CTS corp stories combined Q3 outcomes, adjusts full-year steerage By Investing.com

CTS Company (NYSE: NYSE:) reported a combined set of monetary ends in its third-quarter earnings name for 2024, with President and CEO Kieran O’Sullivan asserting a slight dip in income however a rise in earnings per share. The corporate noticed a 1.6% lower in income in comparison with the identical quarter final 12 months, totaling $132 million, whereas adjusted earnings per share rose by 17% year-over-year to $0.63. Regardless of the combined outcomes, the corporate highlighted robust efficiency in diversified markets and the profitable acquisition of SyQwest, which is anticipated to contribute to future income development.

Key Takeaways

• Q3 income fell 1.6% year-over-year to $132 million.
• Adjusted earnings per share elevated to $0.63, up 17% from Q3 2023.
• Diversified markets now account for 52% of whole income.
• Aerospace and protection gross sales surged by 89%; medical markets noticed a 3% enhance.
• Transportation gross sales declined by 17% resulting from softer demand and regional dynamics.
• Full-year income steerage revised to $515 million – $525 million.
• Adjusted diluted EPS steerage stays unchanged at $2.05 to $2.25.
• Accomplished the acquisition of SyQwest, contributing $3.6 million in gross sales.
• Working money movement improved to $35 million; $12 million spent on share repurchases.

Firm Outlook

• Anticipates softness in medical markets in This autumn resulting from stock administration.
• Up to date full-year income steerage to $515 million – $525 million.
• Maintains adjusted diluted EPS steerage of $2.05 to $2.25.
• Projected tax charge for 2024 between 18% and 20%.
• Concentrate on money era, strategic development, and disciplined acquisitions.

Bearish Highlights

• Transportation sector skilled a 17% lower in gross sales.
• Full-year income steerage lowered from preliminary estimates.

Bullish Highlights

• Adjusted gross margin elevated to 38.6%, a major enchancment year-over-year.
• Aerospace and protection sectors confirmed sturdy development.
• SyQwest acquisition anticipated to contribute to future income development.

Misses

• Income fell in need of the earlier 12 months’s figures for a similar quarter.

Q&A Highlights

• Product growth in China market famous for velocity, significantly in sensing options and electrification.
• SyQwest’s income run charge for 2024 estimated between $10 million and $14 million.
• Firm stays disciplined in M&A method, concentrating on development sectors.
• Modest long-term debt enhance post-SyQwest acquisition, with capital allocation prioritizing M&A and buybacks.

In conclusion, CTS Company is navigating a difficult market atmosphere with a strategic deal with diversification and effectivity. Whereas transportation gross sales have lagged, the corporate’s development in aerospace, protection, and diversified markets, together with its current acquisition, place it to probably capitalize on rising alternatives. The corporate’s management stays dedicated to sustaining a disciplined monetary strategy because it strikes into the ultimate quarter of the 12 months and past.

InvestingPro Insights

CTS Company’s current monetary outcomes mirror an organization in transition, balancing challenges in some sectors with development in others. InvestingPro knowledge gives further context to the corporate’s efficiency and monetary well being.

As of the newest knowledge, CTS has a market capitalization of $1.54 billion, with a P/E ratio of 23.78 over the past twelve months as of Q3 2024. This valuation metric is especially attention-grabbing when contemplating the corporate’s income of $513.03 million over the identical interval, which noticed a decline of 9.68%. Regardless of this income contraction, CTS maintains a wholesome gross revenue margin of 36.14% and an working revenue margin of 14.33%, indicating environment friendly price administration in a difficult atmosphere.

An InvestingPro Tip highlights that CTS has maintained dividend funds for 54 consecutive years, showcasing the corporate’s dedication to shareholder returns even during times of fluctuating efficiency. This long-standing dividend coverage aligns with the corporate’s deal with money era talked about within the earnings name.

One other related InvestingPro Tip notes that CTS operates with a average stage of debt. This conservative monetary strategy may present flexibility as the corporate pursues strategic acquisitions like SyQwest and navigates market uncertainties.

Traders may additionally have an interest to know that CTS’s administration has been aggressively shopping for again shares, as indicated by one other InvestingPro Tip. This aligns with the $12 million spent on share repurchases talked about within the earnings report and should sign administration’s confidence within the firm’s long-term prospects.

For readers concerned about a extra complete evaluation, InvestingPro gives further suggestions and insights that might additional illuminate CTS Company’s monetary place and future outlook.

Full transcript – CTS Corp (CTS) Q3 2024:

Operator: Hi there everybody, and welcome to the CTS Company Third Quarter 2024 Earnings Name. My title is Nadia, and I will be coordinating the decision as we speak. [Operator Instructions]. I’ll now hand over to your host, Kieran O’Sullivan, President and CEO, to start. Kieran, please go forward.

Kieran O’Sullivan: Good morning, and thanks for becoming a member of us as we speak. Let’s begin with some key highlights for the quarter. First, third quarter noticed income of $132 million and adjusted earnings per share of $0.63. Second, we proceed to execute on our diversification technique with income from diversified markets now accounting for about 52% of total income within the quarter. Diversification will proceed to be a strategic precedence, and we anticipate additional progress subsequent 12 months. Third and eventually, we expanded total adjusted gross margin by 416 foundation factors within the quarter, together with international change favorability. We’re excited by the momentum in medical, the place our merchandise allow crucial ultrasound analysis, and our know-how permits minimally invasive procedures, serving to enhance affected person expertise and save lives. Now we have accelerated our protection development with the SyQwest acquisition, which strikes us up the worth chain for sensors, transducers and subsystems, and longer-term, has the aptitude to develop into new merchandise. Demand throughout the economic market continues to rebuild slowly. In transportation, the place we’re navigating near-term market softness, curiosity in our eBrake product continues with a pre-development award for a premium European OEM and extra wins in electrification with present sensing. And extra just lately, in early October, we added a brand new buyer in North America for an accelerator modules on a premium truck platform. Ashish will take us by the secure harbor assertion. Ashish?

Ashish Agrawal: I wish to remind our listeners that this convention name comprises forward-looking statements. These statements are topic to numerous dangers and uncertainties that might trigger precise outcomes to vary materially from these expressed within the forward-looking statements. Further info relating to these dangers and uncertainties is contained within the press launch issued as we speak, and extra info may be discovered within the firm’s SEC filings. To the extent that as we speak’s dialogue refers to any non-GAAP measures beneath Regulation G, the required explanations and reconciliations can be found with as we speak’s earnings press launch and supplemental slide presentation which may be discovered within the Traders part of the CTS web site. I’ll now flip the dialogue again to our CEO, Kieran O’Sullivan.

Kieran O’Sullivan: Thanks, Ashish. We completed the third quarter with gross sales of $132 million, down 1.6% from the third quarter of 2023. For the quarter, diversified medical, aerospace and protection, and industrial gross sales have been up 18%, whereas transportation gross sales have been down 17% from the identical interval final 12 months. Diversified medical, aerospace and protection, and industrial gross sales have been 52% of total firm income within the third quarter. Our book-to-bill ratio was 1 within the third quarter in comparison with 0.92 within the third quarter of 2023. The book-to-bill ratio displays some constructive enchancment within the industrial finish market with each OEM and distribution prospects on a year-over-year foundation as inventories proceed to enhance. Bookings within the industrial finish market have been up 17% year-over-year. Medical bookings have been up 19% on a year-over-year foundation. Aerospace and protection bookings have been up 92% on a year-over-year foundation, excluding the impression of the SyQwest acquisition. Third quarter adjusted diluted earnings per share of $0.63 have been up 17% year-over-year. Ashish will add additional colour on our monetary efficiency later in as we speak’s name. Diversified gross sales continued to enhance, up 18% within the third quarter in comparison with the prior 12 months interval. Excluding the SyQwest acquisition, third quarter diversified gross sales grew 12% year-over-year. In medical markets, gross sales have been up 3% from the identical interval in 2023. We anticipate softness within the fourth quarter as prospects handle year-end inventories. Throughout the quarter, we had wins for medical ultrasound with a number of prospects, drug supply and a medical system win for a pacemaker software. We added a brand new buyer for a imaginative and prescient correction software and made additional progress on an innovation challenge with one in every of our key prospects advancing functionality for ultrasound. Lastly, we acquired an order for a brand new software to assist sonic lumen tomography, which gives real-time dimensions of the artery and veins utilizing a disposable catheter software. Aerospace and protection gross sales have been up 89% from the prior 12 months interval. Excluding the impression from the SyQwest acquisition, gross sales grew 56% year-over-year within the third quarter. We anticipate good momentum for the remainder of 2024 given the backlog of orders. We acquired a number of orders for sonar purposes with prospects in North America and Europe. We proceed to make progress on RF filter wins in anti-jamming and added a brand new buyer to our SyQwest crew. We anticipate the long-term prospects for the aerospace and protection finish market to be strong given our materials formulations and enhanced capabilities with the addition of SyQwest. The mixing of the SyQwest enterprise is monitoring to plan, and the enterprise continued to develop its alternative funnel with qualification work throughout two new countermeasure and underwater communication platforms. Within the industrial market, we see a gradual restoration in distribution in addition to with OEMs. Gross sales have been up 2% year-over-year. Demand restoration continues to be tempered by stock burn down, OEMs with publicity to China, and a tightening of stock administration. We have been profitable with a number of wins within the quarter for EMC (NYSE:), switches, industrial printing, movement metering and temperature sensing. We added a brand new buyer in Europe for a piezo management valve software. Wanting forward for the stability of the 12 months within the industrial and distribution finish market, we anticipate enchancment in income. For medical markets, we anticipate softness within the fourth quarter with some prospects, however total market development as we transfer into subsequent 12 months. We additionally anticipate to make strong progress on the qualification of merchandise for potential new prospects. We’re excited by the prospects for development in minimally invasive purposes the place our merchandise allow medical professionals with enhanced ultrasound pictures, detect artery restrictions and ship therapy medicines. We’re proud to focus on that our merchandise assist options that save lives. Over time, we anticipate the quantity development in transportable ultrasound diagnostics and therapeutics will improve our development profile. Gross sales to protection prospects are anticipated to stay strong. Our technique is targeted on transferring from a element provider to a provider of sensors, transducers and subsystems. We additionally anticipate to develop our product vary and market alternative. Longer-term, we anticipate our materials formulations supported by 3 main applied sciences to proceed to drive our development in key high-quality finish markets in step with our diversification technique. The megatrends of automation, connectivity and effectivity improve development in industrial purposes. Transportation gross sales have been $63 million within the third quarter, down roughly 17% from the identical interval final 12 months. We’re experiencing a softer demand atmosphere for industrial automobile merchandise in 2024. On the sunshine automobile entrance, we proceed to navigate the market share dynamics in China given the competitors between native and transplant OEMs. Moreover, we see the regional demand for gentle automobiles persevering with to melt. That is in line with most market analysts which are forecasting diminished construct charges. The near-term development charges for ICE versus EVs and hybrids are much less of a priority for us, given our merchandise are largely agnostic to the drivetrain know-how. Within the third quarter, we had wins throughout numerous product teams, together with sensor wins for chassis trip top sensing, brake place sensing and passive security sensing. We had an accelerator module win with Japanese, Chinese language, European and North American OEMs. We had a present sensing win with a European Tier 1 provider. OEMs proceed to delay sourcing selections as they work to right their powertrain combine given market modifications. Nevertheless, even with these dynamics, we’ve got been making progress in key areas. For instance, after the quarter shut, we added a brand new North American buyer for an accelerator module deploying our new modular design for a future premium truck platform. As well as, curiosity in our eBrake product providing weight and price benefits continues throughout a number of OEMs, and we acquired a predevelopment award put up quarter finish with a premium European model. We anticipate the eBrake and different sensor purposes will enhance our potential to develop content material. Throughout the third quarter, we added a brand new buyer and had 5 EV platform wins, largely in China and Europe. Complete booked enterprise was roughly $1.1 billion on the finish of the quarter. Turning to our outlook for the 12 months. For medical, industrial, aerospace and protection markets, in step with our diversification technique, we goal to develop the client base and vary of purposes. Industrial demand has proven small enchancment sequentially, and we anticipate this to proceed. Demand within the medical market is anticipated to melt within the fourth quarter resulting from near-term stock changes. In aerospace and protection, demand is anticipated to stay strong given our backlog of orders and momentum from the SyQwest acquisition. Throughout transportation markets, manufacturing volumes have softened as additionally mirrored within the IHS trade stories and by different trade analysts. The North American gentle automobile market is anticipated to melt within the fourth quarter with the complete 12 months within the vary of 15.5 million to 16 million items with on-hand days of provide rising. European manufacturing is forecasted within the 17-million-unit vary and displaying some elevated softness resulting from overcapacity strain from Chinese language OEMs and the upcoming Euro 7 emission modifications in 2025. China volumes are anticipated to be within the 28-million-unit vary with the current authorities subsidies solely serving to stabilize demand. Electrical automobile penetration charges have softened in some areas, whereas hybrid adoption continues to enhance. Total, we anticipate a smooth marketplace for gentle automobile manufacturing as a result of China market dynamics and different current regional construct reductions. We anticipate softness within the industrial vehicle-related income all through the rest of 2024. For the complete 12 months 2024, we’re updating steerage for gross sales within the vary of $515 million to $525 million in comparison with the prior vary of $525 million to $540 million. Primarily based on our operational efficiency, we’re reiterating the adjusted diluted EPS steerage to be within the vary of $2.05 to $2.25. Now I am going to flip it over to Ashish, who will stroll us by the monetary ends in extra element. Ashish?

Ashish Agrawal: Thanks, Kieran. Third quarter gross sales have been $132 million. As Kieran talked about, we’re seeing softness within the transportation finish market with gross sales down 17% year-over-year. Our gross sales to diversified finish markets grew 18% in comparison with the third quarter of 2023. Our current acquisition, SyQwest, contributed $3.6 million in income throughout the quarter. International forex modifications impacted income favorably by roughly $0.5 million. Adjusted gross margin within the third quarter was 38.6%, an enchancment of over 400 foundation factors from the third quarter of final 12 months, and sequential enchancment of 286 foundation factors from the second quarter. Our groups globally proceed to deal with plant effectivity and price enhancements that contributed to the margin growth. The change in finish market combine away from the transportation finish market additionally impacted gross margins favorably. We had a positive impression of roughly $1.5 million from international forex modifications. Throughout the third quarter of 2024, we benefited from some onetime tax gadgets price roughly $0.02 of EPS, and in consequence, had a tax charge of 16.8%. For 2024 total, we anticipate our tax charge to be within the vary of 18% to twenty%. Earnings per diluted share have been $0.61 within the third quarter. Adjusted earnings for the third quarter have been $0.63 per diluted share in comparison with $0.54 from the third quarter of final 12 months. Now specializing in money era and the stability sheet. We generated $35 million in working money movement within the third quarter of 2024 in comparison with $22 million within the third quarter of 2023. We proceed to deal with driving effectivity and money utilization throughout the enterprise, and noticed enhancements in our controllable working capital throughout the quarter. We accomplished the acquisition of SyQwest throughout the quarter utilizing a mixture of money readily available and borrowings from our credit score facility. On the finish of the third quarter, our money stability was $95 million, and the long-term debt stability was $103 million. We stay targeted on robust money era and proceed to assist natural development, strategic acquisitions and returning money to shareholders. Throughout the quarter, we repurchased 245,000 shares of CTS inventory totaling roughly $12 million. Yr-to-date, we’ve got returned $39 million to shareholders by share repurchases and dividends. This concludes our ready feedback. We wish to open the road for questions right now.

Operator: [Operator Instructions]. And our first query goes to John Franzreb of Sidoti & Co. John, please go forward.

John Franzreb: I assume I might like to begin with the third quarter in and of itself. A few issues type of stood out to me. In the beginning, the gross margin was higher than my expectations. Are you able to speak slightly bit about what are the places and takes that is occurring within the gross margin profile?

Kieran O’Sullivan: Sure, John, simply at a excessive stage, and I am going to hand over to Ashish. The combo change is the first driver when it comes to our diversification technique. We have been driving this strategy strategically to maneuver on this course from a capital allocation as effectively, and also you’re seeing the ends in the gross margin materialize right here. So, Ashish?

Ashish Agrawal: Sure. John, the opposite issues, we talked about international forex change, which had a positive impression of about $1.5 million for the quarter. After which the opposite factor that is extraordinarily essential as a part of our tradition is driving steady enchancment by our factories, and that contributed throughout totally different components of our enterprise in a significant strategy to the gross margin enchancment as effectively.

Kieran O’Sullivan: And John, one different level I’d add right here, as we go ahead, you noticed it in my feedback as effectively, the trail on diversification is transferring in a superb course. We anticipate it to enhance subsequent 12 months. So, we anticipate to maintain this gross margin enchancment, perhaps not utterly at this higher stage, however to be bettering as we go ahead.

John Franzreb: The opposite merchandise that type of stood out to me was the R&D sequentially dropped and has been dropping all 12 months lengthy. Is there something uncommon occurring in reimbursements within the quarter? Or are you simply conserving money?

Ashish Agrawal: It is primarily associated to the timing of buyer reimbursements, John. We’re persevering with to deal with the expansion alternatives, clearly, prioritizing those that we need to fund, those that we do not need to fund. However the gross — the R&D spend that you simply’re seeing for the quarter, the fluctuation in that’s primarily pushed by the timing of buyer reimbursements.

John Franzreb: Okay. Concerning SyQwest, are you able to speak slightly bit concerning the enterprise’ contribution throughout the quarter, not solely on the gross sales facet, however the way it’s impacted the combo? And was it accretive or dilutive on the finish of the day for the quarter?

Kieran O’Sullivan: So, John, total, with SyQwest, with Bob and the crew there, the mixing goes very effectively. The gross sales within the quarter have been about $3.6 million. I believe Ashish highlighted that in his feedback. We stated on the final earnings name, we anticipate it to be within the $10 million to $14 million vary for the 12 months, and remains to be monitoring to that. And the crew can also be doing very well with the subsequent {qualifications} for countermeasures and undersea sonar purposes. So, it truly is transferring in a superb course. We’re more than happy with it. Clearly, we have numerous work nonetheless to do right here, however pleased with the way it’s transferring alongside. And Ashish, on the margin?

Ashish Agrawal: Sure. So, John, if you take a look at the gross margin and EBITDA stage, the enterprise is unquestionably accretive to our numbers. With the curiosity expense burden and every little thing, EPS is barely dilutive this 12 months, and we anticipate accretion on the EPS stage within the second half of subsequent 12 months.

John Franzreb: Acquired it. I assume one final query, and I am going to get again into queue. Are you able to speak slightly bit, Kieran, about your expectations on the markets in 2025? We’re attending to that time the place everyone seems to be planning the 12 months forward. There appears to be numerous uncertainty. What are your ideas concerning the transportation market? What are your prospects telling you? It actually appears that the majority of your different non-transportation finish markets need to enhance, besides you probably did name out weaker medical. Just a few high-level ideas about what you see, the way you see the 12 months forward enjoying out?

Kieran O’Sullivan: So, John, we’ll give a greater image on 2025 in our subsequent quarter replace. However simply at a macro stage, to the touch on among the belongings you commented, from a diversification perspective, we’re doing very well with development there. A few of these markets like industrial have been down for a number of quarters, and we noticed a 2% enchancment in income this quarter, and we anticipate that to proceed within the fourth quarter. Medical, you touched on, we stated near-term, simply within the fourth quarter, we’re going to have slightly little bit of softness. It’s an total development story, however among the prospects are adjusting their income, and we really feel excellent about that market as effectively going into subsequent 12 months. Protection, we’ve bought a robust backlog doing effectively. Will probably be a constructive story as we transfer ahead as effectively. After which on the transportation facet, laborious to let you know a lot about subsequent 12 months at this stage. We thought this 12 months would have been slightly bit totally different for most individuals. In case you learn the trade stories on the market, I believe persons are speaking about, generally, a couple of 1% development, however we haven’t given a information for subsequent 12 months at this time limit. I’d let you know, although, that we’re more than happy with the progress on eBrake, electrification, and including a brand new cus’omer, which we have been – this buyer we needed so as to add for the final 3 years, and we really feel actually good about that. So, extra to return.

Operator: [Operator Instructions]. And the subsequent query goes to Hendi Susanto of Gabelli Funds.

Hendi Susanto: My first query concerning the transportation market in China. So, the native OEMs are doing very well. And the place do you see alternative with native Chinese language OEMs? I am questioning, as an example, like if sure merchandise are agnostic, I believe there are pockets of development alternatives, together with, for instance, as an example, peddles with like new rising gamers. So, would you share what your places and takes when it comes to alternatives in China transportation market, particularly with the native gamers?

Kieran O’Sullivan: Sure, Hendi, we have talked now for most likely 2 or 3 quarters when it comes to the headwinds we face there and our transplant, largely Japanese prospects and a few European and North American are dealing with in that market. We do not suppose these headwinds are going away. We predict that is going to be only a little bit of a tricky grind, however we’re working selectively with OEMs that we imagine might be in the long term within the Chinese language native OEM sphere. In order that’s most likely one of the simplest ways how I phrase it, and we have achieved effectively with electrification in that space, and we anticipate that to proceed to enhance.

Hendi Susanto: After which Kieran, I believe automotive takes a very long time when it comes to, as an example, like design win after which the product lifetime, product life cycle. Generally, if you work with new OEMs in China, how lengthy could it take?

Kieran O’Sullivan: Hendi, historically exterior of China, it may be something from 2 years to three years relying on the kind of product. However I’d let you know, we see a lot sooner growth durations within the China market. And on the subject of our sensing options and electrification, for some electrification options, we may be in manufacturing after growth a interval of perhaps 18 months and even much less. And I believe it’s important to be in that market if you wish to compete.

Hendi Susanto: After which a query for Ashish. Ashish, I am questioning, I believe I’ll not catch the SyQwest anticipated income run charge?

Ashish Agrawal: Sure. So, Hendi, we had talked about for the interval in 2024 that they’re beneath our possession from beginning, say, August by the top of the 12 months, a variety of $10 million to $14 million.

Hendi Susanto: After which do you have got any info when it comes to the final 12 months income run charge?

Ashish Agrawal: We haven’t disclosed that publicly, however extrapolating the interval that we’ve got it, Hendi, will provide you with a reasonably first rate vary. And as Kieran has identified, we anticipate good development momentum from them as we glance forward into 2025.

Operator: Now we have a follow-up from John Franzreb of Sidoti & Co.

John Franzreb: Sure. Simply I am inquisitive about your ideas about further M&A and your diversification efforts. Do you suppose it is time that you’ll take a step again and perhaps consolidate the SyQwest buy? Or are you continue to going to be aggressive on the M&A entrance?

Kieran O’Sullivan: John, we will be disciplined and advance our diversification technique. We’re actively working our pipeline, and we see this as an opportunity to reinforce our diversification ultimately markets of business, aerospace and protection, and medical. And on the identical time, ensuring we’re investing for development in our transportation, the place we have some key merchandise that may be good winners for us sooner or later, too.

John Franzreb: Okay. Truthful sufficient. And might you speak slightly bit about your ideas on debt reimbursement? How aggressive you are going to be on that entrance? Do you have got any targets on debt leverage ratios you’d wish to be at by the top of subsequent 12 months?

Ashish Agrawal: So, John, the precedence on capital allocation, as Kieran talked about, we’re persevering with to work the M&A pipeline. Now we have an elevated stage of buybacks as effectively. From a debt standpoint, we do not really feel that we’ve got numerous debt at this level. It is a modest enhance within the debt after the SyQwest acquisition. We’ll first deal with these two priorities on capital allocation after which take a look at, clearly, if we’ve got nonetheless extra money, then we’ll pay down the debt. However that is not the most important precedence at this level.

Operator: Now we have one other query from Hendi Susanto of Gabelli Funds.

Hendi Susanto: Ashish, I’ve one further query for debt. What sort of curiosity expense charge that we should always mannequin?

Ashish Agrawal: So, Hendi, a few of our debt is hedged already and people particulars you may see in our public filings. The general charge that I’m utilizing internally is within the vary of 5% to six%.

Operator: Now we have no additional questions. I am going to hand again to Kieran for any closing feedback.

Kieran O’Sullivan: Nice, Nadia. Thanks, everyone, for becoming a member of us this morning. We are going to proceed to advance our technique on diversification and electrification to enhance the standard of our earnings, and we sit up for updating you within the subsequent quarter. Thanks.

Operator: Thanks. This now concludes as we speak’s name. Thanks all for becoming a member of. You might now disconnect your traces.

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