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Analyst Blog

Ken Nagy, CFA

Expect a Strong Second Half at CTS

(CTS) designs, manufactures, assembles, and sells a broad line of electronic components and sensors. The firm also provides electronics manufacturing services primarily to original equipment manufacturers (OEMs), for the automotive, computer, communications, medical, industrial, and defense and aerospace markets. The firm was established in 1896 as a provider of high-quality telephone products and was incorporated as an Indiana corporation in February 1929. Along the way CTS had a hand in numerous technologies from the radio to the space shuttle Columbia.

CTS has two reportable segments: Electronics Manufacturing Services (EMS) and Components and Sensors.

CTS is diversified, profitable and growing. Against a back drop of such macro trends in fuel efficiency, green initiatives, and data traffic for smart phones and social networking the firm is launching new products, expanding into new areas, and increasing market share.

During the Company’s second quarter fiscal 2011 earnings call CTS maintained its full-year 2011 sales to be in the range of 9% to 13% over 2010 and diluted earnings per share to be in the range of $0.70 to $0.75.

Sales and earnings for the second quarter 2011 were in line with previous expectations despite earnings being adversely affected from the impact of Japan’s earthquake and Tsunami disaster. In the second quarter, vital Japanese customers were forced to curtail production by 50 to 60 percent due to the tragedy but they are still projected to gradually restore production by the end of the third quarter and expected to be running at normal level by September 2011. Operating cash flow was up significantly year-over year to $11.3 million compared $1.0 million in the year ago quarter.

The Company estimates the disruption at roughly $6.5 million for the second quarter and estimates sales would have been up 5 percent barring the Japanese catastrophe.

With second half 2011 global light vehicle production estimated to grow 5 to 6 percent both year over year and sequentially compared to the first half of 2011 as well as new products launches, CTS expects a 10 to 13 percent growth in sequential and annual demand in the second half with particularly strong demand in the fourth quarter.
 

For a free copy of the full research report, please email scr@zacks.com with CTS as the subject.

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