TE Connectivity Q1 F2026 Earnings

Key quotes from the Q1 F2026 Earnings

(note: bold and highlights are my own)

“And lastly, we outlined a long-term through cycle target of six to eight points of annual average [sales] growth. With the momentum that we’re seeing, we expect to deliver growth in fiscal 2026 that is ahead of this target.”

“In the quarter, we saw orders increase by over $1 billion versus the prior year to $5.1 billion. By geography, we saw double-digit organic order growth in all regions on a year-over-year basis.”

“Getting into orders by segment, in the Industrial segment, orders grew over 40% versus the prior year, with essentially every business posting double-digit growth versus the prior year.”

“Our sales in the Industrial Solutions segment grew 38% in the quarter and 26% on an organic basis year-over-year, reinforcing the broadening of growth within the segment.”

“Digital Data Networks had another outstanding quarter with a business growth of 70% year-over-year, and our AI revenue was higher than our expectations. Our customers continue to award us new programs, and the orders that we’ve received are creating backlog for the second half of this year and into 2027. We now expect our AI revenues in fiscal 2026 to be $200 million higher than our view 90 days ago, with growth expected across every hyperscale customer.”

“Turning to Automation and Connected Living, the business grew 12% organically year-over-year, with growth in each region, and we continue to expect recovery in the general industrial markets as we move through the year.”

“In our Energy business, our sales grew 88%, including the Richards acquisition, which enables us to capitalize on strong growth opportunities in the U.S. utility market. Organically, sales increased 15%, driven by continued increase in investments by customers in grid hardening and renewable applications, and what was nice this quarter is we saw strong growth both in the United States as well as in Europe. In our AD&M business, sales grew 11% organically, driven by growth across both commercial, aerospace, and defense applications.”

“Our sales in the Transportation segment grew 10% in the quarter, as well as 7% organically year-over-year. Our auto sales grew 7% organically in the first quarter, driven by content growth in Asia and in Europe. Our growth over market [market share gains] was at the high end of our four to six-point range in the first quarter, and as we shared with you in Investor Day, we expect our content growth to be balanced between data connectivity, e-mobility, as well as electronification trends in the car. Our current quarter results show the contributions from data connectivity applications in our results, which are growing across all powertrain platforms. We continue to benefit from our strong global position and localization strategy, and our growth over market in this quarter was driven by China and Europe. As we look forward, our view of auto production in fiscal 2026 remains consistent at roughly 88 million units, which is down slightly versus the last year. Turning to Commercial Transportation, we saw strong organic growth of 16% year-over-year, and this growth was driven by Asia and in Europe. After two years of cyclical declines in the Commercial Transportation market, we’re now seeing recovery in the end markets outside the United States and expect to benefit from our leading global position and content growth driven by architectural changes.”

“We are seeing broadening of growth that Terrence mentioned, 30% plus incremental margins on that sales growth, double-digit EPS growth, and a strong cash generation model with balanced capital returns.”

“With the order momentum Terrence mentioned, we are increasing our capital expenditure this year to support the growing pipeline of customer awards for AI programs.

We now expect CapEx to be closer to 6% of our sales this year, and we feel strong about our cash generation model and continue to expect at least 100% free cash flow conversion for fiscal 2026.”

“For the full year, we are set up to deliver sales growth that is ahead of our through cycle growth target while expanding operating margins and very strong earnings per share growth.” 

“And versus 90 days ago, when we shared the number, we do think the number for this year will be $200 million more than what we just shared. And what’s nice is this year we’re going to have growth across all hyperscaler customers.”

“Let’s face it, these programs are big programs and the timeframe to scale. Some of the awards we got in the first quarter are for later this year into 2027.”

“Our orders were a record at over $5 billion and that it was $1 billion of order growth. The one thing that’s important is it was very broad-based. While we had very strong orders in DDN, if you exclude the DDN orders, our orders were up double-digit across TE. So that’s the broadening growth we talked about.”

“So when we talk about increasing our CapEx investments, we’re really talking about specific [AI] program wins. And the timing of those, we’re going to have to spend money over the next couple of quarters to support the production of those in the later part or the second half of our fiscal year and certainly into 2027. So as we’re stacking up these programs, we’re just trying to be transparent that the fact that there is specific tooling involved, and most of that’s going into existing production facilities that we have throughout Asia and a little bit North America. So we feel good about our ability to ramp. Our teams have shown the ability to ramp quickly. But we’re just continuing to the acceleration of that. And that’s going to require us to take up our CapEx number for this year. But all is feeling good. As you would know, we would not be spending that money if we didn’t have revenue and profits tied to it.”

“We’ve been very much in the mode of — and I would say there’s two businesses I would put in there, not only ACL, but our industrial transportation business, both of them were in a multiyear downturn. And we continue to see and we started to see it last year, improvement in orders. It’s nice to see them broaden out across all regions in ACL. Certainly, in ICT, industrial transportation, it’s really in Asia and Europe still. But with the momentum we’re seeing with what we’re hearing from our customers, we do view more momentum is there. You saw on the slide, we grew 12%. Orders were strong. The one thing I would say when we look at ACL for us, it is around the factory automation and the CapEx side of our Industrial business. Places around residential HVAC, where we play in as well as appliances continue to be soft, but we’re seeing the CapEx side of it, and we’re seeing it broadly across all regions. So that’s — whether that’s Asia, China, Europe, North America. And it’s nice to see some of the cyclical pain we had for a couple of years behind us.”

“On incremental margins, as we talked about in our business model in terms of our flow-through, I mean, certainly both segments, I’m confident, will be at their 30% plus flow-through on their growth for FY 2026. For the Industrial segment, certainly the volume growth at these levels is helping a lot. We are able to get volume leverage on this kind of scale. So I would still tune into the 30% plus, but there’ll be quarters when we’re well out ahead of that for sure.”

“We are able to procure what we need to procure. There is inflation around things that are metal-related. And that’s not just the AI supply chain. That’s everywhere around us. And our teams are doing the appropriate pricing to make sure we get recovery on that. From that viewpoint, that inflation is being passed through.”

“We continue to see in places like China and Europe and India, whether it’s truck builds, construction equipment builds, have improved. And when you look at it, the growth over market you sit there has been strong. When we look at the year, we think global truck builds will be up 200 basis points. And we feel very confident we’ll outgrow that for the year. The real wild card we still have to watch is North America. North America truck market is still negative. And I think that’s probably the one toggle switch that we have to continue to keep an eye on because we aren’t seeing as much order improvement there yet. But outside the United States, it has actually shown a pickup around the world. And certainly, we’re hoping as we move through the year that we can get some of that uptick in the North American production environment as well.”

“In terms of the incrementals, we feel good about being at 30% or better. And as we work our way through the quarters this year, I don’t see anything that would derail that…So yeah, we feel good about where we’re going to land for this full year, even with some of the incremental investments that we need to make.”

“We are seeing inflationary pressure on the metals specifically. That category is our largest purchase category. So the team is hyper-focused. We’ve made investments, as we talked about at the Analyst Day, with some of the supply chain investments that we’ve made to get more scale and leverage purchases. So that has helped. And that team has a very strong pipeline of opportunities to find ways to reduce those costs. But there’s no doubt that as the stock market goes up, we feel that. Now, it has the effect of us very quickly and passing that on through price or through other mechanisms that we can use to source. So we’re not going to use it as an excuse on our margins or our flow-through math. But yeah, we’re feeling it right now.”