Q1 2024 Summary
Published Feb 13, 2025, 5:06 PM UTC- Sensata is making strong progress towards its 2026 electrification revenue target of $2 billion, up from $700 million in 2023, which represented 17% of the company and grew by over 50% in 2023.
- Sensata benefits from a unique position in both ICE and EV markets; when there's a shift back to ICE vehicles, the company gains because it has approximately 2x the content on an ICE vehicle in Europe compared to an EV vehicle, and is gaining market share as other suppliers drop off, ensuring profitable business throughout the ICE to EV transition.
- The company's new A2L leak sensor addresses upcoming regulations in HVAC systems, representing a significant future revenue opportunity of $80 million to $100 million, enhancing growth prospects in its industrial business.
- Sensata continues to face challenges in its industrial business due to prolonged inventory destocking and slow construction markets, which are expected to impact results throughout much of 2024. , ,
- Foreign exchange rates are posing significant headwinds, negatively impacting revenue and adjusted operating margins. Specifically, foreign exchange rates are expected to have about a 40 to 50 basis point margin headwind in the back half of 2024. ,
- The company has identified internal control weaknesses, particularly in inventory and account reconciliation within the Americas and Mexico sites, which they are working to remediate by the end of the calendar year.
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Management Change and CEO Departure
Q: Why the change in management?
A: Jeff Cote explained that after leading Sensata for the past 4 years as CEO and being part of the management team for 17–18 years, he is stepping down. Martha Sullivan will serve as interim CEO while a search is conducted. They are confident in their strategy and execution, expecting continued progress under new leadership. -
2026 Targets and EV vs. ICE Projections
Q: How are you tracking to 2026 targets?
A: Sensata remains confident in reaching the 2026 revenue goal of $5.0 to $5.3 billion and earnings of $550 to $630 million. They aim for a $2 billion electrification business by 2026, up from $700 million in 2023, which grew over 50%. While EV production dipped from 3.5 million units in Q4 to 3.1 million units in Q1, Sensata benefits from a natural hedge with ICE vehicles, having approximately 2x the content on an ICE vehicle in Europe compared to an EV. Shifts back to ICE help profitability, and an eventual upturn in the industrial cycle will also support future growth. -
Industrial Segment Outlook and HVAC
Q: What's the outlook for industrial and HVAC?
A: The industrial segment is expected to face a down cycle for the rest of 2024, a more negative outlook than anticipated in February. However, new regulations in HVAC systems related to refrigerants are positive. Sensata's A2L leak sensor, developed over the past 2–3 years, is launching with customers and represents an $80 to $100 million revenue opportunity when fully realized, with meaningful revenue starting in 2024. -
Automotive Outgrowth and EV Mix
Q: How should we think about automotive outgrowth and EV mix?
A: Automotive outgrowth was strong in Q1 at 700 basis points, with total company outgrowth at 300 basis points. While below the historical target of 400 to 600 basis points, it's a significant improvement from last year. Sensata expects to see outgrowth in the range of 300 to 400 basis points for the year. The EV mix slowed slightly, but the company benefits from shifts toward ICE due to higher content per vehicle. -
Engineering Spend on EV and Dynapower Growth
Q: Can you flex down EV engineering spend amid slow EV adoption?
A: Engineering costs support long-cycle new business wins launching in 2025–2026 and beyond, so a real change in engineering spend is not expected. Regarding Dynapower, Sensata sees strong growth prospects as it provides industrial-grade power inversion essential for renewable energy and grid balancing, tapping into trends like distributed generation and storage. -
Gaining Share in ICE Market and Pricing
Q: Explain the dynamics of gaining share in ICE market.
A: Customers value partners committed to supporting them throughout the lifecycle of ICE engines. Sensata benefits from being a critical supplier in ICE, and now, with capabilities in EV platforms, it has an advantage as customers narrow their supply base. The profitable ICE business provides a hedge during the EV transition. Price reductions are expected to normalize in 2025–2026, and Sensata is preparing to offset these through productivity gains. -
2024 Revenue Growth Guidance Narrowing
Q: Why is 2024 growth at lower end of prior guidance?
A: The updated 2024 revenue growth expectation is 2%, within the prior 2–3% range. This slight adjustment is due to foreign exchange headwinds, estimated at 40 to 50 basis points of margin impact in the back half of the year, and prolonged industrial destocking expected to linger longer than initially anticipated. -
Corporate Expenses Lower; Sustainability
Q: Is lower corporate expense run rate sustainable?
A: The current corporate expense run rate is likely sustainable, with a slight uptick expected in Q2 due to merit increases effective April 1. Sensata has rationalized megatrend spending as electrification became a focus, with resources now serving new business opportunities within performance sensing units. -
One-Time Low-Margin Revenue and Bookings
Q: Details on low-margin one-time revenue?
A: The low-margin one-time revenue of about $25 million occurred in Q2 2023 within the industrial business. Sensata leveraged its supply chain to buy one-time products on behalf of a customer for an installation, acting almost as pass-through revenue. -
Key Audit Matters in 10-K Filing
Q: What are the key audit matters highlighted?
A: Sensata conducted goodwill and impairment analyses for its acquisitions, routinely testing purchase prices against fair value of assets, which led to changes with the Insights business last year. They also identified internal control issues in regions like the Americas and Mexico, particularly around inventory and account reconciliations, and are working to remediate these by year-end.