Terrence R. Curtin
Chief Executive Officer and Board Member at TE Connectivity
Thanks, Sujal, and thank you, everyone, for joining us today. Before we get into the slides, and as I typically do, I want to take a moment to discuss our performance this quarter within the backdrop of the market environment along with what we're seeing versus our last call, 90 days ago.
I am pleased with the execution of our teams in the third quarter with revenues that were in line and EPS that was ahead of our guidance due to strong performance across all three segments. Our Transportation and Industrial segments grew year-over-year, which essentially offset the expected declines in our Communications segment. Our adjusted operating margins expanded 130 basis points sequentially without the benefit of any volume growth.
We delivered on the actions that we've been driving to ensure margin expansion occurred as we move through this fiscal year. New also as important, you're going to continue to see the benefits from the strategic positioning of our portfolio around secular growth trends, including increased global production of electric vehicles, adoption of renewable energy, and applications for cloud and artificial intelligence.
In the quarter, our orders of $4 billion are not only indicating stability in Transportation and Industrial but also in our Communications segment as well. I view the order trends to be a real positive and they are reflecting the improving supply chains and reinforce our fourth quarter guidance, which I'll get into more details in a moment.
As we've been sharing with you one of the key areas of focus this year has been working capital management as supply-chain performance improves. Our street -- strong free cash flow performance reflects our focus both in the quarter as well as you see that year-to-date. Cash generation is an important part of our business model and year-to-date free cash flow was up 40% versus last year. Also, our capital strategy continues to remain disciplined and we've returned roughly $1.2 billion of capital to our owners so far this year
Let me now provide some additional color on our markets and other updates since our last call. So, on an overall basis, our markets are playing out as we expected. We have most of our key end-markets markets and a growth or recovery trajectory and we have a few markets that continue to cycle and these we've previously discussed with you.
Our view of transportation end-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 globally. Our growth in the Transportation area will continue to be driven by content outperformance and our leading global position in electric vehicles.
Turning to our Industrial segment. We have three businesses that continue to have strong growth momentum. You will continue to see our strong positioning and renewable energy with growth from both wind and solar applications. In commercial air, sales continue to grow as this market recovers and our medical business is benefiting from increases in interventional procedures.
In our Communications segment, while sales were down significantly this year versus last year's cyclical peak, the order trends are indicating stabilization at the current levels. And finally, I do want to reinforce that the way we think about long-term value creation remains unchanged. It's built on the pillars of secular growth trends that will drive increased content in the markets where we position TE, strong free cash flow generation with discipline around how we deploy capital, and levers to enable margin expansion as we move forward. While our orders are indicating stability. We continue to see strong opportunities to expand sales, margins, and earnings per share as we move forward.
So, at this time, I want to get into slides and we'll discuss some additional highlights and if you could turn to Slide 3, I'd appreciate it. Our third quarter sales were $4 billion and this was in line with our guidance and down slightly year-over-year on a reported and an organic basis. We saw organic growth of 7% in our Transportation segment and 2% in our Industrial segment. Our Communications segment declined due to the expected market weakness that we've been talking to you about.
Adjusted earnings per share was ahead of our guidance at $1.77 with adjusted operating margins of 17.3% and these margins were up 130 basis points sequentially as I already mentioned. The margin improvement from quarter two to quarter three was driven by our Transportation and Industrial segments as we are delivering on our commitment to expand margins from the first half to the second half of this year. Our earnings per share performance that was ahead of guidance was driven primarily by the stronger margin performance.
As we look forward, we are expecting our fourth quarter sales to be approximately $4 billion and adjusted earnings per share to be around $1.75, which are both similar to our quarter three levels. Also somewhere during the third quarter, we do expect year-over-year sales growth in our Transportation and Industrial segments and a decline in our Communications segment revenue.
Just moving away from the financials for a moment, I do want to highlight that we issued our Corporate Responsibility Report, which we call Connecting Our World connecting our world and we've issued this report for over a decade. There are a number of initiatives that we're driving internally and our goals are in line with our purpose as well as expectations from our customers. The key highlights in the report versus prior year includes an over 30% reduction in our absolute Scope 1 and 2, greenhouse gas emissions, and currently I want to highlight that 50% of the electricity in TE comes from renewable sources new.
I also want to know that we communicated our commitment to the ScienceBased Targets initiative, which enhanced targets for greenhouse gas reduction by 2030 that are inclusive of Scope 3 emissions. So with that as a quick background on Slide 3, let's move to Slide 4, and I want to talk about our order trends. On the slide, you can see the details on the moving pieces, but I do think the key takeaway is that our orders are reflecting stability in all three of our segments, and this is nice to say after some of the order patterns we've had over the past couple of years and these orders reflect and reinforce our guidance for the fourth quarter.
When you look at our Transportation and Industrial orders they are both roughly flat from the second to the third quarter. The real highlight are where you see the changes in our Communications segment where our orders increased 5% sequentially and this is the first sequential increase in our Communications segment orders since the first quarter of fiscal 2022.
So with that quick overview of orders, let me now discuss the year-over-year segment results that are laid out on Slides 5 through 7 and you can see the details and I'll just talk about the high points. In our Transportation segment sales growth remains strong and it was up 7% organically year-over-year with organic growth across all of our businesses. Our auto business grew 9% organically and we had growth in all the regions of the world. The strong performance continues to be driven by our leading position in electric vehicles as well as electronification trends in cars and positive impacts from pricing. While auto production is staying flat at about 20 million units per quarter, production of hybrid and electric vehicles are continuing to grow and right now reflects about 25% of total global auto production in our fiscal '23.
As you know, we generate approximately two times the content in electric vehicle platforms versus a combustion vehicle. So we expect our content per vehicle to continue to expand as we move forward and the increased adoption of electric vehicles. Elsewhere in the segment, our commercial transportation business, we saw 2% organic growth in the third quarter, and in our Sensors business, our 4% organic growth was driven by automotive applications as we see increased volumes from new design-wins.
At the margin level. In the segment adjusted operating margins were 18.6% in the quarter and this was up 130 basis points year-over-year and 200 basis points sequentially as a result of operational performance, including the benefit of price increases.
Now let me move over to the Industrial segment. At the segment level, sales increased 2% organically year-over-year, but we had strong organic growth in three out of the four businesses in the third quarter. Our AD&M business, our sales were up 13% organically and we're benefiting from the ongoing improvement in the commercial air market. In medical, sales in the quarter were up 11% organically driven by ongoing increases in interventional procedures.
Turning to our energy business, we continue to see momentum with 8% organic growth driven by renewable applications. The addressable market for TE and renewable applications has a double-digit CAGR and we are helping to enable utility-scale solar and wind farm deployments. Through our broad product portfolio, we are helping our customers reduce installation, as well as maintenance cost and we expect our sales from renewable applications to be up double-digits again this year. What's really nice in this business is that the current quarter continues to demonstrate the growth momentum that we've been delivering in this business which has had an organic sales CAGR of 8% since 2019.
And finally, in the Industrial segment. In our Industrial Equipment business, our sales were down 10% organically and this sales decline was driven by inventory digestion in the distribution channel and it's being driven by improvements in the broader supply chain that we're all feeling. In the Industrial segment, adjusted operating margins were 15.8% and these margins reflect the impact of the expected volume declines in the industrial equipment business and I want to highlight that we remain committed to achieving our high-teen margins target for this segment.
Now let me turn to the Communications segment, and in this segment, our sales were down 37% organically to $424 million and it was slightly lower than we expected. Versus last year's cyclical peak, appliances and our data and device businesses are being impacted by market weakness and the ongoing consumption of inventory across our customer's supply chain that we previously discussed with you. Despite this weakness in sales, we maintained adjusted operating margins in the mid-teens range at 14.2% revenue. Based upon the order trends, I talked about earlier, we believe Communications revenue will be roughly flat to quarter three levels in the fourth quarter with adjusted operating margins remaining in the mid-teens.
Now with the Communications segment, I do want to look beyond the near-term for a moment and really talk about what we get excited about, especially in our D&D business as it continues to have strong design-win momentum in next-generation AI platforms. When you think about where we play, we focus on providing the high-speed, low-latency connectivity to meet the needs of these next-generation data centers. Last quarter we mentioned that we secured one billion dollars in design wins for AI and certainly related server applications and I just want to highlight for you this number continues to grow.
We expect meaningful ramps of AI programs as we move through fiscal '24 with 50% more content in an accelerated compute AI platform versus a traditional compute server. The other key highlight is we're working closely with cloud customers, as well as leading semiconductor companies with reference designs, I call out are TE connectivity solutions.
So with that as a wrap-up, let me turn it over to Heath, who will get more details on the financials as well as our expectations going forward.
