Sensata Technologies's (NYSE:ST) Q4 Sales Top Estimates But Quarterly Guidance Underwhelms

Adam Hejl /
2023/01/31 6:06 am EST
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Sensor manufacturer Sensata Technology (NYSE:ST) reported results ahead of analyst expectations in the Q4 FY2022 quarter, with revenue up 8.56% year on year to $1.01 billion. However, guidance for the next quarter was less impressive, coming in at $975 million at the midpoint, being 2.18% below analyst estimates. Sensata Technologies made a GAAP profit of $113.1 million, improving on its profit of $111.9 million, in the same quarter last year.

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Sensata Technologies (ST) Q4 FY2022 Highlights:

  • Revenue: $1.01 billion vs analyst estimates of $998 million (1.66% beat)
  • EPS (non-GAAP): $0.96 vs analyst estimates of $0.88 (9.64% beat)
  • Revenue guidance for Q1 2023 is $975 million at the midpoint, below analyst estimates of $996.7 million
  • Free cash flow of $185.2 million, up from $57.4 million in previous quarter
  • Inventory Days Outstanding: 87, down from 89 previous quarter
  • Gross Margin (GAAP): 33.5%, down from 35.3% same quarter last year

"Sensata continued to execute its strategic growth plan and delivered 10.0% organic revenue growth in the fourth quarter and a record $4.0 billion in revenue for the full year, including revenue growth outpacing markets served by 820 basis points,” 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.

Demand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.

Sales Growth

Sensata Technologies's revenue growth over the last three years has been unimpressive, averaging 7.8% annually. And as you can see below, last year has been even less strong, with quarterly revenue growing from $934.5 million to $1.01 billion. 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

While Sensata Technologies beat analysts' revenue estimates, this was a very slow quarter with just 8.56% revenue growth. This marks 9 straight quarters of revenue growth, which means the current upcycle has had a good run, as a typical upcycle tends to be 8-10 quarters.

Sensata Technologies's revenue growth is expected to go negative next quarter, with the company guiding to decline of 0.07% YoY next quarter, but analyst consensus sees growth of 2.01% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.

Sensata Technologies Inventory Days Outstanding

This quarter, Sensata Technologies’s inventory days came in at 87, 6 days above the five year average, suggesting that despite the recent decrease the inventory levels are still higher than what we used to see in the past.

Key Takeaways from Sensata Technologies's Q4 Results

With a market capitalization of $7.01 billion Sensata Technologies is among smaller companies, but its more than $1.22 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 impressed by how strongly Sensata Technologies outperformed analysts’ earnings expectations this quarter. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and the revenue growth was quite weak. Overall, this quarter's results could have been better. The company is flat on the results and currently trades at $46 per share.

Should you invest in Sensata Technologies right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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