Sensor manufacturer Sensata Technology (NYSE: ST) announced better-than-expected revenue in Q1 CY2025, but sales fell by 9.5% year on year to $911.3 million. Guidance for next quarter’s revenue was optimistic at $925 million at the midpoint, 2.1% above analysts’ estimates. Its non-GAAP profit of $0.78 per share was 8.3% above analysts’ consensus estimates.
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Sensata Technologies (ST) Q1 CY2025 Highlights:
- Revenue: $911.3 million vs analyst estimates of $880.7 million (9.5% year-on-year decline, 3.5% beat)
- Adjusted EPS: $0.78 vs analyst estimates of $0.72 (8.3% beat)
- Adjusted EBITDA: $200.2 million vs analyst estimates of $196.3 million (22% margin, 2% beat)
- Revenue Guidance for Q2 CY2025 is $925 million at the midpoint, above analyst estimates of $906.3 million
- Adjusted EPS guidance for Q2 CY2025 is $0.83 at the midpoint, above analyst estimates of $0.78
- Operating Margin: 13.4%, in line with the same quarter last year
- Free Cash Flow Margin: 9.5%, up from 6.4% in the same quarter last year
- Inventory Days Outstanding: 94, up from 89 in the previous quarter
- Market Capitalization: $3.17 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.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Sensata Technologies’s 2.7% annualized revenue growth over the last five years was sluggish. This was below our standards and is a poor baseline 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.
Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Sensata Technologies’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.7% annually. 
This quarter, Sensata Technologies’s revenue fell by 9.5% year on year to $911.3 million but beat Wall Street’s estimates by 3.5%. Despite the beat, the drop in sales could mean that the current downcycle is deepening. Company management is currently guiding for a 10.7% year-on-year decline in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to decline by 5% over the next 12 months, a slight deceleration versus the last two years. This projection is underwhelming and indicates its products and services will face some demand challenges.
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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 94, which is 8 days above its five-year average, suggesting that the company’s inventory has grown to higher levels than we’ve seen in the past.
Key Takeaways from Sensata Technologies’s Q1 Results
We were impressed by how significantly Sensata Technologies blew past analysts’ EPS expectations this quarter. We were also happy its adjusted operating income outperformed Wall Street’s estimates. On the other hand, its inventory levels materially increased. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 9% to $24.50 immediately after reporting.
Sensata Technologies had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
