TE Connectivity Ltd. reports 113% Net Income decline in 2020 and 9.5% Revenue decline
10/28/2020 • About TE Connectivity Ltd. (
$TEL) • By InTwits
TE Connectivity Ltd. reported FY2020 financial results today. Overall the company's long term financial model is characterised by the following facts:
- TE Connectivity Ltd. has medium CAPEX intensity: 5 year average CAPEX/Revenue was 5.5%. At the same time it's a lot of higher than industry average of 3.0%.
- CAPEX is quite volatile: $463m in FY2020, $432m in FY2019, $635m in FY2018, $1,069m in FY2017, $723m in FY2016
- The company has potentially unprofitable business model: ROIC is 4.5%
- It operates with medium-size leverage: Net Debt/EBITDA is 2.7x while industry average is 3.2x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
TE Connectivity Ltd.'s Revenue decreased on 9.5%. Annual revenue decline showed slowdown in FY20Q4 - revenue decreased slightly on 1.2%. During the last 5 years Revenue growth topped in FY2018 at 14.8% and was decelerating since that time. Revenue decline was accompanies by EBITDA margin decline. EBITDA Margin decreased on 8.7 pp from 19.8% to 11.1% in FY2020.
Gross Margin decreased slightly on 2.0 pp from 32.7% to 30.7% in FY2020. During the last 5 years Gross Margin topped in FY2017 at 34.3% and was declining since that time. SG&A as a % of Revenue showed almost no change in FY2020.
Net Income margin dropped on 15.7 pp from 13.7% to -2.0% in FY2020.
Investments (CAPEX, working capital and M&A)
In FY2020 the company had CAPEX/Revenue of 4.6%. The company showed small CAPEX/Revenue decline of 0.97 pp from 5.6% in FY2017 to 4.6% in FY2020. Average CAPEX/Revenue for the last three years was 5.6%. During the last 5 years CAPEX as a % of Revenue topped in FY2018 at 6.7% and was declining since that time.
Return on investment
The company operates at low but positive ROIC (4.5%) and negative ROE (-2.4%). ROIC dropped on 11.3 pp from 15.8% to 4.5% in FY2020. ROE dropped on 19.6 pp from 17.2% to -2.4% in FY2020. During FY2016-FY2020 ROIC topped in FY2018 at 18.4% and was declining since that time.
Leverage (Debt)
Company's Net Debt / EBITDA is 2.7x and Debt / EBITDA is 3.4x. Net Debt / EBITDA surged on 1.6x from 1.1x to 2.7x in FY2020. Debt jumped on 16.2% while cash increased slightly on 1.9%. During FY2016-FY2020 Net Debt/EBITDA bottomed in FY2018 at 1.1x and was growing since that time.
TE Connectivity Ltd. has no short term refinancing risk: cash is higher than short term debt (116.7%).
Management team
Terrence R Curtin is a TE Connectivity Ltd.'s CEO. Terrence R Curtin has spent 4 years with the company. Heath A Mitts is a TE Connectivity Ltd.'s CFO. Heath A Mitts has spent 4 years at the company.
Financial and operational results
FY ended 09/25/2020
TE Connectivity Ltd. ($TEL) key annual financial indicators| mln. $ | 2016 | 2017 | 2018 | 2019 | 2020 | 2020/2019 |
|---|
P&L
|
|---|
| Revenue | 11,352 | 12,185 | 13,988 | 13,448 | 12,172 | -9.5% |
| Gross Profit | 3,827 | 4,183 | 4,745 | 4,394 | 3,735 | -15.0% |
| SG&A | 1,396 | 1,543 | 1,594 | 1,490 | 1,392 | -6.6% |
| EBITDA | 2,368 | 2,487 | 2,998 | 2,668 | 1,356 | -49.2% |
| EBIT | 1,808 | 1,876 | 2,331 | | | |
| Interest expence | 127 | 130 | 107 | | | |
| Tax | -826 | 180 | -344 | | | |
| Net Income | 2,009 | 1,683 | 2,565 | 1,844 | -241 | -113.1% |
| Stock Based Compensation | 87 | 95 | 95 | | | |
Balance Sheet
|
|---|
| Cash | 647 | 1,218 | 848 | 927 | 945 | 1.9% |
| Accounts Receivable | 2,046 | 2,138 | 2,361 | | | |
| Inventory | 1,596 | 1,647 | 1,857 | | | |
| Accounts Payable | 1,090 | 1,387 | 1,548 | | | |
| Short Term Debt | 331 | 710 | 963 | 570 | 810 | 42.1% |
| Long Term Debt | 3,739 | 3,634 | 3,037 | 3,395 | 3,799 | 11.9% |
Cash flow
|
|---|
| Capex | 603 | 679 | 935 | 749 | 560 | -25.2% |
| Dividends | 509 | 546 | 588 | | | |
| Acquisitions | 1,336 | 250 | 153 | | | |
Ratios
|
|---|
| Revenue growth | -7.2% | 7.3% | 14.8% | -3.9% | -9.5% | |
| EBITDA growth | 0.1% | 5.0% | 20.5% | -11.0% | -49.2% | |
|
|---|
| Gross Margin | 33.7% | 34.3% | 33.9% | 32.7% | 30.7% | -2.0% |
| EBITDA Margin | 20.9% | 20.4% | 21.4% | 19.8% | 11.1% | -8.7% |
| EBIT Margin | 15.9% | 15.4% | 16.7% | | |
| SG&A, % of revenue | 12.3% | 12.7% | 11.4% | 11.1% | 11.4% | 0.4% |
| SBC, % of revenue | 0.8% | 0.8% | 0.7% | | |
| Net Income Margin | 17.7% | 13.8% | 18.3% | 13.7% | -2.0% | -15.7% |
| CAPEX, % of revenue | 5.3% | 5.6% | 6.7% | 5.6% | 4.6% | -1.0% |
|
|---|
| ROIC | 15.9% | 16.2% | 18.4% | 15.8% | 4.5% | -11.3% |
| ROE | 22.2% | 18.5% | 24.9% | 17.2% | -2.4% | -19.6% |
| Net Debt/EBITDA | 1.4x | 1.3x | 1.1x | 1.1x | 2.7x | 1.6x |
| Interest expence / Average debt | 3.1% | 3.1% | 2.6% | | | |
People
|
|---|
| Insider ownership | 0.2% | 0.2% | 0.2% | | | |
| Employees | 75,000 | 78,000 | 80,000 | | | |
| Revenue/Employee, th. $ | 151 | 156 | 175 | | | |
TE Connectivity Ltd. ($TEL) key quoterly financial indicators
| mln. $ | FY20Q1 | FY20Q2 | FY20Q3 | FY20Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 3,168 | 3,195 | 2,548 | 3,261 | | -5.3% | -6.4% | -24.8% | -1.2% |
| EBITDA | 672 | -210 | 337 | 557 | | 3.1% | -129.9% | -51.4% | -10.0% |
| Net Income | 26 | -456 | -41 | 230 | | -90.6% | -203.9% | -105.4% | -38.2% |
Balance Sheet
|
|---|
| Cash | 742 | 796 | 474 | 945 | | 46.9% | 40.9% | -13.2% | 1.9% |
| Short Term Debt | 683 | 718 | 806 | 810 | | 16.8% | 17.3% | 33.9% | 42.1% |
| Long Term Debt | 3,809 | 4,103 | 3,741 | 3,799 | | 12.6% | 21.8% | 8.9% | 11.9% |
Ratios
|
|---|
| Gross Margin | 32.5% | 32.2% | 27.7% | 29.7% | | -0.8% | -0.6% | -5.0% | -2.2% |
| EBITDA Margin | 21.2% | -6.6% | 13.2% | 17.1% | | 1.7% | -27.2% | -7.3% | -1.7% |
| Net Income Margin | 0.8% | -14.3% | -1.6% | 7.1% | | -7.4% | -27.1% | -23.9% | -4.2% |
Peers in Electronic Manufacturing Services
Below we provide TE Connectivity Ltd. benchmarking against other companies in Electronic Manufacturing Services industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| Netlist Inc ($NLST) | - | 95.0% | -12.5% | -22.1% | 81.0% |
| IEC Electronics Corp. ($IEC) | - | -24.1% | 21.2% | 34.3% | 16.4% |
| eMagin Corporation ($EMAN) | - | 3.0% | 19.1% | 1.9% | 10.1% |
| Jabil Inc. ($JBL) | - | 3.9% | 15.9% | 14.4% | 7.8% |
| Plexus Corp. ($PLXS) | - | -1.1% | 13.7% | 10.1% | 7.1% |
| |
|---|
| Median (13 companies) | 4.6% | 1.9% | 7.1% | 9.7% | -1.3% |
|---|
| TE Connectivity Ltd. ($TEL) | - | 7.3% | 14.8% | -3.9% | -9.5% |
Top companies by Gross margin, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| Neonode Inc. ($NEON) | 86.9% | 77.1% | 89.2% | 89.7% | 82.0% |
| IPG Photonics Corporation ($IPGP) | 54.9% | 56.6% | 54.8% | 46.1% | 44.9% |
| CTS Corporation ($CTS) | 35.4% | 33.2% | 35.1% | 33.6% | 32.8% |
| RF Industries, Ltd. ($RFIL) | 28.0% | 30.4% | 34.1% | 28.3% | 26.9% |
| eMagin Corporation ($EMAN) | 30.1% | 23.3% | 15.2% | 25.2% | 21.6% |
| |
|---|
| Median (13 companies) | 16.7% | 13.8% | 12.1% | 13.8% | 14.3% |
|---|
| TE Connectivity Ltd. ($TEL) | 33.7% | 34.3% | 33.9% | 32.7% | 30.7% |
Top companies by EBITDA margin, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| IPG Photonics Corporation ($IPGP) | 41.8% | 44.7% | 40.9% | 26.8% | 24.0% |
| CTS Corporation ($CTS) | 20.7% | 14.0% | 17.8% | 17.6% | 18.1% |
| TTM Technologies, Inc. ($TTMI) | 14.0% | 14.6% | 13.5% | 15.8% | 9.7% |
| IEC Electronics Corp. ($IEC) | 7.4% | 3.8% | 4.3% | 6.6% | 7.5% |
| Plexus Corp. ($PLXS) | 5.7% | 6.9% | 5.8% | 6.1% | 6.5% |
| |
|---|
| Median (12 companies) | 4.8% | 4.5% | 4.7% | 5.8% | 5.3% |
|---|
| TE Connectivity Ltd. ($TEL) | 20.9% | 20.4% | 21.4% | 19.8% | 11.1% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| eMagin Corporation ($EMAN) | 6.7% | 6.2% | 8.8% | 4.2% | 8.5% |
| IPG Photonics Corporation ($IPGP) | 12.6% | 9.0% | 11.0% | 10.2% | 7.3% |
| TTM Technologies, Inc. ($TTMI) | 3.4% | 5.7% | 5.3% | 6.7% | 4.9% |
| Jabil Inc. ($JBL) | 5.0% | 3.8% | 4.7% | 4.0% | 3.6% |
| CTS Corporation ($CTS) | 5.2% | 4.3% | 6.1% | 4.6% | 3.5% |
| |
|---|
| Median (12 companies) | 2.8% | 2.7% | 2.4% | 1.4% | 2.6% |
|---|
| TE Connectivity Ltd. ($TEL) | 5.3% | 5.6% | 6.7% | 5.6% | 4.6% |
Top companies by ROIC, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| IEC Electronics Corp. ($IEC) | 16.9% | 3.1% | 6.4% | 12.7% | 14.8% |
| Sanmina Corporation ($SANM) | 14.2% | 13.9% | 7.0% | 16.2% | 13.0% |
| Plexus Corp. ($PLXS) | 8.7% | 10.3% | 9.6% | 12.6% | 12.4% |
| Jabil Inc. ($JBL) | 12.3% | 9.3% | 12.5% | 16.1% | 10.8% |
| CTS Corporation ($CTS) | 18.1% | 9.8% | 14.8% | 11.8% | 9.2% |
| |
|---|
| Median (13 companies) | 6.2% | 4.2% | 6.4% | 10.2% | 7.3% |
|---|
| TE Connectivity Ltd. ($TEL) | 15.9% | 16.2% | 18.4% | 15.8% | 4.5% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| SMTC Corporation ($SMTX) | 1.0x | - | 11.3x | 3.8x | 4.2x |
| IEC Electronics Corp. ($IEC) | 2.0x | 5.6x | 4.9x | 3.6x | 2.1x |
| TTM Technologies, Inc. ($TTMI) | 2.2x | 1.5x | 3.2x | 3.3x | 2.0x |
| Jabil Inc. ($JBL) | 1.0x | 0.8x | 1.0x | 0.9x | 1.4x |
| Plexus Corp. ($PLXS) | -1.2x | -1.5x | -0.7x | 0.3x | -0.0x |
| |
|---|
| Median (10 companies) | -0.0x | -0.1x | -0.2x | 0.1x | -0.1x |
|---|
| TE Connectivity Ltd. ($TEL) | 1.4x | 1.3x | 1.1x | 1.1x | 2.7x |
