TE Connectivity (NYSE:TEL) reported fiscal second-quarter 2026 results that management said reflected broad-based growth, record orders, and continued margin expansion, while also raising its outlook for AI-related revenue in the second half of the year.
Quarterly performance and updated outlook
CEO Terrence Curtin said the company delivered “strong financial performance” in the quarter, including reported sales growth of 15% year-over-year and earnings growth of 24%.
For the fiscal third quarter, TE expects sales of about $5.0 billion, which Curtin said would represent 10% growth year-over-year, with both segments growing sequentially and year-over-year. The company expects adjusted EPS of around $2.83, up 17% from the prior year period.
Record orders and backlog build
TE reported second-quarter orders of $5.3 billion, representing a book-to-bill ratio of 1.12. Curtin said orders grew year-over-year “in every business and in all regions,” and he characterized the quarter as a record period for orders.
On the call, Curtin said the company has now “stacked about $10 billion of orders” across the first half of the year, citing $5.0 billion in orders in the first quarter and $5.3 billion in the second. He said backlog has been building, and that order momentum continued into April. “In the first month since quarter end, the order momentum continues to be very strong,” Curtin said, adding that he had not seen “any demand negative impacts” in orders since the outbreak of geopolitical conflict referenced by an analyst.
Curtin also pointed to the mix of growth, stating that more than 70% of the company’s year-over-year order growth in the quarter came from the Industrial segment, where orders rose 40%.
Industrial segment driven by data networks, energy, and aerospace/defense
Industrial Solutions sales grew 27% year-over-year in the quarter and 17% organically, according to Curtin. He said the segment benefited from demand tied to AI and energy grid investments, along with continued growth in aerospace and defense and factory automation applications.
In Digital Data Networks (DDN), Curtin said the business grew nearly 50% year-over-year in the quarter. He added that TE continues to win new programs and that orders have been building backlog into 2027.
Notably, Curtin said TE now expects fiscal 2026 AI revenues to be about $150 million higher than it forecast 90 days earlier, and that the entire increase will occur in the second half of the year. In response to a question from Melius Research’s Scott Davis about timing, Curtin said the additional $150 million “relate[s] to the second half,” reflecting a mix of ramping existing programs and “new ramps that are coming on.” Curtin also disclosed that year-to-date DDN orders were $2 billion and said the added $150 million in the second half would bring DDN AI revenue to “approaching $2.4 billion.”
Elsewhere in Industrial, Curtin said:
- Automation and Connected Living grew 8% organically year-over-year, with growth in each region.
- Energy sales grew 60% including the Richards acquisition; organically, sales increased 11%. Curtin attributed organic growth to energy grid hardening, data centers, and clean energy applications.
- Aerospace and defense sales grew 5% organically, driven by growth in both commercial aerospace and defense, with Curtin citing favorable demand trends and supply chain improvements.
- Medical sales grew sequentially as expected, driven by investment and growth in therapies such as structural heart and electrophysiology.
Industrial adjusted operating margins expanded 260 basis points to “nearly 22%,” which Curtin attributed to strong operational performance and higher volume.
On energy, Curtin provided additional mix detail during Q&A, saying roughly “60% or two-thirds” of TE’s energy exposure is tied to utility and grid hardening, about 20% is industrial applications (such as data centers, industrial complexes, and semiconductor fabs), and the remainder relates to clean energy and renewables. He said the clean energy portion has seen some policy-related slowing, but described utility hardening and industrial/data center demand as “full steam ahead.”
Transportation results, inflation pressures, and capital allocation
Transportation segment sales grew 5% year-over-year but were “down slightly organically,” Curtin said. Within the segment:
- Automotive sales increased 2% reported and declined 4% organically. Curtin said the company outperformed declining auto production due to content growth in Asia and Europe, and he reiterated an expectation for 4 to 6 points of content growth in fiscal 2026, with TE running at the “low end” of that range year-to-date.
- Commercial transportation sales rose 21% reported and 17% organically, with Curtin citing improvement in Europe and Asia and stabilization in North America, along with share gains and increased content per vehicle.
- Sensors sales increased 2% reported and declined 3% organically, which Curtin said was in line with expectations.
Transportation adjusted operating margins were “nearly 22%,” according to Curtin.
CFO Heath Mitts said second-quarter adjusted operating income was “over $1 billion,” and adjusted operating margin was 21.7%. GAAP operating income was $954 million and included $8 million of acquisition-related charges, $10 million of restructuring and other charges, and $57 million of amortization expense. Mitts said he expects restructuring charges of roughly $100 million in fiscal 2026.
GAAP EPS was $2.90 and included a $0.39 tax benefit “primarily related to a settlement of prior period tax matters,” Mitts said, along with restructuring, acquisition, and other charges of $0.06 and amortization expense of $0.15. The adjusted effective tax rate was about 21% in the quarter; Mitts said the company expects 23% in the third quarter and about 22% for the full year, while anticipating cash taxes to remain “well below” the adjusted effective tax rate.
Mitts also said the company is seeing “increased inflationary pressures across certain input costs, such as oil-based resins and freight charges,” driven by higher energy costs and geopolitical tensions. He said TE is addressing these pressures through factory footprint optimization, targeted pricing, and productivity initiatives. In response to questions about margin impact, Mitts said there is “a little bit of noise” in margins due to timing between cost changes and pricing actions, but reiterated the company’s commitment to achieving at least 30% year-over-year operating income flow-through.
On capital spending, Mitts said TE has increased its capital expenditures and expects CapEx to run about 6% of revenue this year. He said the increase is “almost entirely due to ramping the AI programs within our DDN business,” and added that investments are tied to specific awarded programs rather than speculation.
On M&A, Curtin said the company continues to like its portfolio and is focused on bolt-on acquisitions “to really make sure we capitalize on the growth trends.” Mitts added that the M&A pipeline is “pretty active,” with opportunities the company is evaluating for strategic fit and value creation.
During the call, Curtin also discussed TE’s view on copper versus optical connectivity in AI architectures. He said TE expects “it’s not copper or optical, it’s copper and optical,” and that the company recently acquired passive optical connectivity technology—described as complementary to TE’s portfolio—to strengthen its roadmap, particularly around high-density fiber array connections that link optical fiber to co-packaged optics.
About TE Connectivity (NYSE:TEL)
TE Connectivity (NYSE: TEL) is a global industrial technology company that designs and manufactures connectivity and sensor solutions used to enable the flow of power and data in a wide range of applications. Its product portfolio includes electrical connectors, cable and wire harness assemblies, sensors, relays and switches, fiber-optic and coaxial interconnects, and other passive and active components that provide mechanical and electrical connections in complex systems.
The company’s products and engineered solutions serve diverse end markets such as automotive and transportation, industrial equipment, data communications and networks, aerospace and defense, medical devices, and energy.
