TE Connectivity reported a strong start to fiscal 2026, with first-quarter sales reaching $4.7 billion, a 22% increase on a reported basis and 15% organically. The company achieved record adjusted earnings per share of $2.72, up 33% year-over-year, driven by a 180-basis point expansion in adjusted operating margins to 22.2%. Growth was broad-based across both Industrial Solutions (up 38% reported) and Transportation Solutions (up 10% reported), with record orders of $5.1 billion and a book-to-bill of 1.1. Management raised its outlook for AI revenue in fiscal 2026 by a couple of hundred million dollars and increased capital expenditure expectations to approximately 6% of sales to support this demand. For the second quarter, TE guides for sales of $4.7 billion and EPS of approximately $2.65, reflecting expected auto seasonality but continued industrial momentum.
| Metric | Value | Change |
|---|---|---|
| Sales | $4.7 Billion | +22% Reported / +15% Organic |
| Adjusted EPS | $2.72 | +33% |
| Adjusted Operating Margin | 22.2% | +180 bps |
| Orders | $5.1 Billion | +$1 Billion YoY |
| Book-to-Bill | 1.1 | N/A |
| Free Cash Flow | $608 Million | Strong Generation |
| Industrial Sales Growth | N/A | +38% Reported / +26% Organic |
| Transportation Sales Growth | N/A | +10% Reported / +7% Organic |
TE Connectivity is experiencing a significant acceleration in its Artificial Intelligence (AI) and Data Infrastructure business, specifically within the Digital Data Networks (DDN) unit. Management raised its fiscal 2026 AI revenue outlook by 'a couple of hundred million dollars' compared to views from just 90 days prior, driven by new program awards across all hyperscale customers. This indicates that TE is successfully penetrating the high-growth AI supply chain beyond just initial legacy connectors, moving into next-generation architectures. The strategic implication is a re-rating of the stock as an AI infrastructure play, supported by a 70% year-over-year order growth in DDN.
The company is validating its 'broadening growth' thesis with a robust recovery in Industrial markets, specifically Automation and Connected Living (ACL) and Industrial Transportation. After multi-year downturns, these businesses are seeing double-digit order growth across all regions, signaling a cyclical upturn in factory automation and global CapEx. Management noted that 'cyclical pain we had for a couple of years [is] behind us,' which diversifies revenue away from pure auto dependence and leverages TE's fixed-cost base for margin expansion.
TE Connectivity is aggressively deploying capital to secure its position in the AI value chain, announcing that Capital Expenditure will rise to 'closer to 6% of our sales' this year, up from typical levels. This spending is directed specifically at tooling and capacity for hyperscaler programs ramping in the second half of fiscal 2026 and into 2027. Management emphasized that this investment is tied to visible revenue, stating they 'would not be spending that money if [they] didn't have revenue and profits tied to it.' This signals a strategic shift towards higher asset intensity to capture long-term share in the fastest-growing segment of their portfolio.
The Transportation segment is demonstrating resilience and 'growth over market' despite a flat global auto production environment. TE grew auto sales 7% organically, outpacing the market by 4-6 points, driven by content gains in data connectivity and electrification in Asia and Europe. Furthermore, the Commercial Transportation business is seeing recovery in Asia and Europe, with management expecting global truck builds to be up 200 basis points. This highlights TE's ability to win share and gain content in legacy markets while navigating macro headwinds.
A notable discrepancy exists between the record order book ($5.1B, book-to-bill 1.1) and the flat sequential revenue guidance for Q2 ($4.7B). Management attributed this to a significant 3 million unit decline in auto production from Q1 to Q2, which is worse than the typical 2 million unit seasonal drop. While Industrial is expected to grow double-digits sequentially, the heavy reliance on Transportation means that near-term revenue realization is being bottlenecked by customer production schedules, specifically in automotive, potentially delaying the conversion of the strong backlog.
Management acknowledged significant inflationary pressure in the supply chain, specifically regarding 'metal prices is exploding here, copper, gold, silver.' While Heath Mitts stated they are 'hyper focused' on passing these costs through to customers, there is a risk of margin compression if pricing lags behind spot market increases or if customer resistance grows. The CFO noted they are 'feeling it right now,' which introduces a variable to the otherwise strong margin narrative for the remainder of the year.
The North American commercial transportation market remains a weak spot in an otherwise recovering industrial landscape. CEO Terrence Curtin noted that the 'North America truck market is still negative' and that they 'aren't seeing as much order improvement there yet' compared to Asia and Europe. This geographic divergence suggests that the industrial recovery may be uneven, and a key end market in TE's largest region remains depressed, posing a risk to the sustainability of the broader industrial rebound.
Overall: Management exhibited a highly confident and assured demeanor throughout the call, frequently reinforcing the 'broadening' of their growth portfolio and the successful execution of their strategy. They consistently used strong, definitive language regarding their operational performance and market positioning, showing little hesitation when addressing analyst questions about capacity or demand visibility. The tone shifted from celebratory regarding the record results to pragmatic and detailed when discussing the specific investments required to sustain the AI ramp.
Confidence: HIGH - Management displayed high confidence through specific guidance raises, detailed discussions of 'record' metrics, and a willingness to increase capital expenditures aggressively based on visible program wins. Their language was decisive, using phrases like 'reinforce these key messages' and 'ahead of this target' rather than speculative terms.
$4.7 Billion (+13% YoY reported, +6% organic)
~$2.65 (+20% YoY)
Couple of hundred million dollars higher than previous view
Closer to 6% of sales
~23%
Hedging & Uncertainty: Management generally used direct and assertive language, minimizing hedging when discussing past performance and current orders. However, they employed temporal hedges regarding the timing of AI revenue, frequently using phrases like 'later in the year,' 'second half,' and 'into '27' to manage expectations for immediate revenue recognition. When discussing the industrial recovery, they used qualifying language like 'we do view more momentum is there' rather than definitive statements of a full-blown boom, suggesting caution despite the positive data. The use of 'expect' was frequent but backed by specific metrics, reducing the uncertainty usually associated with that verb.
We delivered over 20% sales growth in the first quarter with growth in both segments by driving content growth above market. - Terrence Curtin, CEO
We now expect our AI revenues in fiscal 2026 to be a couple of hundred million dollars higher than our view 90 days ago... - Terrence Curtin, CEO
We are seeing pressure -- inflationary pressure on the metals specifically. That category is our largest purchase category. - Heath Mitts, CFO
We do have a 3 million unit auto production downtick from quarter 1 to quarter 2... - Terrence Curtin, CEO
We feel good about our ability to ramp, our teams have shown the ability to ramp quickly... - Heath Mitts, CFO
Analyst Sentiment: Analysts were highly inquisitive and optimistic, focusing heavily on the scalability and sustainability of the AI growth rather than questioning its existence. Questions were detailed, probing into the mechanics of the ramp, capacity constraints, and specific customer dynamics (NVIDIA/ASICs), indicating strong conviction in the story.
Management Responses: Management responses were detailed and open, providing specific granularity on segment performance (e.g., auto production units, metal inflation). They effectively deflected concerns about margin dilution from higher CapEx by linking it directly to visible program wins and profit targets.
AI Revenue Scaling & Capacity: Analysts sought confirmation on the 'couple of hundred million' increase and the ability to scale capacity without margin pressure. Management confirmed the ramp is program-specific and supported by higher CapEx.
Auto Production Seasonality: Analysts asked to reconcile record orders with flat Q2 revenue guidance. Management explained the 3 million unit auto production drop as the primary offset to industrial growth.
Industrial Recovery: Questions focused on the sustainability of the recovery in Automation (ACL) and Commercial Transportation. Management confirmed broad-based regional growth and noted North America remains the lagging indicator.
Input Cost Inflation: Analysts asked about metal prices (copper/gold). Management acknowledged the pressure but emphasized their ability to pass it through via pricing mechanisms.
TE Connectivity is executing flawlessly on its strategic pivot to higher-growth industrial and technology markets. The Q1 results prove that the company is no longer just an auto supplier; it is a critical infrastructure player benefiting from the AI build-out, grid hardening, and aerospace/defense upcycles. The 33% EPS growth and 180bps margin expansion demonstrate strong operating leverage and pricing power. While auto headwinds and metal inflation present short-term noise, the record backlog and raised AI guidance provide clear visibility for double-digit growth ahead of targets. The shift to higher capital expenditure to support AI is a prudent use of capital to secure long-term share, reinforcing the 'moat' management discussed at Investor Day.
Global auto production is expected to be roughly 88 million units in FY2026, down slightly from the prior year. Management noted a steeper-than-usual seasonal drop of 3 million units from Q1 to Q2.
Signs of recovery in factory automation and general industrial markets globally, with order growth improving across all regions, suggesting the industrial downturn has bottomed.
Sharp increases in metal prices (copper, gold, silver) are impacting the largest purchase category for TE, requiring active pricing management to protect margins.
Hyperscaler CapEx remains robust, driving aggressive program ramps and long-term order visibility for connectivity components in data centers.