Sensor manufacturer Sensata Technology (NYSE:ST) met Wall Street’s revenue expectations in Q3 CY2024, but sales fell 1.8% year on year to $982.8 million. On the other hand, next quarter’s revenue guidance of $885 million was less impressive, coming in 8.1% below analysts’ estimates. Its non-GAAP profit of $0.86 per share was also in line with analysts’ consensus estimates.
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Sensata Technologies (ST) Q3 CY2024 Highlights:
- Revenue: $982.8 million vs analyst estimates of $984.5 million (in line)
- Adjusted EPS: $0.86 vs analyst expectations of $0.86 (in line)
- EBITDA: $217.6 million vs analyst estimates of $223.4 million (2.6% miss)
- Revenue Guidance for Q4 CY2024 is $885 million at the midpoint, below analyst estimates of $962.9 million
- Adjusted EPS guidance for Q4 CY2024 is $0.74 at the midpoint, below analyst estimates of $0.86
- Gross Margin (GAAP): 28.6%, down from 31.3% in the same quarter last year
- Inventory Days Outstanding: 87, down from 91 in the previous quarter
- Operating Margin: -20.3%, down from 11.6% in the same quarter last year
- EBITDA Margin: 22.1%, in line with the same quarter last year
- Free Cash Flow Margin: 9.3%, similar to the same quarter last year
- Market Capitalization: $5.21 billion
Company Overview
Originally a temperature sensor control maker and a subsidiary of Texas Instruments for 60 years, 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.
Analog Semiconductors
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
Examining a company’s long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Sensata Technologies’s 3.1% annualized revenue growth over the last five years was sluggish. This shows it failed to expand in any major way, a rough starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.
We at StockStory place the most emphasis on long-term growth, but within semiconductors, a half-decade historical view may miss new demand cycles or industry trends like AI. Sensata Technologies’s recent history shows its demand slowed as its revenue was flat over the last two years. 
This quarter, Sensata Technologies reported a rather uninspiring 1.8% year-on-year revenue decline to $982.8 million of revenue, in line with Wall Street’s estimates. Management is currently guiding for a 10.8% year-on-year decline next quarter.
Looking further ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a slight deceleration versus the last two years. This projection is underwhelming and indicates the market believes its products and services will see some demand headwinds.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity 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.
This quarter, Sensata Technologies’s DIO came in at 87, which is 2 more days than its five-year average. These numbers suggest that despite the recent decrease, the company’s inventory levels are slightly above the long-term average.
Key Takeaways from Sensata Technologies’s Q3 Results
A highlight during the quarter was Sensata Technologies’s improvement in inventory levels. On the other hand, its revenue guidance for next quarter missed analysts’ expectations and its EPS guidance for next quarter fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 4.3% to $32.20 immediately following the results.
The latest quarter from Sensata Technologies’s wasn’t that good. One earnings report doesn’t define a company’s quality, though, so let’s explore whether the stock is a buy at the current price. If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.
