Can TE Connectivity Maintain Its Beat Streak In Q4 Earnings?
Zacks Investment Research | Oct 30, 2017 08:52AM ET
Connectivity and sensor solutions manufacturer, TE Connectivity Ltd. (NYSE:TEL) is scheduled to report fourth-quarter fiscal 2017 results on Nov 1.
TE Connectivity has an excellent earnings surprise history, with an average positive surprise of 9.5% in the trailing four quarters. The company scored its seventh consecutive earnings beat in the last reported quarter, beating estimates by 6%. However, the company anticipates weak revenues in Transportation Solutions in the upcoming quarter, which constitutes the major portion of its total revenues.
Let's see how things are shaping up prior to this announcement.
Factors at Play
Primarily depended on end market dynamics, TE Connectivity’s business remains susceptible to cyclical risks that the end markets suffer. Though the company witnessed some extent of stability in direct business with OEMs, poor sales through distribution channels took longer-than-expected recovery time, consequently hurting the segmental performance. These factors could be a drag on segment margin and affect its profitability in the upcoming quarter.
The company’s commercial transportation market is yet to witness signs of stabilization due to weak global construction and agriculture markets, along with weakness in the North America heavy truck markets. This apart, the company believes the supply chain inefficiencies can prove to be a drag on the earnings in the quarter under review. These factors can severely undermine TE Connectivity’s growth prospects.
Moreover, sluggishness in oil and gas markets along with its derivative impact on other industrial markets will likely act as major headwinds for TE Connectivity. Further, helicopter demand has also been impacted negatively, which can prove to be a drag on the company’s aerospace business.
Notably, the Zacks Consensus Estimate for revenues from the Transportation Solutions segment in the to-be-reported quarter currently remains low at $1,670 million compared with fiscal third-quarter revenues of $1,765 million. Revenues from Industrial Solutions segment are also anticipated to be low sequentially, with an estimate of $880 million compared with reported revenues of $905 million in the prior quarter.
However, being a market leader in the connectivity and sensor business, TE Connectivity is armed with a comprehensive portfolio that supplements its strength. About 80% of the company’s revenues are driven by harsh environment applications. In the past five years, the company’s harsh business applications have had experienced mid-single digit growth, driving top-line growth. Going forward, we believe that this business will provide ample opportunities of margin expansion in the upcoming quarter.
Moreover, the company’s Commercial transportation business is showing remarkable signs of progress driven by the content expansion in the heavy truck market, especially in China. Growth in electronic content as well as a rich pipeline of platform ramps from design wins bode well for the company’s transportation business, going forward.
Furthermore, during the previous quarter, the company enhanced its harsh environment portfolio with bolt-on acquisitions in the Automotive and Medical business by entering into an agreement to acquire Hirschmann Car Communication and purchasing MicroGroup. These acquisitions will unlock expansion opportunities, and advance content growth in key applications for the automotive and medical markets. This bodes well for the to-be-reported quarter’s top-line.
Earnings Whispers
Our proven model does not conclusively show an earnings beat for TE Connectivity this time around. This is because a stock needs to have both a positive Original post
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.