TE Connectivity targets 17% sales growth for Q1 2026 as AI momentum accelerates

Earnings Call Insights: TE Connectivity (TEL) Q4 2025

MANAGEMENT VIEW

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CEO Terrence Curtin reported continued momentum with record quarterly and full-year figures for sales, earnings, and free cash flow, emphasizing, "our strong momentum is continuing with quarterly and full year records for sales, earnings and free cash flow in what continues to be an uneven macro environment." Curtin highlighted portfolio strength in secular growth areas, operational resilience, and in-region manufacturing investments supporting ongoing performance into fiscal 2026.

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Curtin announced Q4 sales at $4.75 billion, representing 17% reported and 11% organic year-over-year growth, with both business segments outperforming guidance. Orders rose to $4.7 billion, a 22% year-over-year and 5% sequential increase. Adjusted EPS reached $2.44, up 25% from the prior year, while adjusted operating margins improved to 20%. Free cash flow for the quarter totaled $1.2 billion.

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Curtin stated, "Full year sales were a record at $17.3 billion, growing 9% on a reported basis and 6% on an organic basis." The Industrial segment saw 24% reported and 18% organic growth, driven by demand for AI and energy infrastructure applications. Transportation strength, particularly in Asia, contributed to record earnings and margin expansion.

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Curtin described capital deployment flexibility, noting over $2 billion returned to shareholders and $2.6 billion in bolt-on acquisitions during the year.

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CFO Heath Mitts stated, "For the quarter, adjusted operating income was $943 million with an adjusted operating margin of approximately 20%." Mitts reported Q4 adjusted EPS of $2.44, GAAP EPS of $2.23, and an adjusted effective tax rate of 21.4%. Fiscal 2025 free cash flow reached $3.2 billion, with over 100% conversion to adjusted net income. Mitts confirmed a change in non-GAAP reporting for fiscal 2026 to exclude intangible amortization expense, impacting future margin presentation.

OUTLOOK

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Curtin shared, "We are expecting our first quarter sales to be $4.5 billion, reflecting sequential seasonality that we typically see and increasing 17% year-over-year on a reported basis and up 11% organically. We expect adjusted earnings per share to be around $2.53 in the first quarter, and this will represent growth of 23% year-over-year."

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Management expects global auto production between 87 million and 88 million units in fiscal 2026, forecasting content growth via data connectivity and electrified powertrain advances.

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Mitts stated, "We expect our adjusted effective tax rate in the first quarter to be approximately 22%, with the full year being similar to last year at approximately 23%."

FINANCIAL RESULTS

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Q4 sales were $4.75 billion, a 17% increase year-over-year. Adjusted EPS was $2.44, up 25% from the same period last year. Adjusted operating margins improved to 20%. Free cash flow for the quarter reached $1.2 billion.

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Full-year sales hit $17.3 billion, rising 9% reported and 6% organically. Adjusted operating margins for the year were 20%, up 80 basis points. Adjusted EPS for fiscal 2025 was $8.76, a 16% increase. Free cash flow reached $3.2 billion.

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The Industrial segment grew 34% in Q4, with Digital Data Networks up 80% year-over-year. AI-related revenues exceeded $900 million for the year. The Energy business saw 83% growth, with 24% organic growth, and Aerospace, Defense and Marine sales rose 7% organically.

Q&A

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Scott Davis, Melius Research: Asked about AI revenue progression and margin scale. Curtin responded, "We generated over $900 million of AI sales in '25... we tripled our revenue in this product set... we have strong orders. We have the momentum and we have the design win traction."

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Joseph Spak, UBS: Inquired about AI power elements and CapEx for 2026. Curtin confirmed growth in both high-speed and power interconnects, while Mitts added capital investment will likely be in line with prior year increases.

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Mark Delaney, Goldman Sachs: Requested insights on non-DDN demand trends and fiscal 2026 outlook. Curtin observed stability and improvement in order levels across segments, particularly noting, "the environment does feel better than 90 days ago."

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Wamsi Mohan, BofA: Asked about gross margin potential and accounting changes impact. Mitts explained gross margins now run at about 35%, with the new accounting potentially raising recast margins by 100 basis points.

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Amit Daryanani, Evercore ISI: Questioned DDN segment growth drivers. Curtin attributed growth to program ramp wins and broadening cloud CapEx, noting the blurring lines between AI and non-AI cloud business.

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Luke Junk, Baird: Sought clarification on Transportation orders and content growth. Curtin said, "as we work through these Western declines and they become more flattish, I do view you're going to see content per growth in every region."

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Colin Langan, Wells Fargo: Asked about EV adoption impact on auto content growth. Curtin responded, "The biggest driver of it is Asia, and that's full steam ahead... features, comfort, and safety all add content."

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William Stein, Truist Securities: Probed margin dynamics amid revenue growth. Mitts said, "we've kind of been holding this roughly 30% flow-through here for a while... fundamentally, there's nothing that drags on us."

SENTIMENT ANALYSIS

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Analysts pressed for details on AI momentum, margin expansion, CapEx needs, and segment-specific growth, displaying a generally positive but probing tone, especially around sustainability and market share in AI.

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Management maintained a confident and upbeat tone in prepared remarks and Q&A, repeatedly pointing to strong execution, record results, and growth visibility, while acknowledging some regional and segmental volatility.

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Compared to the previous quarter, analyst tone remained constructive but with increased focus on the sustainability and scalability of AI-related growth and margin progression, while management sustained its confident outlook.

QUARTER-OVER-QUARTER COMPARISON

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Guidance for Q1 2026 calls for $4.5 billion in sales and $2.53 adjusted EPS, up from the previous quarter’s $4.55 billion sales guidance and $2.27 adjusted EPS.

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AI revenue guidance increased from above $800 million in Q3 to over $900 million actuals in Q4, with management now providing a baseline for future AI-driven growth.

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Margin expansion continued, with both segments achieving 20% adjusted operating margins, up from prior periods.

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Analysts’ focus shifted more heavily to AI market share and margin sustainability, with less concern about tariff impacts, which had been a topic last quarter.

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Management’s confidence in secular growth trends and cash flow optionality persisted, now paired with a clearer strategic direction for further capital deployment and reporting changes.

RISKS AND CONCERNS

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Management noted continued unevenness in the macro environment, especially between regions in Transportation and sector-specific volatility in North America.

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Curtin highlighted ongoing weakness in North American Commercial Transportation and noted that general industrial end markets are only beginning to signal stability.

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Mitts referenced $113 million in restructuring charges for 2025 and projected $100 million for 2026.

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Analysts questioned the impact of EV adoption trends, book-to-bill ratios in Industrial, and margin expansion drivers, with management emphasizing seasonality and strategic investments as mitigations.

FINAL TAKEAWAY

TE Connectivity management emphasized record-breaking sales, earnings, and cash flow, driven by strength in AI, energy, and transportation markets. The company projects double-digit sales and earnings growth for the first quarter of fiscal 2026, building on robust AI-driven orders and expanded margin performance. Management highlighted operational resilience, strategic capital deployment, and a positive outlook, with secular trends and global investments supporting confidence in continued value creation for shareholders.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/tel/earnings/transcripts]

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