Sensata Technologies (NYSE:ST) Q4 Sales Beat Estimates

Sensor manufacturer Sensata Technology (NYSE:ST) announced better-than-expected results in Q4 FY2023, with revenue down 2.2% year on year to $992.5 million. On the other hand, the company expects next quarter's revenue to be around $990 million, slightly below analysts' estimates. It made a non-GAAP profit of $0.81 per share, down from its profit of $0.96 per share in the same quarter last year.

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Sensata Technologies (ST) Q4 FY2023 Highlights:

• Revenue: $992.5 million vs analyst estimates of $978.9 million (1.4% beat)
• EPS (non-GAAP): $0.81 vs analyst expectations of $0.86 (5.3% miss)
• Revenue Guidance for Q1 2024 is $990 million at the midpoint, below analyst estimates of $999 million
• Free Cash Flow of $56.71 million, down 34.9% from the previous quarter
• Inventory Days Outstanding: 92 in line with previous quarter
• Gross Margin (GAAP): 29.2%, down from 35.1% in the same quarter last year
• Market Capitalization: $5.47 billion

"Our capital allocation strategy to reduce net leverage and return cash to shareholders is showing strong early returns as adjusted EPS of $3.61 in 2023 increased 6.2% year over year (14.4% on a constant-currency basis) and gross leverage declined to 3.8x from 4.7x,” said Jeff Cote, CEO and President of Sensata.

Originally a temperature sensor control maker and a subsidiary of Texas Instruments (NASDAQ:TXN) 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 SemiconductorsDemand 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 GrowthSensata Technologies's revenue growth over the last three years has been unremarkable, averaging 11.8% annually. This quarter, its revenue declined from $1.01 billion in the same quarter last year to $992.5 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).

Even though Sensata Technologies surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 2.2% year on year. This could mean that the current downcycle is deepening.

Sensata Technologies may be headed for an upturn. Although the company is guiding for a year-on-year revenue decline of 0.8% next quarter, analysts are expecting revenue to grow 1.9% over the next 12 months.

Product Demand & Outstanding InventoryDays 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 92, which is 9 days above its five-year average, suggesting that the company's inventory levels are higher than what we've seen in the past.

Key Takeaways from Sensata Technologies's Q4 ResultsIt was encouraging to see Sensata Technologies narrowly top analysts' revenue expectations this quarter. That stood out as a positive in these results. On the other hand, its EPS missed analysts' expectations and its gross margin shrunk. Overall, the results could have been better. The company is down 1.1% on the results and currently trades at $35.75 per share.