# TE Connectivity (TEL) Financial Model Free Excel 3-statement financial model and company analysis for TE Connectivity. - Canonical: https://finamodel.com/companies/te-connectivity - Industry: Electronics - Downloadable model: Yes - Excel download: https://finamodel.com/company-models/TEL.xlsx ## Model Purpose This model provides a comprehensive equity valuation and scenario planning tool for TE Connectivity (TEL) to assess the impact of its FY2025 segment restructuring, recent major acquisitions, and secular tailwinds in electric vehicles and artificial intelligence on its intrinsic value. ## Company Overview TE Connectivity is a global industrial technology leader that designs and manufactures highly engineered connectivity and sensor solutions. The company's products enable the distribution of power, signal, and data across harsh environments in end markets such as automotive, industrial equipment, aerospace, and data centres. Following a major reorganisation effective in fiscal 2025, the business operates through two primary segments: Transportation Solutions (approximately 55% to 60% of revenue) and Industrial Solutions (approximately 40% to 45% of revenue). The company generates revenue globally, with direct sales to manufacturers representing about 75% of total net sales across roughly 130 countries. TE Connectivity operates an asset-heavy, highly engineered manufacturing business model with significant competitive moats driven by deep customer integration, stringent safety and performance standards, and a massive portfolio of patents. Recent major events include a change in the jurisdiction of incorporation from Switzerland to Ireland in September 2024, the consolidation from three to two reporting segments in FY2025, and the $2.3 billion acquisition of Richards Manufacturing Co. in April 2025 to bolster its energy and industrial portfolio. ## Revenue Deep Dive ### Transportation Solutions - **Segment name**: Transportation Solutions - **Revenue driver formula**: (Global Auto Production Volume x TE Content per Vehicle) + Commercial Transportation Revenue + Sensor Revenue - **Historical growth rate**: 2% to 5% organic CAGR, heavily dependent on global auto production cycles. - **Key growth levers and headwinds**: The primary growth lever is the transition to electric vehicles (EVs), which typically contain double the TE content of internal combustion engine vehicles. Headwinds include cyclical downturns in global auto manufacturing and supply chain constraints. - **Pricing dynamics**: Contractual and highly negotiated with major OEMs, often featuring long-term agreements with built-in productivity price downs offset by new product introductions. - **Revenue recognition notes**: Recognised primarily at a point in time upon shipment or delivery of products. - **Seasonality**: Slight dips in the first and fourth fiscal quarters due to automotive plant shutdowns and holiday schedules. ### Industrial Solutions - **Segment name**: Industrial Solutions - **Revenue driver formula**: Base Industrial Volume x Average Selling Price + Inorganic M&A Contribution - **Historical growth rate**: 4% to 9% CAGR, boosted recently by acquisitions and data centre demand. - **Key growth levers and headwinds**: Growth is driven by factory automation, renewable energy grid upgrades, and AI data centre build-outs (which require high-speed data connectivity). Headwinds include broader industrial macroeconomic slowdowns and inventory destocking by distributors. - **Pricing dynamics**: A mix of spot pricing through distribution channels and contractual pricing for large aerospace, defence, and energy customers. - **Revenue recognition notes**: Point in time upon transfer of control, with some over-time recognition for custom-engineered solutions. - **Seasonality**: Generally balanced, though distributor stocking patterns can create quarter-to-quarter lumpiness. ## Cost Structure ### Variable Costs / COGS - Cost of goods sold includes raw materials (notably copper, gold, and engineered resins), direct manufacturing labour, plant overhead, and inbound freight. - Gross margin typically ranges from 31.5% to 34.0% over the last five years. - The company is highly exposed to copper and gold prices; it uses forward contracts to hedge but still faces margin pressure during sustained commodity super-cycles. - COGS scales with a degree of operating leverage due to the fixed overhead of its massive global manufacturing footprint. ### Operating Expenses - **R&D**: Typically runs at 4.5% to 5.5% of revenue. It covers engineering, prototyping, and testing for new connectivity solutions. Most R&D is expensed as incurred. - **SG&A**: Typically 10.0% to 11.5% of revenue. This includes a large direct sales force, marketing, and corporate administrative functions. - **Depreciation & Amortisation**: Runs at roughly 4.5% to 5.5% of revenue, split heavily towards tangible depreciation given the capital-intensive manufacturing base, plus acquisition-related intangible amortisation. - **Restructuring / one-time charges**: Frequent and material. The company regularly optimises its manufacturing footprint, incurring $100 million to $250 million annually in restructuring charges. ### Margin Profile - Gross margin: 31.5% to 34.0%. - Adjusted EBITDA margin: 22.0% to 24.0%. - Adjusted operating margin: 17.5% to 19.5% (hit a record 18.9% in FY2024 and expanded further into FY2025). - Margins have been expanding due to operational execution, footprint consolidation, and a richer mix of high-margin EV and AI products. ## Balance Sheet Structure - Total assets sit in the $21 billion to $24 billion range. - Key assets include a massive global PP&E footprint (manufacturing plants, tooling, stamping machines) and significant goodwill from serial acquisitions. - Goodwill and intangible assets represent approximately 45% to 50% of total assets, reflecting the company's history of bolt-on M&A. - Working capital profile: - Days Sales Outstanding (DSO): 60 to 68 days. - Days Inventory Outstanding (DIO): 75 to 85 days. - Days Payable Outstanding (DPO): 55 to 65 days. - Net working capital is positive and typically consumes cash during periods of high growth. - PP&E primarily consists of machinery, equipment, and tooling with useful lives of 3 to 10 years, and buildings with useful lives up to 40 years. - Right-of-use assets for operating leases are material but manageable, typically around $400 million to $600 million. ## Capital Expenditure & Investment - Capex as a percentage of revenue ranges from 4.0% to 5.5%. - The split is roughly 40% maintenance and 60% growth, with growth capex heavily directed towards new tooling for EV platforms and high-speed data connectivity lines. - Capitalised software is minimal compared to physical tooling and machinery. - M&A pattern: TE Connectivity is a serial bolt-on acquirer, occasionally making larger transformational deals (such as the $2.3 billion acquisition of Richards Manufacturing in FY2025). - Typical acquisition multiples range from 10x to 14x EV/EBITDA depending on the technology and end-market growth profile. ## Debt & Capital Structure - Total debt is approximately $4.0 billion to $5.5 billion, resulting in a conservative net debt position. - Debt/EBITDA ratio typically sits between 1.0x and 1.5x, well below target ceilings. - The company holds strong investment-grade credit ratings (typically A- / A3). - Key debt instruments include senior unsecured notes with staggered maturities and a revolving credit facility used for commercial paper backstop. - The maturity profile is well-laddered with an average maturity exceeding 7 years. - Interest rates are predominantly fixed via the senior notes. - The share repurchase programme is highly active; the board authorised a $2.5 billion increase in October 2024, and the company routinely buys back 1% to 3% of its market capitalisation annually. - Dividend policy: The company pays a strong and growing dividend, recently around $2.60 per share annually, representing a payout ratio of roughly 30% to 35% of adjusted Net Income. ## Cash Flow Characteristics - Operating cash flow conversion is excellent, typically 1.1x to 1.3x of GAAP Net Income, driven by high depreciation and deferred tax dynamics. - Free cash flow margin (FCF / Revenue) ranges from 15% to 18% (generated $2.8 billion FCF on $15.8 billion sales in FY2024). - Major non-cash items bridging net income to OCF include depreciation, intangible amortisation, and stock-based compensation. - Working capital is a use of cash during cyclical upswings and a source of cash during downturns. - The cash tax rate is often lower than the GAAP effective tax rate due to the jurisdictional mix of earnings and tax incentives in manufacturing hubs. ## Sheet Structure 1. **Assumptions**: Hardcoded inputs for macroeconomic drivers (global auto production, EV penetration), segment growth rates, margin targets, tax rates, and WACC. 2. **Revenue Build**: Detailed build for Transportation Solutions (auto production x content) and Industrial Solutions (base growth + M&A). 3. **Income Statement**: Consolidated GAAP and Adjusted P&L, bridging from Net Sales down to GAAP EPS and Adjusted EPS. 4. **Balance Sheet**: Standard asset, liability, and equity line items mirroring the 10-K structure. 5. **Cash Flow Statement**: Indirect method starting from Net Income, adjusting for non-cash items, working capital changes, capex, and financing activities. 6. **Working Capital Schedule**: Calculation of Accounts Receivable, Inventory, and Accounts Payable based on DSO, DIO, and DPO drivers. 7. **PP&E and Intangibles Schedule**: Roll-forward of gross PP&E, accumulated depreciation, goodwill, and intangible assets, including M&A additions. 8. **Debt and Interest Schedule**: Tranche-by-tranche debt roll-forward, mandatory repayments, new issuances, and interest expense calculation. 9. **Shareholders' Equity**: Roll-forward of share count, share repurchases, dividends paid, and retained earnings. 10. **DCF Valuation**: Unlevered free cash flow calculation, discount rate application, terminal value calculation, and implied share price. ## Key Financial Relationships 1. `Transportation Revenue = (Global Auto Production Volume x TE Content per Vehicle) + Commercial Transportation Revenue + Sensor Revenue` 2. `Industrial Revenue = Prior Year Industrial Revenue x (1 + Organic Growth Rate) + Acquired Revenue (e.g., Richards Mfg)` 3. `Total Net Sales = Transportation Revenue + Industrial Revenue` 4. `COGS = Total Net Sales x (1 - Gross Margin %)` 5. `Gross Profit = Total Net Sales - COGS` 6. `R&D Expense = Total Net Sales x R&D % of Sales` 7. `SG&A Expense = Total Net Sales x SG&A % of Sales` 8. `Adjusted Operating Income = Gross Profit - R&D Expense - SG&A Expense` 9. `GAAP Operating Income = Adjusted Operating Income - Restructuring Charges - Acquisition-Related Amortisation` 10. `Interest Expense = Average Debt Balance x Weighted Average Interest Rate` 11. `Net Income = (GAAP Operating Income - Interest Expense + Interest Income) x (1 - Effective Tax Rate)` 12. `Free Cash Flow = Operating Cash Flow - Capital Expenditures` 13. `Ending Shares Outstanding = Beginning Shares Outstanding - (Share Repurchase Amount / Average Share Price)` 14. `Dividends Paid = Ending Shares Outstanding x Dividend per Share` ## Cross-Sheet Dependencies - The **Assumptions** sheet dictates the growth and margin profiles in the **Revenue Build** and **Income Statement**. - The **Revenue Build** feeds the top line of the **Income Statement**. - **Income Statement** Net Income flows to the top of the **Cash Flow Statement** and into Retained Earnings on the **Balance Sheet**. - The **Working Capital Schedule** calculates the change in NWC, which flows into the Operating Cash Flow section of the **Cash Flow Statement**. - The **PP&E and Intangibles Schedule** calculates Depreciation and Amortisation, which flows to the **Income Statement** (operating expenses) and **Cash Flow Statement** (non-cash add-backs). - The **Debt and Interest Schedule** creates a circular reference: Debt balances drive Interest Expense on the **Income Statement**, which impacts Net Income, which impacts Cash Flow, which determines the need for revolver borrowing or debt paydown on the **Debt Schedule**. ## Sign Convention - Revenue, assets, and equity balances are entered and displayed as positive numbers. - Expenses (COGS, SG&A, R&D, Interest) are entered as positive numbers in their respective schedules but subtracted in aggregation formulas (e.g., Gross Profit = Revenue - COGS). - On the Cash Flow Statement, cash inflows (e.g., Net Income, depreciation add-back, debt issuance) are positive. Cash outflows (e.g., capex, dividends, share repurchases, working capital increases) are negative. - Contra-assets (like Accumulated Depreciation) are positive numbers subtracted from Gross PP&E to yield Net PP&E. ## Things Most Likely to Go Wrong - The company changed its segment reporting in FY2025 from three segments to two; historical segment data before FY2024 must be recast to match the new Transportation and Industrial structure to avoid broken growth formulas. - The April 2025 acquisition of Richards Manufacturing for $2.3 billion adds significant inorganic revenue to the Industrial segment; failing to separate organic vs inorganic growth will overstate the baseline growth rate. - Adjusted Operating Income excludes acquisition-related amortisation and restructuring charges; mixing GAAP and non-GAAP metrics will result in incorrect margin calculations. - Foreign currency translation can swing reported revenue by 3% to 5% year-over-year; the model should ideally project on a constant-currency basis before applying an FX overlay. - The company frequently uses a 52/53-week fiscal year ending in late September; failing to adjust for the extra week in certain historical years (like FY2022) will distort year-over-year growth rates. - Copper and gold price volatility directly impacts COGS; assuming a flat gross margin without considering commodity super-cycles will lead to inaccurate profit forecasts. - The company generates significant cash but deploys it heavily into share buybacks; failing to model the declining share count will severely understate EPS growth. - Effective FY2026, the company changed its non-GAAP methodology to exclude all intangible amortisation; historical non-GAAP EPS must be adjusted to ensure comparability. ## Validation Checks - Total Assets must equal Total Liabilities plus Shareholders' Equity in every period. - Free Cash Flow conversion (FCF / Net Income) should consistently remain above 1.0x due to the company's strong cash generation profile. - Adjusted Operating Margin should remain in the 17.5% to 20.0% range; flag if it drops below 17% or exceeds 21%. - Capex as a percentage of revenue should run between 4.0% and 5.5%; flag if outside this band. - Debt / EBITDA should remain below 2.0x to align with the company's conservative balance sheet policy and credit rating. - Gross margin should stay within the 31.5% to 34.0% historical band. - The effective tax rate should be modelled between 17% and 20%, reflecting the company's Irish domicile and global manufacturing footprint. - Dividend payout ratio should remain between 30% and 40% of adjusted Net Income. ## Key Assumptions (Default Values) | Assumption | Default Value | Unit | Rationale | |---|---|---|---| | Transportation Solutions Organic Growth | 4.0 | % | Blended rate of flat auto production offset by increasing EV content per vehicle. | | Industrial Solutions Organic Growth | 6.5 | % | Driven by strong AI data centre connectivity demand and renewable energy upgrades. | | Gross Margin | 33.0 | % | Aligns with recent historical averages and operational efficiency gains. | | R&D as % of Revenue | 5.0 | % | Consistent historical spend required to maintain engineering leadership. | | SG&A as % of Revenue | 10.5 | % | Reflects recent cost control and footprint consolidation efforts. | | Restructuring Charges | 150 | USD Millions | Annual run-rate for ongoing footprint optimisation. | | Days Sales Outstanding (DSO) | 64 | Days | Based on historical receivables relative to sales. | | Days Inventory Outstanding (DIO) | 80 | Days | Reflects necessary buffer stock for global supply chains. | | Days Payable Outstanding (DPO) | 60 | Days | Based on historical supplier payment terms. | | Capex as % of Revenue | 4.5 | % | Management guidance for maintenance and EV/AI growth tooling. | | Effective Tax Rate | 18.5 | % | Blended global rate following the domicile move to Ireland. | | Weighted Average Interest Rate | 4.2 | % | Based on the current mix of fixed-rate senior notes. | | Annual Share Repurchases | 1,500 | USD Millions | Supported by the $2.5B authorisation and strong FCF generation. | | Dividend per Share | 2.60 | USD | Based on the FY2024 approved dividend rate. | | WACC | 8.5 | % | Standard discount rate for a large-cap, diversified industrial manufacturer. | | Terminal Growth Rate | 2.5 | % | Aligns with long-term global GDP and industrial production growth. | ## Data Sources & Benchmarks - **SEC Filings**: TE Connectivity EDGAR page for 10-K, 10-Q, and 8-K filings (specifically the 8-K detailing the FY2025 segment recast). - **Investor Relations**: investors.te.com for quarterly earnings presentations, the 2025 Investor Day slides, and historical financial recasts. - **Key Peers for Benchmarking**: Amphenol (APH), Aptiv (APTV), Sensata Technologies (ST), and Molex (private, Koch Industries). - **Industry Data**: S&P Global Mobility (for global light vehicle production forecasts) and Bishop & Associates (for connector industry market share and growth data). - **Consensus Estimates**: FactSet or Bloomberg for forward-looking street estimates on revenue and adjusted EPS. ## Sources - TE Connectivity FY2024 Annual Report on Form 10-K - TE Connectivity FY2025 Annual Report on Form 10-K - TE Connectivity Q4 2024 Earnings Press Release and Presentation - TE Connectivity Q4 2025 Earnings Presentation - TE Connectivity 2025 Investor Day Presentation - TE Connectivity Irish Statutory Accounts and Directors' Report --- ## Frequently asked questions ### What does TE Connectivity (TEL) do? TE Connectivity is a global industrial technology leader that designs and manufactures highly engineered connectivity and sensor solutions. Its products enable the distribution of power, signal, and data across harsh environments in end markets such as automotive, industrial equipment, aerospace, and data centers. ### What are the primary revenue drivers for TE Connectivity? TE Connectivity's revenue is primarily driven by its Transportation Solutions and Industrial Solutions segments, with direct sales to manufacturers globally. The company also benefits from secular tailwinds in electric vehicles and artificial intelligence, which boost demand for its highly engineered products. ### What are the key assumptions for TE Connectivity's revenue growth in financial models? A common assumption for TE Connectivity's revenue growth in financial models is approximately 4.5%. This growth is influenced by the company's global direct sales to manufacturers and its exposure to growing end markets like electric vehicles and AI. ### How does TE Connectivity's capital expenditure strategy impact its financial model? TE Connectivity's capital expenditure, typically ranging from 4.0% to 5.5% of revenue, is a significant input in its financial model. Approximately 60% of this capex is growth-oriented, heavily directed towards new tooling for EV platforms and high-speed data connectivity lines, reflecting its asset-heavy business model. ### How does TE Connectivity's M&A activity affect its balance sheet and valuation? TE Connectivity is a serial bolt-on acquirer, with significant goodwill and intangible assets from these deals representing 45% to 50% of total assets. Major acquisitions, such as the $2.3 billion purchase of Richards Manufacturing Co, materially impact its balance sheet structure and are key considerations for equity valuation. ### Is there a downloadable financial model available for TE Connectivity (TEL)? Yes, a comprehensive equity valuation and scenario planning Excel model for TE Connectivity (TEL) is available for download. This model provides forecasts through FY2030 and helps assess the impact of recent events and secular tailwinds on the company's intrinsic value. [Interactive forecast calculator](https://finamodel.com/companies/te-connectivity/forecast)