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CTS Third quarter results in line with expectations

10/26/2017
By Ian Gilson, PhD, CFA

NYSE:CTS

On July 27, 2017 CTS Corp. (NYSE:CTS) reported its second quarter 2017 results, followed by a conference call.
 
Revenue and earnings were close to our expectations with revenue of $106.2 million ($105 Est.) and net income of $0.29 a share ($0.27 Est.). The company has refined its full year projections to $415 to $420 million in revenue and $1.13 to $1.18 in adjusted earnings per share. Our numbers are on an as reported GAAP basis.
 
Organic growth was close to 4% and acquisitions added 2.6%. Gross margins were reduced by currency fluctuations, just over $0.6 million, mainly due to changes in the Mexican peso. Changes in the renminbi (quarter end valuation on the balance sheet) had a negative impact which we treat as a non-operating item. The backlog to last quarter revenue ratio improved to 16, its highest point this year.
 
On a year/year basis auto related sales increased 5.8%. Given the current state of US car sales this was a excellent result. Much of the current sales mix is new technology with some long tailed sales on mature programs. Truck related business was very good. Sales to Cummins Inc. (CMI $179.03) increased from $29.9 to $38.5 million; Toyota (TM $123.83) form $9.9 to $10.5 million and Honda (HMC $30.82) from$10.5 to $12.4 million
 
Electronic components increased by 7.9%, aided by the acquisition of Noliac. The hard drive market continues to decline as solid state drives gain market share.
 
CTS discussed its target of 10% annual revenue growth. Manufacturing and supply chain efficiencies should have positive impacts on gross margins. As auto and HDD become smaller parts of the mix there is significant potential for CAGR earnings growth in excess of 15%.
 
The company is changing its strategic thrust to respond to the mandates regarding Electric Vehicles. This will require a significant input from R&D since each EV propulsion technology has its own challenges.

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