(CTS) CTS Improvements Show in Results

CTS: Design Wins and Balance Sheet Improvement

CTS Corporation (CTS) designs, manufactures, assembles and sells electronic components and sensors worldwide. On October 27th 2009, the firm announced results for the third quarter of fiscal year 2009.

Segment Breakdown
The Components and Sensors segment revenues increased 13% in the third quarter from the second quarter 2009, driven by a 15% improvement in automotive product shipments, as global markets began to modestly recover and improved market share. Sales of electronic component products increased 8% from the second quarter 2009 from higher demand of piezoceramic and resistor products.

Total EMS segment sales were flat from the second quarter 2009 as improved demand in medical, communications and defense and aerospace markets were offset by lower industrial sales and previously announced planned end-of-life sales reductions to Hewlett-Packard (HPQ).

Vinod M. Khilnani, CTS Chairman and Chief Executive Officer, stated, “We are pleased to report sequential improvements in both revenues and earnings again in the third quarter. In addition, our strategy for future growth through diversification continues to be successful, as evidenced by a growing pipeline of design wins and significant new business awards. We have now booked the strongest level of business awards on a year-to-date basis, approximating $220 million over a five to six year program life, primarily starting 2011-2012 timeframe.”

What the Street may be missing: Balance Sheet/Cash Flow Improvement
Cash flow from operations was $18.4 million in the third quarter 2009 Incorporatedreasing $10.6 million over the same period last year. September year-to-date cash flow from operations was $34.1 million, significantly improved from the $20.1 million in the same period last year, primarily due to improved working capital management and lower capital expenditures.  Total debt, as a percentage of total capitalization, was 17.0% at the end of the third quarter of 2009, compared to 22.5% at the end of the third quarter 2008.

Our Take

CTS remains well positioned to achieve solid revenue growth and operating leverage as end markets turn around in the long run, given the company’s competitive advantage led by innovation and laser-like focus on expense management. The slower growing EMS segment has been exceptionally diversified since 2004 and is a complement to the faster growing Components and Sensors business. The company is trading at a reasonable valuation.

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