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Sensata (ST) Q2 Earnings Beat on Record Revenues, View Up

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Sensata Technologies Holding plc (ST - Free Report) reported strong second-quarter 2021 results as the business recovery that started during the second half of 2020 continued to gain momentum. The top line and the bottom line surpassed the respective Zacks Consensus Estimate backed by strength in the business model and effective adaptation to the evolving market conditions. The company registered record revenues with impressive performances in the automotive market (up 990 basis points year over year) and heavy vehicle market (up 2,850 basis points), driven by holistic growth.

Bottom Line

On a GAAP basis, net income in the June quarter improved substantially to $112.9 million or 71 cents per share from net loss of $42.5 million or loss of 27 cents per share in the prior-year quarter. The remarkable improvement was primarily attributable to top-line growth.

On an adjusted basis, quarterly net income was $151.4 million or 95 cents per share compared with $27.7 million or 18 cents per share in the year-ago quarter. The bottom line surpassed the consensus estimate by 6 cents.

Revenues

Quarterly revenues aggregated $992.7 million compared with $576.5 million in the year-ago quarter. The record revenues were largely driven by sustained business activities in Automotive and Industrial businesses with a rebound in market which, in turn, translated into higher order schedules. The top line beat the consensus estimate of $962 million. Sensata’s robust supply chain mechanism and flexible business model were additional tailwinds. This demonstrates healthy prospects for Sensata’s core sensing operations, thereby accelerating its growth momentum in the long run.

The company is expanding its electrification ecosystem to facilitate the seamless transition to electric vehicles as it aims to be a leading provider of mission-critical sensor-rich hardware and software solutions. Sensata has a rich portfolio of high-voltage protection and battery management systems. The joint venture with Churod Electronics has further expanded its electrical protection capabilities for mass-market applications 

Segment Results

Performance Sensing revenues improved 92.6% year over year to $741.9 million driven by solid organic and inorganic growth. Accounting for 74.7% of total revenues, the increase was primarily due to solid automotive, heavy vehicle and off-road businesses owing to recovery in customer production. Segment operating income jumped to $202.1 million from $60.8 million on higher revenues and savings from restructuring and other cost-reduction initiatives.

Sensing Solutions revenues increased to $250.8 million from $191.3 million in the year-ago quarter. Accounting for 25.3% of total revenues, the year-over-year improvement was led by ramped up production of electric vehicles and uptrend in HVAC (heating, ventilation, and air conditioning) business. Segment operating income increased to $76.5 million from $55.8 million, mainly due to higher revenues and cost cuts.

Other Details

Overall organic revenues were up 62.9% year over year led by overall end-market growth of approximately 45.4%, estimated customer inventory restocking of 6.1% and market outgrowth of 1,140 basis points. Heavy vehicle off-road business reported organic revenue growth of 95.7%, owing to various electromechanical operating controls installations in new off-road equipment and early stages of radar installations on heavy vehicles as a safety feature. Automotive business posted organic revenue growth of 74.9%, benefiting from new product launches in powertrain and emissions, and electrification-related applications and systems. The industrial business increased 29.2% organically as global industrial end markets continued to recover, while the aerospace business witnessed 20.6% organic growth on improved OEM production in air traffic.

Total operating expenses were $827.9 million compared with $578.4 million in the prior-year quarter, primarily due to higher cost of revenues. Adjusted operating income was $209.3 million, up from $134.3 million in the year-ago quarter. The uptick was mainly caused by higher revenues, savings from cost reduction programs and favorable foreign currency translation effects. Adjusted EBITDA totaled $242.4 million during the quarter, up from $104.5 million.

Cash Flow & Liquidity

In the first six months of 2021, Sensata generated $267.9 million of net cash from operating activities compared with $170.3 million in the prior-year period. With effective working capital management and cost reductions, free cash flow for the same period came in at $204.4 million compared with $113.6 million a year ago. As of Jun 30, 2021, the company had $1,861.8 million in cash and equivalents with $4,213.8 million of net long-term debt.

Guidance Up

With solid quarterly results, Sensata increased its earlier guidance for 2021. For 2021, it expects revenues in the range of $3,770-$3,840 million (up 24-26% year over year) compared with prior expectations of $3,685-$3,825 million (up 21-26%). Adjusted earnings per share are estimated in the band of $3.42-$3.62 (up 55-64%) compared with $3.20-$3.50 (up 45-58%), while adjusted net income is expected to be $544-$576 million (up 56-65%) compared with $509-$557 million (up 46-60%).

For the third quarter, the company expects revenues in the range of $920-$950 million (up 17-21% year over year). Adjusted earnings per share are estimated in the band of 82-88 cents (up 24-33%), while adjusted net income is expected to be $130-$140 million (up 25-35%).

Zacks Rank & Stocks to Consider

Sensata currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry are TESSCO Technologies Incorporated , Watts Water Technologies, Inc. (WTS - Free Report) , and Woodward, Inc. (WWD - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

TESSCO delivered an earnings surprise of 2.5%, on average, in the trailing four quarters.

Watts Water has a long-term earnings growth expectation of 8%. It delivered an earnings surprise of 36.1%, on average, in the trailing four quarters.

Woodward has a long-term earnings growth expectation of 13.5%. It delivered an earnings surprise of 25.3%, on average, in the trailing four quarters.

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