What happened
Shares of TE Connectivity (TEL +0.00%) gained 18.5% in value last month, according to data from S&P Global Market Intelligence.
The company took a hit in late 2018 stemming from a slowdown in automotive demand in China. The transportation solutions segment made up 59% of TE Connectivity's fiscal 2018 revenue, so as soon as investors sensed weakness, they were quick to bail out, and the stock fell sharply to close out calendar 2018.
However, as sometimes happens, market participants were too quick to jump to conclusions. The business environment hasn't been as weak as investors anticipated last fall. Since the start of 2019, shares of TE Connectivity have rebounded 20%.
IMAGE SOURCE: GETTY IMAGES.
The company released better-than-expected earnings results for the fiscal second quarter in late April, which sent the stock higher.
So what
Sales in the last quarter were still down by 4% year over year, stemming from weakness in China. However, adjusted operating margin improved sequentially to 17.5%. As a result, adjusted earnings per share exceeded the high end of guidance, driven by cost controls.
Now what
Based on the strong performance on the bottom line, management raised its adjusted earnings guidance for the year. It now expects adjusted earnings to be in the range of $5.55 to $5.65, which would be flat over fiscal 2018. But the earnings guidance reflects a margin improvement, given that guidance calls for sales to be down by 2.5%.
Management believes that when demand returns, the company will be better positioned to grow earnings as a result of its operational discipline. In the short term, TE Connectivity should be able to weather softness in the automotive market, given that it sees content growth as cars become more computerized.
