TE Connectivity plc (TEL) — Q2 2023 Earnings Call Transcript

Good morning, and thank you for joining our conference call to discuss TE Connectivity’s second quarter 2023 results. With me today are Chief Executive Officer, Terrence Curtin; and Chief Financial Officer, Heath Mitts. During this call, we will be providing certain forward-looking information and we ask you to review the forward-looking cautionary statements included in today’s press release. In addition, we will use certain non-GAAP measures in our discussion this morning and we ask you to review the sections of our press release and the accompanying slide presentation that address the use of these items. The press release and related tables, along with the slide presentation, can be found on the Investor Relations portion of our website at te.com. Finally, during the Q&A portion of today’s call, we are asking everyone to limit themselves to one question and you may rejoin the queue if you have a second question. Now, let me turn the call over to Terrence for opening comments.

Thanks, Sujal. And I do appreciate everyone joining us today to cover our results for our second fiscal quarter along with our outlook for our third quarter. Through the details on the slides, I want to take a moment to discuss our performance this quarter within the backdrop of what remains a dynamic market environment along with what we’re seeing versus our last call 90 days ago. We continue to operate in a world with cyclicality and certain end markets as well as impacts from foreign currency exchange and inflation. At the same time, our strategic positioning of our portfolio around key secular trends, these include global growth in electric vehicle adoption, momentum and renewable energy adoption, growth in interventional medical procedures and wins in the artificial intelligence space. Growth from these trends are enabling us to offset the impacts from around us; we delivered 8% organic sales growth that was above our guidance and adjusted earnings per share that was ahead of our guidance as well. We remain on our journey to expand margins through a combination of growth, price increases and cost reduction actions. As we discussed back in the first quarter, our plan was to drive margin improvement from the beginning of this year as we enter next year. We are executing to this plan and you see this in the sequential margin progression in our Transportation segment in the second quarter and the sequential margin expansion at the company level that’s implied in our third quarter guidance. You all know that an important part of our business model is strong cash generation. With supply chain challenges driving our inventory levels down and along with our team’s strong operational performance, inventory reduction helped to drive free cash flow improvement of over 35% year-over-year in the first half and enabled us to continue strong returns on capital back to our owners. So let me now provide some color on markets that we’re seeing and other updates; with the macro environment we’re experiencing, it is driving uneven impacts across our portfolio. We have some markets that are growing, some that are remaining very stable and some that are cycling. And this is truly evident as we go through our second quarter results today where all our businesses in the Transportation and Industrial segments grew, while both of our businesses in the Communication segment declined. Our view of the transportation markets remained consistent with our prior view and we continue to expect auto production to remain roughly flat at approximately 20 million units per quarter as we move through the second half of our year. Our growth will continue to be driven by content outperformance and our leadership in electric vehicles. In our Industrial segment, when we spoke to you last quarter, all of our businesses were strong and our second quarter sales results reflect this. We continue to see strength in three out of our four businesses. Our commercial air business continues to recover. Our medical business had record quarterly sales and our energy business is gaining momentum in renewable applications. In our Communications segment, orders and sales remain weak due to both the market weakness and inventory corrections across our customers’ supply chains. Last quarter, we talked about being in a $450 million to $500 million quarterly revenue range and we now believe we will be at the lower end of this range for the next couple of quarters as inventory issues get worked out by our customers. And finally, before I get into the slides, I want to highlight the way we think about long-term value creation and that it’s remained unchanged. It is built on the pillars of secular growth and increased content around the markets where we have positioned TE. Strong free cash flow generation, a disciplined approach to capital allocation, and levers which will enable margin expansion as we move through this year as well as longer-term. So with that as a quick overview, let me get into the slides and discuss additional highlights that are on Slide 3. Our sales in the second quarter were $4.2 billion and it was ahead of our guidance driven by the strong orders we saw. Organic growth was 12% in the Transportation segment and 15% in the Industrial Solutions segment with organic growth in all businesses in these two segments. In our Communication segment, the decline was in line with our expectations. On a reported basis, sales were up 4% year-over-year and included approximately $155 million in negative currency exchange headwinds. In the quarter, our orders grew 10% sequentially to $4 billion and I will talk more about order trend dynamics by segment on the next slide. Adjusted earnings per share was ahead of our guidance at $1.65 and included a $0.17 of currency exchange and tax headwinds versus the prior year. Adjusted operating margins came in at 16%. Free cash flow for the first half of the year was very strong, at approximately $850 million with nearly $800 million being returned back to our owners. We expect continued strong cash generation in the second half along with strong free cash flow conversion this year. We are expecting our third fiscal quarter sales to be approximately $4 billion and adjusted earnings per share to be around $1.65. Our guidance represents a sequential decline in sales, a flat earnings per share, which implies margin expansion from the second to third quarter. We continue to be confident in margin expansion as we move from the first half, largely driven by our Transportation segment. Just moving away from the financials for a second, we are pleased that we were named among Fortune’s World’s Most Admired Companies. This is the sixth consecutive year that TE has received this recognition, which measures a number of criteria including a company’s investment value and product quality. Let’s talk about orders and let’s move to Slide 4 and we’ll talk about order trends as well as what we’re seeing in the markets. The sequential growth of our orders to $4 billion reflects increased stability in the supply chain as well as our team’s ability to improve the service levels to our customers. The key takeaway is that we’re continuing to see stability in Transportation, overall strength in the Industrial market and continued weakness in Communications. Looking at orders by segment, our Transportation orders grew 12% sequentially and this reinforces the stability I mentioned. In the Industrial segment, we saw sequential growth with continued momentum around renewable applications in our energy business, improving trends in commercial air and as well as our medical business, where we continue to see recovery. One change that we’ve seen since last quarter is that order patterns are indicating moderation in certain industrial equipment end markets. In the Communications segment, orders reflect continued weakness in the data and devices that we’ve discussed for a few quarters now, as well as the expected moderation of the appliances market. So with that brief overview around orders, let’s get into the year-on-year segment results that are highlighted on Slides 5 through 7 and you can see the details on each of these slides. Starting with Transportation, sales growth was strong up 12% organically year-over-year, with organic growth across all businesses. Our auto business grew 14% organically versus auto production that was up low-single digits versus the prior year. The outperformance was driven by our leading position in electric vehicles, along with electronification trends in the vehicle, and also some of the pricing that we have implemented. As we previously discussed, we were lagging in the recovery of inflationary pressures, but we’ve implemented price increases, which help us enable margin expansion as we go forward. While overall auto production is expected to remain flat for this fiscal year, we continue to expect production of hybrid and electric vehicles to be approximately 25% of global production in 2023. As you know, we generate twice the content in EV platforms versus ICE vehicles, so we expect our content per vehicle to continue to expand as we move through this year. In commercial transportation, we saw 7% organic growth driven by North America and Europe, partially offset by declines in China. We remain excited about our leading global position in the electric vehicles in the commercial transportation market. We continue to make significant progress with design wins at all the key truck, bus and specialty vehicle OEMs. We are providing a broad range of high voltage connectivity products, which are enabling our customers to solve fundamental challenges that they face in the EV space. These products operate at 1,000 volts throughout the vehicle, increasing the speed of battery charging and withstanding the harsh environment that’s expected in a heavy truck application. Turning to our Sensors business, we had 9% organic growth, which was driven by automotive applications as we see increased volumes from our new design wins. Adjusted operating margins were 16.6% as expected. While the dynamics of price versus inflation caused year-over-year impacts to margin, we saw an 80 basis point sequential improvement in the quarter reflecting the progress that I mentioned. We expect adjusted operating margins to improve sequentially again in the third quarter in the Transportation segment to get back into the high teens in the second half of the year. Moving to the Industrial segment, sales increased 15% organically year-over-year with organic growth across all businesses. Our Medical business had record quarterly sales at $200 million and had 26% organic growth. The interventional medical market was depressed following COVID, but is now back up to pre-pandemic levels, and it’s great to be talking about growth in medical again. In our energy business, we continue to see the growth momentum with 28% organic growth, completely driven by renewable applications. We are driving growth from both wind and solar applications, and the addressable market for TE in renewable applications has a double-digit CAGR. We’re enabling utility scale solar and wind farm deployments around the world. In this space, we provide switchgear and high voltage connectivity products, and to give you a little perspective, when we talk about high voltage and energy, these are measured in kilowatts, not volts like we discuss in vehicles. The application knowledge we bring on these higher wattage solutions is critical in enabling these renewable applications. We see our strong positioning playing out in the growth of the renewable applications. Our energy business is expected to represent nearly 25% of our total revenue. In aerospace, defense, and marine, our sales were up 19% organically with ongoing improvement in the commercial air market. Finally, in the industrial equipment business, our sales were up 3% organically, driven by growth in Europe, partially offset by weakness in the Americas and China. Adjusted operating margins for the segment came in at 14.6%, reflecting an impact from business mix as well as the effects of acquisitions and divestitures. We expect margins to expand sequentially into the third quarter and continue to target high teens margin for our industrial segment. Now let me turn to the Communications segment, where our sales were down as expected by 20% organically, but within the $450 million to $500 million range provided last quarter. The appliance market has declined as we expected across all regions. In data and devices, we were down due to market weakness and supply chain inventory digestion that I discussed earlier. Communications adjusted operating margins were 16.3% as we expected. As I mentioned earlier, we expect quarterly segment sales to be at the low end of the range we provided, closer to $450 million, and we think it’s going to remain there for the next couple of quarters. We believe adjusted operating margins at this lower volume will be able to maintain in the mid-teens. Looking beyond the near-term, I do want to highlight that our Data and Devices business continues to have strong design win momentum and next generation platforms that are serving the cloud data center market. As the rising complexity in artificial intelligence drives low latency architectures that need both high performance processing as well as interconnect, I'm pleased that we’re engaged with key ecosystem providers, including leading semiconductor and cloud companies. We have already generated over $1 billion of new design wins in AI and server applications and expect new programs to ramp up in fiscal 2024. With that backdrop of the segment performance, let me turn it over to Heath, who will get into more details on the financials and our expectations going forward.

Thank you, Terrence, and good morning, everyone. Please turn to Slide 8, where I will provide more details on the Q2 financials. Adjusted operating income was $664 million, with an adjusted operating margin of 16%. GAAP operating income was $537 million and included $62 million of restructuring charges, $57 million of other non-cash charges related to divestiture activities, and $8 million of acquisition related charges. Year-to-date, we have taken $166 million of restructuring charges and expect full-year restructuring charges to now be approximately $250 million as we continue to optimize our manufacturing footprint and improve the cost structure of the organization. Adjusted EPS was $1.65, and GAAP EPS was $1.34 for the quarter and included restructuring, acquisition, and other charges of $0.31. The adjusted effective tax rate was approximately 20% in Q2. For the third quarter and for the full year, we now expect our adjusted effective tax rate to be approximately 20%. Importantly, as always, we continue to expect our cash tax rate to remain well below our adjusted effective tax rate for the full year. Moving to Slide 9, sales of nearly $4.2 billion were up 4% reported and up 8% on an organic basis year-over-year. Currency exchange rates negatively impacted sales by $155 million and adjusted EPS by $0.15 versus the prior year. We expect foreign exchange to have a modest negative impact for both sales and EPS again in our third quarter on a year-over-year basis. Adjusted operating margins were 16% in the second quarter. Looking forward, we saw about 200 basis points of headwind to our adjusted operating margins year-over-year as a result of lower volumes in our Communications segment, combined with the impacts from currency exchange rates. We remain confident about margin expansion in the second half, and it’s important to note that we are not dependent on higher volumes to drive margin expansion. We have successfully implemented pricing actions to offset inflationary impacts in our Transportation segment, which will drive margin expansion at the company level as we move through the second half of our fiscal year. We also expect that industrial margins will modestly expand in the second half from Q2 levels. Communications should remain in the mid-teens at the expected volume levels that Terrence mentioned. It’s a good story here. The quarter we demonstrated our cash generation model of our business with cash from operations of $634 million. Free cash flow for the quarter was approximately $445 million. Through the first half of our fiscal year, free cash flow was $845 million, up 37% year-over-year with roughly $785 million returned to shareholders through share buybacks and dividends. We have actively driven our inventory levels lower as we see performance improving in our supply chain. Additionally, we reduced inventory again this past quarter, which contributed to our free cash flow performance. We continue to remain disciplined in our use of capital, and our long-term strategy remains consistent: return two-thirds of our free cash flow to shareholders and use one-third for acquisitions over time. I want to stress that our capital structure remains very strong, as evidenced by our robust credit profile, ample available liquidity, and ease of access to the capital markets. We are maintaining a consistent financial policy and a strong balance sheet. Before I turn over to questions, let me provide a quick recap. The strategic positioning of our portfolio is enabling us to deliver strong results from secular growth trends despite cyclicality in certain end markets. From a market perspective, the Transportation and Industrial segments are consistent with our view from 90 days ago, with ongoing cyclical weakness in our Communications segment as we expected. Our focus in the second half is to continue to generate strong free cash flow and expand our adjusted operating margins, driving to a higher margin rate as we enter fiscal 2024. We continue to demonstrate our strong cash generation model with a strong balance sheet that supports investments for growth. We remain excited about the opportunities ahead of us to drive long-term growth, margin expansion, and value creation for all of our stakeholders. With that, let’s open it up for questions.

Thank you, Heath. Chris, can you please get the instructions for the Q&A session?

Yes. Good morning. Thanks for taking the question. Could you comment in more detail on your end market expectations for the balance of the year and how that’s being impacted by the various cyclical cross currents and content drivers? And then on the topic of content, maybe elaborate if you could please on China in particular and how TE’s content per vehicle and share compares between China domestic auto OEMs and then your content with the multinational OEMs.

All right. Yes, thanks, Mark. Let me start with the first part of that, which is what are we seeing in the various markets and some of this will be repetitive but I’ll add a little bit of color. Clearly, there is unevenness in what we’re seeing. Most of the industrial space continues to be very strong. We have stability in transportation and communication markets where we do have inventory corrections, and market weaknesses. You have to frame it within those big buckets. If you think about transportation, automotive production remains well below the 90 million units we saw in 2019. For the past three years, it’s hovered around 80 million units. However, our automotive business is up by about $1.5 billion over the same period, while production is down. This growth is driven by the content trends we talk about every quarter, particularly in electric vehicles. This year, we expect to generate over $2 billion in revenue from electric vehicles, demonstrating strong content growth. Pricing actions have also contributed to growth by approximately 300 basis points. In terms of industrial businesses, the strength of three of our four sectors remains consistent. Our energy business will continue to grow. The commercial air market is on its recovery path, and our medical business is achieving record quarterly sales as interventional procedures return to pre-pandemic levels. Communication is a challenge right now, primarily due to expected inventory corrections and market pauses affecting cloud spending. Looking at China, we see the automotive market continuing to grow. It represents more than 20% of new vehicles sold as electric vehicles, generating significant content growth for us. We maintain equal share between local and multinational OEMs, and our strategy will remain agnostic to the OEMs as we capture content growth driven by electric vehicle adoption. In summary, content growth remains a bright spot amid market choppiness.

Okay. Thank you, Mark. We have the next question, please.

Thank you. So the auto business was up 16% organically in the first half of the year. So about double-digit outgrowth versus production, twice the targeted levels. How should we expect this trend into the back half of the year? The company in the prior response, you just called out about 300 basis points of price, I believe for auto this year. Is the back half stronger than the first half as the recent price increases are implemented or is that roughly flat throughout the year? Thank you.

Thank you for the question. It’s essential to be cautious when examining content over short periods due to supply chain elements. I do think the 300 basis points in price will benefit us as we continue to implement price adjustments. Looking at the electric vehicle landscape, we expect it will represent 25% of global production, which indicates a positive trajectory for our content growth. Historically, we’ve grown our content per vehicle significantly due to the surge in electric vehicle production. An added point is that inflation recovery measures through pricing will drive growth above our typical range.

Thank you, Chris. Can we have the next question, please?

Yes, thank you. Good morning. I was hoping to get some incremental color on the margins in Q2, where you made progress in transport, but industrials turned a bit lower. Also the detrimental margins on a year-on-year basis were much higher than normal. What drove that and how should we think about the overall margin and conversion margin trajectory through the course of this year? Thank you.

Hey Wamsi, this is Heath. I’ll take this one. The single biggest impact on TE margins on a year-over-year basis is the significant decline in the Communications segment. We expected this, given our previous guidance that margins in this area were overheated due to high volume leverage. We have a business shift from a quarterly run rate of roughly $600 million to $650 million down to $450 million to $500 million. The deleveraging can impact us quickly, particularly when we maintain a fixed cost structure. Adding to that, we’ve faced currency exchange challenges, which contributed to over 200 basis points of impact year-over-year. As we move forward, we anticipate margin improvements in both Transportation and Industrial, leveraging established pricing strategies, increasing service levels, and expectations of higher growth in different business segments. Communications will remain in the mid-teens pending volume stabilization.

Thank you, Wamsi. We have the next question, please.

Perfect. Thanks. I guess, I was hoping if you folks could spend a better time just talking about from a supply chain perspective, what are you seeing from a component availability, and then also the inflation side? And really on the inflation side, I’d love to understand if you think the price increases so far are adequately offsetting this or do you think more needs to be done here? And then just secondly, if I could get the clarification, could you just remind me what you are estimating from an auto production perspective in the June quarter? I think IHS mentioned 21.5 million units, so I’d love to get a sense of what you are guiding for on the auto production side. Thank you.

Sure. Let me address your auto production perspective first. We have consistently said that we expect to be around 20 million units for auto production for our fiscal years. This expectation has not changed as our environment continues to stabilize. As for supply chain and inflation concerns, I want to begin with our service levels. We’ve aligned our service levels back to where they were in 2019. The overall availability across the global supply chain has improved, which is a key factor driving our inventory reductions and building customer confidence. In terms of inflation, we’ve seen some deflationary impacts primarily in freight and logistics, while inflationary pressures in other areas remain steady. Our pricing actions have been effectively offsetting the inflation incurred over the past two years. We feel confident that as we recover from inflation trends, our margins should improve significantly.

Okay. Thank you, Amit. Can we have the next question, please?

Hey guys, good morning.

Hey Joe.

One just a quick clarification and then a question on an industrial and some of your other markets here. Just in China on EV, do you have a big spread between like a high-end Tesla type vehicle and a low-end kind of local manufacturer in terms of content? And then bigger picture, if I look at something like industrial equipment or IT obviously those are moderating here, but even with moderations, there’s still up a lot even adjusted for inflation or M&A from a pre-COVID level. So like if those markets experience a real reset, how much should we expect is reasonable in an economic downturn for something like that?

Let me take both of those. First, regarding content per vehicle in China, we should view it as an ongoing trend regardless of whether the OEM is a multinational or local player. EV adoption is a positive growth force for our business and Chinese consumers are increasing their demand for electric vehicles. Electric vehicles often generate higher content levels regardless of the manufacturing origin. On industrial equipment, this market encompasses various areas, including factory and building automation, and the shifts can differ significantly depending on the category. While you may see some moderation, the previously demonstrated strength across industrial equipment aligns with our long-term strategies driven by electric vehicle content and infrastructure development.

Okay. Thank you, Joe. Can we have the next question, please?

Hey, good morning, guys.

Hi, Scott.

I want to switch gears a little bit. And you mentioned AI a couple of times in the prepared remarks, but how material is this upgrade cycle? Is this a nice to have, or is this something that could be a multi-year powerful demand driver for you guys?

Indeed, this upgrade cycle, particularly due to AI, has the potential to be substantial. It’s not simply a ‘nice-to-have’ scenario but one that could provide multi-year demand opportunities, especially aligning with ongoing trends around cloud computing and advancements in telecom infrastructure. We are excited about the design wins we have secured, as the importance of low latency requirements will only intensify moving forward.

Okay. Thank you, Scott. Can we have the next question, please?

Yes, thanks. Good morning. Just wanted to dig into Transportation revenues a little bit more. It looks like it was well above your guidance. Production seemed maybe in line with guidance but there’s always some timing around supply chain and EV launches pull forward or more likely push out a little bit. So it sounds like you expect consistent revenue in the back half. Just curious what really changed in terms of volumes that came through versus expectations.

When evaluating Transportation, a significant portion of our overperformance last quarter emerged from larger-than-anticipated orders in Europe. Initially, we had concerns given the geopolitical context and energy costs, but European OEMs have been building aggressively. While China may be lagging behind, we remain confident in our continued stability across our revenue streams. The outlook for the back half of the year aligns with our expectations, factoring in cyclical variations, especially in China.

Okay. Thank you, Chris. Can we have the next question, please?

Yes. Thanks, and good morning, everyone.

Hey Matt.

I had a question regarding your distribution channels. I know that you’ve got a big concentration of distribution within your industrial markets, and I imagine you’re seeing some feed stocking in the industrial equipment market. But are you seeing that play out anywhere else or expectations that the distributors are going to start to cut inventories, particularly as lead times continue to come in?

Great question, Matt. When you examine our distribution landscape, it's significant in our Communications segment and industrial markets. For Communications, order levels have declined as distributors manage higher inventory levels. This trend is also observable in Industrial, albeit not as severe. While there’s ongoing inventory adjustment across the board, some industrial markets exhibit stability and require close monitoring. Overall, we are seeing signs of buffer stock depletion and gradual stabilization in the supply chain.

Okay. Thank you, Matt. Can we have the next question, please?

Yes, hi, thanks for taking my question. I guess thanks for all the color about the individual end markets. I was just trying to think of it in more aggregate terms when we take all your outlook for the different end markets auto activity here. Are we comfortable that in relation to cycling pass-through in relation to aggregate autos as you sort of match all those outlooks up by the end markets? I know you mentioned choppiness in China, but there was also a pretty material step up in production seen in China throughout the year. Is that what you’re maintaining caution around or are you seeing it in the orders yet? Thank you.

We noted a 12% increase in our Transportation orders, showing positive indicators. The Chinese automotive market typically ramps up production toward the end of the year, culminating in a large build during our December quarter. However, currently, we anticipate stability in auto production levels for the remainder of our fiscal year. Although we've encountered choppy conditions, the foundation appears solid as we work through the upcoming quarters.

Okay. Thank you, Samik. Can we have the next question, please?

Hi, good morning. I was just curious about the restructuring charges that you’ve taken year-to-date and plan to take for the full year. How are those flowing through the income statement? When are you expecting to realize benefits? What kind of return do you expect? It looks like more is going into Transportation and other segments based on what I saw in the slides; any color there would be helpful. Thanks.

Sure, Steven. We initially projected $150 million in restructuring charges for the year, which was consistent with our prior year expectations. However, due to emergent considerations, we increased that projection to $250 million. Much of this charge is concentrated in Transportation as we optimize our cost structure in response to a more challenging environment, particularly accentuated by recent cyclicality in the Communications and Industrial equipment sectors. The payback period historically has been around two years, but this new tranche may extend closer to two and a half to three years due to the elevated geographic complexities involved, particularly in Europe.

Okay. Thank you, Steven. Can we have the next question, please?

Great, thanks for taking my question. You all have done an excellent job of highlighting the content growth opportunity in EV and executing against it. At Tesla’s recent Analyst Day, they showed how in the Cybertruck and then also in the next-gen platform, they are transitioning the lower voltage part of the vehicle to a 40-volt architecture. This looks like it could drive significant content in terms of cabling and I suspect connectors as well. Can you talk about the degree to which this might have already become a trend at other OEMs or if it’s brand new and still on the com, what the impact, if any, you think this will have on your business? Thank you.

Good question, Will. It’s important to note that electrification is crucial to our business model. Even if we simplify hybrid and electric vehicle architects, the sophisticated cabling and connectivity requirements will elevate content. Increased system complexity translates to more interconnect needs despite apparent reductions in harnesses. The trends from EV architecture transformations create favorable conditions for TE, propelling overall content as we evolve with the industry's demands.

Thank you, Will. Can we have the next question, please?

Good morning. Thanks for taking the question. Question for Heath this morning. Heath, as you saw the change in mix develop during the quarter in Industrial, I’m wondering how the margins within the sub-segments performed or levered versus your expectations in the areas that are expanding right now. Should we view adverse mixes being more mechanical or are there levers you can pull to get to that better volume leverage out of those higher growth areas that you’re envisioning in the back half? If you could put a finer point on what you think margins might look like in Industrial in the back half, that’d be great too. Thank you.

Listen, Luke, we’re assessing a major impact from our industrial equipment business, which typically yields substantially higher margins than our other businesses within the segment. We maintain a level of optimism despite challenges in margin structure and mix. Notable improvements are present in commercial air, medical, and energy, although these sectors exhibit lower margins than industrial equipment. We expect overall margins in the industrial segment to incrementally improve in the second half of the year, as we will leverage established price levels, increasing volumes, and refined efficiency measures.

Okay. Thank you, Luke. Can we have the next question, please?

Hey, thanks so much. In the past, you’ve talked about typical price downs that you pay customers. I think normally it’s in the 1% to 2% range, especially within your automotive business. You have been taking price over the last couple of years through recoveries. But with the supply chains broadly stabilizing, I’m wondering if you expect that you’ll have to start those price downs with customers again. And if so, are you able to extract productivity from your own supply base or drive restructuring savings to kind of help mitigate that?

We are not currently seeing indications to implement traditional pricing reductions in the near term. We have maintained a strategic focus on boosting productivity and margins through appropriate pricing adjustments. If deflationary conditions arise, it might lead us to revisit our pricing strategies in later years, but presently we find ourselves amidst a recovery phase and engaged in sincere discussions with customers concerning pricing strategies.

Okay. Thank you, Shreyas. Before we wrap up, we have heard from some of you that we had patchiness of audio cutting in and out, so we are going to publish our earnings script on the Investor Relations portion of the website, and that should be up shortly. Thank you everyone for joining us today. And if you have any questions, please contact Investor Relations at TE. Have a nice morning. Thank you.