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TE Connectivity Management Discusses Q3 2012 Results - Earnings Call Transcript

The press release and related tables, along with the slide presentation, can be found on the Investor Relations portion of our website at

[Operator Instructions] Now let me turn the call over to Tom for some opening comments.

Thomas J. Lynch

Thanks, Keith, and good morning, everyone. If you can turn to Slide 3, I'll give you a quick summary of Q3 and an overview of our Q4 outlook.

Q3 results were as follows: Sales of $3.5 billion were up 8% sequentially. This was slightly below our expectations, due to further weakening of the euro which had about a negative $50 million effect and a slower-than-expected recovery in our Network Solutions segment.

Adjusted operating margin improved 100 basis points sequentially to 14% and very importantly, sequential improvement in all of our segments. Adjusted earnings per share of $0.79 were at the midpoint of our guidance, despite the lower sales. And this is an improvement of 16% sequentially and 4% year-over-year. This year-over-year EPS improvement was on a slight sales decline.

Free cash flow is very strong at $414 million and that was up 19% over the prior year.

Uncharacterized Q3 for us is a quarter of good execution. Strong cost control and productivity improvement enabled us to improve operating margins back to the 14% level despite lower-than-expected sales. And importantly, margins improved across all segments.

In CIS, margins improved 100 basis points sequentially and are essentially at prior year levels on sales that are 12% lower than the prior year. We do expect additional margin improvement in CIS in the fourth quarter.

We completed the acquisition of Deutsch in April. The integration is on track and as expected. In Q3, Deutsch added about $0.04 of EPS as expected. We're excited about the opportunities this acquisition will provide. They have excellent products and technology as we've discussed before. We're going to add strong channels, the scale to drive cost down and better customer service, and the results we're seeing are a little better than planned, despite the markets being a little softer. We're very -- we're really excited about the quality of the team that joined TE.

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