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CTS: Fourth quarter revenue was slightly above our estimate with adjusted EPS spot on.

By Ian Gilson, PhD, CFA


CTS Corp. (NYSE:CTS) announced its fourth quarter and full year results, followed by a conference call on Jan. 06, 2018.
Revenue in the fourth quarter was slightly better than expected at $111 million, (Est. $107 million) and net income was $9 million (Est. $9 million). The results were clouded by a series on factors, primarily a $18 million non-cash charge related to the new Tax Bill and $13.4 million in non-cash charges for pension settlements. We added back these items and applied a normalized tax rate to compare actual results to our estimates.
Including the Noliac acquisition sales increased by 9.2% Y/Y in the quarter, 6.2 % Y/Y. Without the acquisition the growth was 6.2%. Electronic components increased by 12.75 and sales to automotive and truck customers were up 7.3%, a very credible performance given the problems of the auto industry worldwide. Defense and aerospace sales increased close to 9%.
Currency fluctuations continue. A weak dollar as compared to the renminbi and the euro had a positive $1.2 million impact in Q4.
CTS added 6 new customers in the fourth quarter bringing the total to 20 for the full year. Backlog increased slightly from third quarter levels to $1.737 billion. This included wins in the transportation sector.  The shippable portion (that amount currently "sold" but not delivered) is $351 million leaving only about $85 million of new sales needed to meet the targets.
In 2018 the company will continue to work on improving gross margins and controlling operating expenses. A new ERP system will be introduced. It will spend some money on working to reduce the overall tax rate.
Projections for 2018 are for revenue between $435 to $455 million (our estimate was, and remains $444 million) and adjusted diluted EPS  between $1.32 to $1.44. After adjusting for the new tax rate our estimate is $1.32 per share.


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