Sensata Technologies (NASDAQ:ST) Q3 Sales Beat Estimates But Quarterly Guidance Underwhelms

Radek Strnad /
2021/10/26 6:12 am EDT
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Analog sensors manufacturer Sensata Technology (NYSE:ST) reported strong growth in the Q3 FY2021 earnings announcement, with revenue up 20.6% year on year to $951 million. On the other hand, guidance for the next quarter missed analyst expectations with revenues guided to $910 million, or 3.17% below analyst estimates. Sensata Technologies made a GAAP profit of $84.9 million, improving on its profit of $76.7 million, in the same quarter last year.

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Sensata Technologies (ST) Q3 FY2021 Highlights:

  • Revenue: $951 million vs analyst estimates of $929.7 million (2.28% beat)
  • EPS (non-GAAP): $0.87 vs analyst estimates of $0.83 (4.47% beat)
  • Revenue guidance for Q4 2021 is $910 million at the midpoint, below analyst estimates of $939.8 million
  • Free cash flow of $88.4 million, down 30.3% from previous quarter
  • Inventory Days Outstanding: 80, up from 70 previous quarter
  • Gross Margin (GAAP): 33.8%, up from 32.7% same quarter last year

"Sensata’s third quarter revenues reflect a continuation of strong growth associated with recovery across our heavy vehicle, industrial, and aerospace markets. Sensata’s automotive revenue also grew over the same period last year due to significant outgrowth and channel replenishment despite production declines due to constraints stemming from semiconductor and other component shortages,” said Jeff Cote, CEO and President of Sensata.

Originally a temperature sensor control maker and part of Texas Instruments for 60 years, before eventually being spun out, Sensata Technology Holdings (NYSE: ST) is a leading supplier of analog sensors used in industrial and transportation applications, best known for its dominant position in the tire pressure monitoring systems in cars.

Sales Growth

Sensata Technologies's revenue growth over the last three years has been slow, averaging 5.12% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $788.3 million to $951 million. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Sensata Technologies Total Revenue

This was a decent quarter for Sensata Technologies as revenues grew 20.6%, topping analyst estimates by 2.28%. This marks 4 straight quarters of revenue growth, implying we are mid-cycle for Sensata Technologies, as a typical upcycle tends to last 8-10 quarters.

Sensata Technologies believes the growth is set to continue, and is guiding for revenue to still grow next quarter, and Wall St analysts are estimating growth 5.31% over the next twelve months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as the cyclical nature of semiconductor supply and demand impacts profitability. In a tight supply environment, inventories tend to be low, allowing chipmakers to exert pricing power, which helps increase gross margins. The inverse also applies, as rising inventory levels tend to foreshadow weakening pricing power and declining gross margins.

Sensata Technologies Inventory Days Outstanding

This quarter, Sensata Technologies’s inventory days came in at 80, 2 days above the five year average, suggesting that inventory has grown to a level slightly above the long term average.

Key Takeaways from Sensata Technologies's Q3 Results

With a market capitalization of $8.97 billion Sensata Technologies is among smaller companies, but its more than $1.95 billion in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

We were excited to see that earnings and revenue outperformed Wall St’s expectations. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and there was an increase in Sensata Technologies’s inventory levels. Overall, this quarter's results seemed mixed. The company is flat on the results and currently trades at $56.7 per share.

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The author has no position in any of the stocks mentioned.