TE Connectivity Ltd. (NYSE:TEL) Q1 2024 Earnings Call Transcript

And honestly our revenue on that 80% in this quarter we just closed was up low-single-digit. So, that is where our supply chain is completely tied into our customers. And that’s an indicator we look at around destocking. Now the piece that goes through our channel partners, and they are working down inventory that was down 14% in the quarter. And that’s where you truly see that you see the biggest impacts in Industrial Equipment, you see it in appliances, you see it also in our data devices business where those business have upward to 50% of their revenue that go through distribution partners to get to their customers. So, that is really where we see the destocking occurring. One of the things that was nice this quarter, we saw that that inventory did not go up, leveled off, we do see in appliances, it has improved.

I talked about D&D, it’s in pockets, and Industrials later to the party of destocking, and I think that will take a little bit longer. But it’s also the element ties back to Amit’s question, when we’re looking at our direct business levels with our customers, where we touch them directly, we have low-single-digit organic growth you exclude what goes through the channel partners. And I think, we’ll continue to have destocking with us here especially in the Industrial Equipment business and that drives that big decline of organic growth, but that will get behind us at some point. And I think it also shows those areas that Heath, talked about where we’re benefiting from electric vehicle, where we benefit from other content drivers is really allowing us to basically absorb the destocking we’re doing and stay relatively flat.

Sujal Shah: Okay. Thank you, Chris. Can we have the next question, please?

Operator: Thank you. Our next question comes from the line of Chris Snyder from UBS. Please go ahead with your question.

Chris Snyder: Thank you. I wanted to follow-up on some of the earlier questions around EV penetration and auto outgrowth. The Q1 outgrowth came in below target levels despite still supportive price is what we would consider normalized. It sounds like there’s not much destocking headwinds in there. So, is there — is this just some pressure from softer EV penetration? Are there mix headwinds? Is it just that we shouldn’t think about this on a one quarter basis? And then lastly, if China took share of global auto production in the quarter, is it fair to think that that’s a headwind to outlook because I know it’s a lower content than the U.S. and Europe? Thank you.

Terrence R. Curtin: Yes, so a couple of things, Chris. First off on the content outperformance, I appreciate you saying what I’m going to say. Please don’t look at it on an individual quarter basis. You will see times when it’s way ahead. You’ll see times when it’s behind and I really think you have to look at it over a period of time because there is interplays between where we are and certainly getting to the OE. So, net-net you will see it, it does get into being on every platform in the world. Those are types of things you’re going to get on a quarter a little bit off. We were about 300 basis points of outperformance in the quarter. So, it was a little bit below what we said, but also what I said on the call was we expect to be in that 4% to 6% range for this year is important.

On your other part of, hey there’s been a lot of noise around EV adoption and production. Our view of it’s the same. And I just, I am going to stress as always, I know sometimes because we hear about U.S. car companies and European car companies. I’m going to ask us to really take it up a level and remember global car production is what matters to TE. There’s going to be about 85 million cars made in the planet this year. The majority of them will be made in Asia. And I would also tell you when you look at EV adoption two-thirds of EVs are driven in Asia. And this is where our strongest region is, when you also think about those 20 million electric vehicles, whether that’s a full battery electric, a plug-in hybrid, hybrids like a Prius that don’t need to plug.

You really got to sit there and go. Those 20 million units are bigger than USR and automotive production in the United States. So, I really ask us when we think about EV trend that need to be a global lens. And I was just in China last week, and when you’re in China, you see EVs all around you, you can tell by their license plate color, they’re green, they’re different color than a normal license plate. And you see that where that adoption is going and you see it not only full battery electric, you see it in plug-in hybrids. And what’s great is, we have share that is similar with the local OEMs as you do with the multinationals, and you see that in our growth and you also see when China production goes up, our revenues are a little bit stronger.