic bases; includes a $50 million reduction in sales due to expected IEPA tariff refunds.
• Q1 Fiscal 2027 EPS: Adjusted earnings per share expected at approximately $3.30, reflecting 21% year-over-year growth.
• Full Year Fiscal 2027 Organic Growth: Management expects another year of double-digit organic sales growth, targeted at ~12% (similar to Fiscal 2026).
• Full Year Fiscal 2027 Tax Rate: Adjusted effective tax rate expected at 22%.
• Currency Impact: Anticipated slight year-over-year currency headwind for Fiscal 2027.
• Restructuring Expenses: Full-year restructuring charges in Fiscal 2027 projected to be below $100 million (down from $110 million in Fiscal 2026).

Business-Segment Outlook:

• Digital Data Networks (DDN):
  • Revenue Growth: Expect to add over $1 billion in DDN revenue in Fiscal 2027, with the vast majority derived from AI applications; projected to grow >$1 billion annually for an extended horizon.
  • Growth Timing: Over 50% of the FY27 DDN revenue growth is expected to occur in the second half of the fiscal year, following a step-up from Q1 to Q2 and a larger jump in the second half.
  • Power Connectivity: Expects power connectivity within DDN to grow faster than overall DDN revenue, driven by architecture-agnostic needs (e.g., 800V DC, liquid cooling); currently ~30% of DDN revenue.
  • Long-Term Outlook: DDN business anticipated to double again in the next few years; confidence expressed that it will be significantly larger in 4–5 years.
• Transportation (Automotive & Commercial):
  • Automotive: Expect global vehicle production to decline slightly in Fiscal 2027; segment revenue growth targeted at 4–6% driven by data connectivity, powertrain electrification, and vehicle electronification (48V zonal).
  • Humanoid Robots: Anticipated content value of up to $500 per unit; positioned to benefit from early OEM designs alongside automotive supply chain capabilities.
  • Commercial Transportation: Sales grew 18% organically in Q4; continues to see content growth above market, particularly in truck electrification in Asia and improving North American trends.
• Industrial (Energy, Automation, A&D):
  • Backlog: Record backlog levels of ~$8 billion; ~60% of backlog growth attributed to DDN and Aerospace/Defense (ADN).
  • Aerospace & Defense: Strong trends with long lead times contributing to backlog strength.
  • Energy: Continued investment in grid hardening and data center infrastructure driving growth; revenue contribution expected to double in the next few years.
• Product/Technology:
  • CPO & Fiber: Engineering validation ongoing with customers for Chip-to-Fiber (CPO) and fiber-attached technologies; expected to expand addressable market alongside copper.
  • Hybrid Solutions: Continued adoption of hybrid copper/fiber interconnects (e.g., NVIDIA/Cisco specs) expected to increase total connectivity content regardless of specific technology mix.

Market and Competitive Outlook:

• AI Infrastructure: Belief that current AI infrastructure build-out is in early stages; future architectures will require both copper and fiber connectivity, expanding total addressable market (TAM).
• Copper vs. Fiber: Expectation that copper TAM will grow by >100% as AI evolves toward inference and edge computing; both technologies viewed as complementary rather than substitutive for the majority of use cases.
• Market Share: Anticipate maintaining or expanding share in optical connectivity similar to existing copper positioning.
• Order Momentum: Orders grew 29% YoY in Q4; industrial segment orders grew 47%, DDN orders grew >20% in the segment.

Macro / Industry Outlook:

• Inflation & Costs: No anticipated relief on inflationary pressures for Fiscal 2027, specifically regarding resins, metals, and freight costs; pricing actions viewed as an offset to inflation rather than a primary growth driver.
• Vehicle Production: Global production expected to remain slightly down across all regions in Fiscal 2027, with specific nuances: Asia showing strong content performance, Europe improving on EV traction, and North America remaining challenged.
• Regulatory: IEPA tariff refunds continue to impact financials; expecting $50 million additional refund in Q1 FY27.

Strategic Initiatives:

• M&A: Pending acquisition of Astrodyn TDI expected to close by the end of the first quarter of Fiscal 2027.
• Capacity & Engineering: Continued investment in capacity and engineering resources to support design wins and expected growth in DDN and industrial segments.
• Capital Allocation: Strong cash generation supports continued share repurchases and dividends; $1.6 billion committed to bolt-on acquisitions in FY26.

Risks and Headwinds to Outlook:

• Input Cost Inflation: Elevated costs for resins, metals, and freight could pressure margins if productivity gains or pricing actions are insufficient.
• Vehicle Production Trends: Global vehicle production decline poses a headwind to absolute volume in the transportation segment, though mitigated by content growth.
• North American Auto Market: Identified as a challenging environment with slower momentum compared to Asia and Europe.
• Technology Evolution Uncertainty: Customer experimentation with various architecture paths (e.g., 800V DC, liquid cooling, optical vs. copper) creates a non-linear adoption curve, though viewed positively for content growth.
• Humanoid Robot Scale: The actual volume of humanoid robot production remains a "wild card" and highly uncertain over a 5–10 year horizon.

Management Tone on the Future:

• Confidence: High confidence in the ability to deliver double-digit organic growth in FY27, driven by record backlog and strong order momentum.
• Strategic Positioning: Repeated emphasis on being at the "intersection of data and power trends," viewing TE as a key enabler for both AI infrastructure and physical AI applications.
• Long-Term View: Expressed strong conviction that the DDN business will double again in the coming years and grow by >$1 billion annually for an extended period.
• Operational Execution: Confidence in productivity initiatives and pricing power to manage inflationary headwinds while maintaining margin expansion.

Miscellaneous:

• Quarterly Shape: Q1 FY27 sales expected to be above seasonal norms due to strength in the industrial segment, which typically exhibits seasonality.
• Free Cash Flow: Strong conversion of adjusted net income to free cash flow maintained (100% in FY26); expected to continue supporting capital deployment.
• Backlog Aging: DDN backlog is being built to ensure capacity is in place for customer ramps, serving as a leading indicator of revenue recognition in future periods.