Sensata (ST) Beats on Q3 Earnings, Shares Fall on Soft View
Sensata Technologies Holding plc ST reported relatively healthy third-quarter 2020 financial results, with the top and bottom lines surpassing the respective Zacks Consensus Estimate. However, the stock lost 8.1% post the earning release and closed at $44.35 on Oct 27, probably due to soft fourth-quarter guidance in the wake of the coronavirus-led adversities.
On a GAAP basis, net income in the September quarter came in at $76.7 million or 49 cents per share compared with $70.7 million or 44 cents per share in the prior-year quarter. Despite year-over-year top-line contraction, the improvement was primarily driven by lower operating expenses and lower income tax provision.
On an adjusted basis, quarterly net income was $103.6 million or 66 cents per share compared with $144.6 million or 90 cents per share in the year-ago quarter. The bottom line surpassed the consensus estimate by 12 cents.
Sensata Technologies Holding N.V. Price, Consensus and EPS Surprise
Quarterly revenues aggregated $788.3 million compared with $849.7 million in the year-ago quarter. The decline was mainly due to a 7.5% fall in organic revenues, followed by end-market contraction due to the adverse impact of COVID-19 pandemic. However, the top line beat the consensus estimate of $758 million.
Although revenues declined on a year-over-year basis, it witnessed a sequential rise of 36.7%. The improvement was mainly driven by Sensata’s robust supply chain mechanism and flexible business model. This, in turn, demonstrates healthy prospects for Sensata’s core sensing operations, thereby accelerating its growth momentum in the long run.
Quarterly Segment Results
Performance Sensing revenues decreased 7.6% to $580.9 million from $628.6 million in the year-ago quarter. Accounting for 73.7% of total revenues, the decline was primarily due to productivity headwinds and unfavorable revenue mix, triggered by the mayhem caused by COVID-19 pandemic. Segment operating income declined 10.9% to $151.6 million from $170.2 million due to lower revenues and lower production levels in manufacturing facilities. However, it was partially offset by savings from restructuring and other cost-reduction initiatives.
Sensing Solutions revenues declined 6.2% to $207.4 million from $221.1 million in the year-ago quarter. Accounting for 26.3% of total revenues, the year-over-year decline was led by adverse impact of the virus outbreak. Also, industrial and aerospace businesses declined 2.2% and 24.4% organically coupled with reduced OEM production and lower air traffic in a weaker aftermarket. However, new product launches in the defense market partially offset the aerospace market decline. Its operating income declined 18.6% to $58.2 million from $71.6 million mainly due to lower revenues and reduced productivity. During the quarter, the company inked an agreement to expand its heavy vehicle safety offerings, which further reinforces Sensata’s image and object sensing capabilities.
Total operating expenses were $661.5 million compared with $703.6 million in the prior-year quarter, primarily due to lower cost of revenues and research and development expenses. Adjusted operating income was $154.8 million, down 22.4% from $199.5 million in the year-ago quarter. The downtick was mainly caused by lower productivity levels, higher incentive compensation and lower revenues due to end-market downfall caused by COVID-19 pandemic. However, it was partially offset by savings from cost reduction programs.
Adjusted gross profit in the quarter declined 14.6% to $258.8 million due to lower revenues. Adjusted EBITDA totaled $188.4 million compared with $225.4 million a year ago. The company achieved $7 million of restructuring savings during the quarter.
Cash Flow & Liquidity
In the first nine months of 2020, Sensata generated $293.3 million of net cash from operating activities compared with $433.5 million in the prior-year period. With effective working capital management and cost reductions, free cash flow for the same period came in at $213.4 million compared with $310.3 million a year ago.
As of Sep 30, 2020, the company had $1,610.2 million in cash and equivalents with $3,963.1 million of net long-term debt. Impressively, the company had repaid $400 million of revolving credit, which lowered its interest costs, thereby strengthening financial markets and end market conditions with improved customer stability. Markedly, management has temporarily suspended its share repurchase program in a bid to enhance financial flexibility amid the COVID-19 crisis.
Sensata has provided guidance for fourth-quarter 2020. The company expects revenues in the range of $810-$850 million. Adjusted earnings per share are estimated in the band of 64-72 cents (down 28-19% YoY), while adjusted net income is expected to be $100-$114 million (down 29-20% YoY).
Sensata has undertaken several cost-saving initiatives to enhance its financial flexibility amid the global pandemic. These positive undertakings are expected to result in cost savings of nearly $60-$65 million in 2021. Also, restructuring savings are estimated to be in the range of $11-$12 million for the upcoming quarter. Sensata is committed to aligning its costs with normalized demand levels in order to better serve the evolving customer requirements.
Zacks Rank & Other Stocks to Consider
Sensata currently sports a Zacks Rank #1 (Strong Buy).
A few other top-ranked stocks in the broader industry are Calix, Inc. CALX, Viasat, Inc. VSAT and NETGEAR, Inc. NTGR, each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Calix delivered a trailing four-quarter positive earnings surprise of 72.2%, on average.
Viasat delivered a trailing four-quarter positive earnings surprise of 361.3%, on average.
NETGEAR delivered a trailing four-quarter positive earnings surprise of 60%, on average.
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