Terrence R. Curtin
Chief Executive Officer and Board Member at TE Connectivity
Thank you, Sujal, and I also appreciate everybody joining us today for the call.
As I'd like to do before we get into the slides and the details, I do want to take a moment to provide some performance highlights along with what we're seeing versus our call just 90 days ago. As we've shared in our calls throughout this year, we continue to be in a dynamic global economic environment. And I just want to take a few minutes of explaining what that means when you think about where TE is positioned.
First off, in our largest market, automotive, we're seeing stability on a global basis. In our Industrial Solutions segment, we continue to see growth in three out of our four businesses, and those businesses are focused on aerospace and defense, energy as well as medical applications. And in our Communications segment, like we talked last quarter, we have returned to growth and we are benefiting from acceleration in artificial intelligence applications.
Now, against these growth areas, we are still being offset by ongoing weakness in just the general industrial markets and we'll highlight where they are throughout the call and the Q&A. Within this backdrop, our sales in the third quarter were in line with our guidance and roughly flat year-over-year. I am pleased that we delivered strong adjusted margin expansion of 200 basis points year-over-year and adjusted EPS that exceeded our guidance. As we look at our performance year-to-date, our teams have delivered record adjusted operating margins and earnings per share even in a dynamic market environment, which demonstrates our strong operational performance.
Our results continue to reflect successful execution against the key initiatives we committed to coming into this fiscal year. We anticipated a slow demand environment overall in our markets, so our focus has been on driving margin and earnings improvement this year. Our teams have driven strong margin expansion year-over-year and this is most evident in our Transportation and Communications segments. The high quality of our earnings continues to be reflected also in our strong cash generation model, and I'm pleased with the record free cash flow of $2 billion through the first three quarters of this year, and we do expect this to continue into our fourth quarter.
Now, let me briefly share what we're seeing in our market since our call, 90 days ago, and what we're seeing in our order patterns, and I'll get into order patterns in more detail a little bit later. First off, in transportation, our outlook for global auto production is consistent with our view 90 days ago. We continue to see growth in China and that's offsetting incremental weakness in Europe. In our Industrial Solutions segment, our view remains unchanged. We continue to see three out of our four businesses with growth momentum and continued weakness in industrial equipment end markets. And as I said earlier in our Communications segment, our markets are back to growth and that's in both businesses. And finally, before we get to the slides, I do want to reiterate that our long-term value-creation model remains unchanged and it's centered around three pillars.
First off, is our portfolio is strategically positioned around secular growth trends, including adoption of renewable energy, applications for artificial intelligence, and growth in the global hybrid and electric vehicle production, along with further electronification of the vehicle. The second pillar of value creation is that we have operational levers to drive strong margin performance through economic cycles and you're seeing the results in this quarter and we have more opportunity as we go forward. And thirdly, we have established a strong cash generation model to return capital to shareholders while investing on bolt-on M&A opportunities as the opportunities present themselves.
By executing on these pillars, we expect to deliver double-digit earnings growth this fiscal year, driven by a couple hundred basis points of adjusted operating margin expansion. As we look beyond this year, we are set up for strong performance. We expect to continue to benefit from the secular growth drivers as well as also expect continued growth in areas like commercial aerospace, along with normalization of destocking and industrial equipment. This sets us up for an improved growth trajectory, leading to further operating earnings growth going forward.
Now, with that as an overview, I'd like to get into the slides and if you could look at Slide 3, I'll discuss some of the additional highlights for the third quarter and our outlook for the fourth quarter, then Heath will get into more details as he gets into his section. Our third quarter sales were $4 billion, which was in line with our guidance and up 2% organically year-over-year. Orders of $4.1 billion were up year-over-year and sequentially driven by momentum in artificial intelligence design wins.
Adjusted earnings per share was ahead of our guidance at $1.91 and this was up 8% versus the prior year. Adjusted operating margins were 19.3%, up 200 basis points year-over-year, driven by the strong operational performance of our teams. We are expecting fourth quarter sales of approximately $4 billion, including approximately $60 million of year-over-year currency exchange headwinds. On the margin front, quarter four will be another quarter of strong year-over-year expansion and we expect adjusted earnings per share to be approximately $1.94, which will be up 9% year-over-year and which includes a $0.10 headwinds from both currency exchange rates and a higher tax rate.
I talked to you earlier about the performance we've been driving in this market environment. And when you think about what's implied for the full year given our fourth quarter guidance, you really get to see the strong performance with adjusted earnings per share expected to be up 12% year-over-year with sales that are essentially flat.
So with that as a brief overview, let me get into some more details on order trends and they're on Slide 4 of the presentation we posted. Our orders were up 4% year-over-year and 3% sequentially to over $4.1 billion, and we had a book-to-bill of 1.04. As I talk about orders by segment, I will be talking about orders sequentially as we believe this reflects business trends better.
At the company level, order growth was driven by the Communications segment, which grew over 50% sequentially. Growth was driven primarily by orders for AI applications with multiple customers and reflects that destocking in both data and devices and appliance are behind us. In Transportation, you'll see a slight sequential order decline, but this was really driven by weakness in commercial transportation and our sensors end markets that are tied really to the general industrial market. Our orders in auto were relatively flat sequentially. In industrial, order patterns continue to reflect ongoing destocking and industrial equipment end markets.
Now, let me get into year-over-year segment results and I'll start with our Transportation segment on Slide 5. Our auto business grew 4% organically against a global auto production decline of 1%. Our content growth over production was 5 points in the third quarter with strong double-digit organic sales growth in China, more than offsetting declines in Europe and North America. While we continue to see different production dynamics by region as well as some shifts in production of different powertrains, we continue to expect content growth in our second half and longer term to be in the 4 to 6 point range. Our growth over market will continue to be driven both by increased electric vehicle and hybrid production and greater electronification of the vehicle.
Turning to our Commercial Transportation business, the 8% organic decline that you see was driven primarily by weakness in Europe. We expect this business to be again down sequentially in the fourth quarter and expect the markets we serve to be down in the mid-to-high single-digits this fiscal year due to market declines that are happening in the West. In our Sensors business, the sales decline continue to be driven by market weakness in industrial applications as well as portfolio optimization efforts that we've discussed with you, where we're continuing to organically exit lower margin and lower growth products.
For the Transportation segment overall, adjusted operating margins were up to over 200 basis points to 21%, driven by continued strong execution on operational levers. We also continue to invest to support next-generation vehicles, whether they're around electrification of the powertrain, high-speed Ethernet for data applications in the vehicle, or miniaturized power and signal products to leverage next-generation architectural shifts by our global customers.
Now, let's get into the Industrial Solutions segment, and that's on Slide 6. In this segment, we continue to see the same trends we've been discussing all year. Sales were down slightly 2% organically. Our Aerospace, Defense and Marine business sales were up 19% organically, driven by growth both in commercial aerospace as well as defense markets. In medical, sales in the quarter were up 7% organically, driven by ongoing increases in interventional procedures. And in energy, sales were up 3% organically, driven by strength in the Americas and Europe with continued strong momentum in renewable applications.
As you can see on the slide, the pocket weakness for the segment is in the industrial equipment business, where our sales were down 24% organically. While we are starting to see some signs of order patterns flattening, we still expect to see year-over-year declines in this business in the fourth quarter as our OEM customers and channel partners continue to reduce inventory levels.
Industrial segment adjusted operating margins were 15.1%, which was in-line with our expectations given current volume levels and business mix. We continue to expect the segment margins to run in the mid-teens until the industrial equipment business returns to growth.
Now if you could turn to Slide 7 and I'll get into the discussion around the Communications segment. First off, and you can see it on the slide, I am excited about the return to year-over-year growth and our strong margin performance. In data and devices, we grew 32% organically and our design wins are reflecting accelerating momentum.
I discussed our order momentum earlier, and based upon these wins, we are increasing our near-term expectations of AI revenue to over $250 million this year, and we expect this to more than double as we get into 2025. In our appliances business, we grew 12% organically, driven by both the Americas and China. From an operating margin perspective, the segment had adjusted margins of 20%. This was up over 600 basis points over the last year, driven by the higher volumes coupled with stronger operational performance.
So with this as a quick summary of our segment performance, let me turn it over to Heath, who is going to get into more details on the financials and our expectations going forward.
