TE Connectivity (TEL) Q4 2025 earnings review
Industrial Segment Powers Record Quarter as AI Momentum Accelerates
TE Connectivity beat expectations, reporting record Q4 sales of $4.75B (+11% organic) and Adjusted EPS of $2.44 (+25% YoY). The performance was driven by the Industrial Solutions segment, which grew an explosive 24% organically, fueled by AI-related demand that tripled to over $900 million for the full year. The Transportation segment remained stable but sluggish (+2% organic). Strong Q1 FY26 guidance for 11% organic sales growth suggests momentum will continue into the new year, solidifying AI as the company's primary growth engine.
🐂 Bull Case
The AI business tripled to over $900M in FY25, and management expects dollar growth of at least $600M in FY26. Strong orders and ramps with hyperscalers provide excellent visibility for this key driver.
The company delivered record full-year adjusted operating margins of ~20% and FCF of $3.2B. The Industrial segment's margin expanded by 290bps in Q4, demonstrating strong flow-through on higher volumes.
🐻 Bear Case
The Transportation segment, representing half of sales, grew just 1.6% organically. Weakness in Western auto markets and the Sensors business continues to be a significant drag on overall corporate growth.
The company is increasingly reliant on the high-growth but potentially volatile AI and data center market. Any slowdown in hyperscaler capex would pose a significant risk to the growth narrative.
⚖️ Verdict: 🟢
Bullish. The sheer force of the AI-driven growth in the Industrial segment is more than compensating for the sluggishness in Transportation. The company is executing exceptionally well, expanding margins, and generating massive cash flow. The strong guidance confirms this momentum is set to continue.
Key Themes
AI Demand Fuels Explosive Industrial Growth
The Industrial Solutions segment was the standout performer, growing 24% organically. This was led by the Digital Data Networks (DDN) sub-segment, which grew 80% YoY. For the full year, AI-related sales tripled from $300M to over $900M. Management is confident in the outlook, expecting at least another $600M of dollar growth in FY26 based on strong orders and program ramps with hyperscalers.
Transportation Segment Remains a Laggard
While Industrial Solutions booms, the Transportation segment remains stagnant, growing only 1.6% organically in Q4. This weakness is broad-based within the segment. The Automotive business grew just 2.0% organically, dragged down by a 4% decline in Western regions. The Sensors business contracted by 6.1% organically, continuing its poor performance. This segment is significantly lagging the company average and represents a major drag on growth.
Energy and Aerospace Provide Diversified Growth
Beyond AI, other parts of the Industrial segment showed continued strength. The Energy business grew 24% organically, driven by grid modernization and renewable energy investments. The Aerospace, Defense, and Marine business grew 7% organically, reflecting ongoing recovery in commercial air and strong defense demand. These businesses provide important diversification to the growth story.
Medical Business Continues to Contract
Despite a positive overall narrative, the Medical sub-segment posted another quarter of negative growth, declining 16.4% YoY. In the prior two quarters, the declines were 24.5% and 13.7% respectively. Management noted sales were 'flat sequentially, as expected' after customer inventory normalization, but the steep annual decline remains a persistent headwind for the Industrial segment.
Exceptional Cash Generation and Capital Deployment
The company generated a record $3.2B in free cash flow for the full fiscal year, representing a conversion rate well over 100% of adjusted net income. This financial strength allowed for significant capital deployment, with $2.6B used for bolt-on acquisitions and $2.2B returned to shareholders during the year.
General Industrial Markets Show Signs of Stability
Management noted that order rates in general industrial end markets improved, suggesting stability after a prolonged period of weakness. The Automation & Connected Living business grew 11% organically, a positive sign. However, CEO Terrence Curtin maintained a cautious tone about the broader macro environment, describing it as 'uneven'.
Other KPIs
Orders grew 22% YoY and 5% sequentially, reaching $4.7B. The book-to-bill ratio was 0.99 for the quarter ($4.7B orders vs $4.75B sales), which is healthy considering the strong revenue performance and typical sequential seasonality expected in Q1. This strong order book supports the robust Q1 guidance.
The company's cash generation remains a core strength. Full-year free cash flow was up 14% YoY to a record $3.21B. This was achieved while increasing capital investments by several hundred million dollars to support growth in the Industrial segment, demonstrating high-quality earnings.
Guidance
Accelerating slightly. The guidance implies ~17% reported and 10.6% organic growth YoY. This represents a slight acceleration from Q4's 11.1% reported organic growth rate. The sequential decline from Q4's $4.75B is due to normal seasonality, including holiday shutdowns in Western markets.
Decelerating slightly but strong. This implies ~23% YoY growth from a recast Q1 FY25 base of $2.05. This is a modest deceleration from Q4's 25% YoY growth but remains very robust. Note: This guidance reflects a change in non-GAAP reporting to exclude intangible amortization, making it appear higher than historical figures.
Beginning in Q1 FY26, the company will exclude intangible asset amortization from its adjusted non-GAAP metrics. This will increase reported Adjusted EPS by approximately $0.15 per quarter. All historical data has been recast by the company to allow for like-for-like comparisons.