CTS Announces Third Quarter 2012 Financial Results

Tue Oct 23, 2012 4:35pm EDT

* Reuters is not responsible for the content in this press release.

CTS Announces Third Quarter 2012 Financial Results

Reports Strong Operating Cash Flow

CTS Corporation (NYSE: CTS) today announced third quarter 2012 revenues of $137.4 million, a decrease of 6% from the same period last year. Third quarter 2012 net earnings were $5.9 million, or $0.17 per diluted share, same as the third quarter last year. Included in the third quarter 2012 earnings were $0.02 per share of restructuring and $0.01 per share of other charges. Excluding these charges, third quarter 2012 adjusted earnings per share were $0.20, 18% higher than the same period last year and 11% higher than the previous quarter.

The Components and Sensors segment experienced strong year-over-year sales growth with a 9.4% increase from new product launch activities for new customers and the successful integration of an acquisition made earlier this year. Electronic component sales improved $4.6 million, or 17%, primarily from improved piezoceramic product demand for HDD and incremental sales from the acquisition. Automotive sensor and actuator sales improved $1.9 million, or 5%, primarily from the launch of the new grill shutter actuator and a double-digit increase in pedal module sales.

CTS’ year-over-year sales decrease was driven by the lower margin EMS segment, which decreased $15.2 million, or 20%, year-over-year. The decrease resulted from the weak global economy as certain customers delayed orders, particularly in the defense and aerospace and communications markets, the lingering impact of the Thailand flood and the Company’s strategy to exit certain unprofitable accounts. EMS’ Thailand facility, which was impacted by the October 2011 flood, became fully operational during the third quarter 2012.

Third quarter cash flow from operations improved to $13.0 million compared to $4.5 million in the same period last year primarily driven by lower working capital requirements. Year-to-date cash flow from operations almost doubled to $25.0 million, compared to $13.4 million in the same period last year. Year-to-date capital expenditures were $9.8 million, slightly lower than last year.

Restructuring Actions

The Company is taking proactive actions to strategically respond to the weak economic environment by further reducing its cost structure. During the fourth quarter, the Company is announcing plans to close its EMS operation in Tianjin, China. CTS’ electronic components operation will remain in this facility and expects growth with increasing piezo component production to support HDD applications. This action, combined with earlier restructuring actions taken in 2012, will reduce headcount by approximately 10%, and the Company’s global footprint by approximately 17%. Total fourth quarter restructuring charges are expected to be approximately $3 million.

Singapore Operational Efficiencies and Sale Leaseback Gain

As a result of manufacturing efficiency improvement initiatives, the Company has been able to reduce its manufacturing floorspace requirement at its Singapore facility. Accordingly, CTS entered into an agreement to sell and lease back approximately one-third of its Singapore facility. The transaction is expected to close in the fourth quarter 2012 with net proceeds of approximately $17.5 million and an anticipated pretax gain of approximately $7.5 million.

Other Items

Third quarter pension expense, which is non-cash, and Takata litigation expenses were approximately $0.4 million, or $0.01 per share, higher in 2012 compared to the prior year. Year-to-date, these expenses were approximately $2.9 million, or $0.06 per share, higher than the prior year.

During the third quarter, the Company authorized buying back of up to one million shares of stock, as the prior authorization of one million shares was completed. During the third quarter, the Company repurchased approximately 91,200 shares of common stock in open market transactions.

Commenting on third quarter 2012 results, Vinod M. Khilnani, CTS Chairman and Chief Executive Officer, stated, “In response to the challenging and uncertain global economy, the Company has undertaken a number of strategic actions to further reduce our cost structure while driving our key growth programs. We believe that decisive actions during challenging economic times will allow CTS to emerge stronger when the markets rebound. New product launch activity in our Components and Sensors segment remains robust and we continue to win new business. We are generating strong free cash flow and our balance sheet remains strong.”

Based on the third quarter results, and the current outlook which considers the continued weak global economy and the negative impact of the Japan/China territory dispute, management is lowering its full-year 2012 sales guidance from a range of a 4% to 7% increase over 2011, to essentially flat, with the Components and Sensors segment growing 10% to 13% and EMS declining 9% to 12%. Accordingly, management is changing its 2012 adjusted earnings per share guidance to $0.70 to $0.75, from a range of $0.75 to $0.80 per share, which excludes the expected $7.5 million gain from the Singapore facility sale leaseback in the fourth quarter.

 

SEGMENT INFORMATION

 
($ in thousands)  

Components
and Sensors

  EMS   Total
Third Quarter of 2012
Net sales to external customers $ 75,565 $ 61,792 $ 137,357
Segment operating earnings before corporate and shared services charges $ 9,492 $ 4,202 $ 13,694

Corporate and shared services charges

(4,185 ) (1,827 ) (6,012 )
Segment operating earnings $ 5,307 $ 2,375 $ 7,682
Expenses not allocated to business segments:
- Restructuring and related charges (878 )
Total operating earnings $ 6,804
 
Second Quarter of 2012
Net sales to external customers $ 76,823 $ 77,471 $ 154,294
Segment operating earnings before corporate and shared services charges $ 8,398 $ 6,086 $ 14,484

Corporate and shared services charges

(3,034 ) (1,906 ) (4,940 )
Segment operating earnings $ 5,364 $ 4,180 $ 9,544
Expenses not allocated to business segments:
- Restructuring and related charges (3,831 )
Total operating earnings $ 5,713
 
Third Quarter of 2011
Net sales to external customers $ 69,089 $ 76,981 $ 146,070
Segment operating earnings before corporate and shared services charges $ 7,738 $ 5,870 $ 13,608

Corporate and shared services charges

(3,557 ) (2,297 ) (5,854 )
Segment operating earnings(1) $ 4,181 $ 3,573 $ 7,754
 

(1) EMS segment’s operating earnings of $3,573 includes $2,687 of insurance recovery for property damage related to the fire at CTS Scotland’s manufacturing facility.

Components & Sensors: Components and Sensors third quarter 2012 sales increased $6.5 million, or 9%, from the third quarter of 2011. Sales of electronic components increased $4.6 million, or 17%, from improved piezoceramic product demand, primarily new HDD sales, and incremental sales from an acquisition. Automotive sensor and actuator sales increased $1.9 million, or 5%, driven primarily from the launch of the new grill shutter actuator and increased sales of pedal modules. Segment operating earnings before corporate and shared services charges increased $1.8 million from the same period last year primarily from higher sales and timing of customer reimbursements, partially offset by higher non-cash pension expenses.

Components and Sensors third quarter 2012 sales decreased $1.3 million from the second quarter of 2012. Within Automotive sensor and actuator products, lower sensor sales were partially offset by sales of the new grill shutter actuator product which was launched last quarter. Sales of electronic component products improved $2.2 million from the second quarter primarily on improved piezoceramic sales for HDD. Despite the lower sales, segment operating earnings before corporate and shared services charges improved $1.1 million from the second quarter of 2012 primarily from lower operating expenses including pension and timing of customer reimbursements.

EMS: EMS third quarter 2012 sales decreased $15.2 million, or 20%, from the third quarter of 2011, resulting from the weak global economy as certain customers delayed orders, particularly in the defense and aerospace and communications markets, the lingering impact of the Thailand flood and the Company’s strategy to exit certain unprofitable accounts. Segment operating earnings before corporate and shared services charges decreased $1.7 million, primarily from lower sales.

EMS third quarter 2012 sales decreased $15.7 million, or 20%, from the second quarter of 2012. Sales demand reflected the weak global economy and decreased across all markets served. The third quarter segment operating earnings before corporate and shared services charges decreased $1.9 million from the second quarter, primarily from lower sales.

Conference Call

As previously announced, the Company has scheduled a conference call on Wednesday, October 24, 2012 at 11:00 a.m. EDT. Those interested in participating may dial 800-230-1093 (612-288-0337, if calling from outside the U.S.). No access code is needed. There will be a replay of the conference call available from 1:30 p.m. EDT on Wednesday, October 24, 2012 through 11:59 p.m. EDT on Wednesday, October 31, 2012. The telephone number for the replay is 800-475-6701 (320-365-3844, if calling from outside the U.S.). The access code is 266791. Also, please note that a live audio webcast of the conference call will be available and can be accessed directly from the Web sites of CTS Corporation www.ctscorp.com, StreetEvents www.streetevents.com, Netscape netscape.aol.com, Compuserve www.compuserve.com and others.

About CTS

CTS is a leading designer and manufacturer of electronic components and sensors and a provider of electronics manufacturing services (EMS) to OEMs in the automotive, communications, medical, defense and aerospace, industrial and computer markets. CTS manufactures products in North America, Europe and Asia. CTS' stock is traded on the NYSE under the ticker symbol "CTS.” To find out more, visit the CTS Web site at www.ctscorp.com.

Safe Harbor Statement

This press release contains statements that are, or may be deemed to be, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, any financial or other guidance, statements that reflect our current expectations concerning future results and events and any other statements that are not based solely on historical fact. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are based on various assumptions as to future events, the occurrence of which necessarily are subject to uncertainties. These forward-looking statements are made subject to risks, uncertainties and other factors, which could cause our actual results, performance or achievements to differ materially from those presented in the forward-looking statements, including, without limitation: changes in the economy generally and in respect to the businesses in which CTS operates; unanticipated issues in integrating acquisitions; rapid technological change; general market conditions in the automotive, communications and computer industries, as well as conditions in the industrial, defense and aerospace and medical markets; reliance on key customers; unanticipated natural or other events such as the Japan earthquake and floods in Thailand; the ability to protect our intellectual property; pricing pressures and demand for our products; and risks associated with our international operations, including trade and tariff barriers, exchange rates and political and geographical risks. For more detailed information on the risks and uncertainties associated with CTS’ business, see the reports CTS files with the Securities and Exchange Commission available at http://www.ctscorp.com/investor_relations/investor.htm. CTS undertakes no obligation to publicly update its forward-looking statements to reflect new information or events or circumstances that arise after the date hereof, including market or industry changes.

             
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS - UNAUDITED
(In thousands, except per share amounts)
 
Three Months Ended Nine Months Ended
September 30 October 2 September 30 October 2
2012 2011 2012 2011
 
Net sales $ 137,357 $ 146,070 $ 438,620 $ 444,507
 
Costs and expenses:
Cost of goods sold 110,763 118,610 364,039 360,496
Insurance recovery for business interruption (4,192 ) (1,113 ) (15,242 ) (1,892 )
Selling, general and administrative expenses 19,387 18,343 58,169 55,074
Research and development expenses 4,350 5,163 15,590 14,782
Insurance recovery for property damage - (2,687 ) (1,769 ) (2,687 )
Restructuring charge   245     -     3,384     694  
 
Operating earnings 6,804 7,754 14,449 18,040
 
Other (expense) / income:
Interest expense, net (159 ) (190 ) (528 ) (721 )
Other income / (expense)   763     (65 )   297     1,808  
Total other income / (expense)   604     (255 )   (231 )   1,087  
 
Earnings before income taxes 7,408 7,499 14,218 19,127
 
Income tax expense   1,491     1,636     2,717     4,016  
 
Net earnings $ 5,917   $ 5,863   $ 11,501   $ 15,111  
 
Net earnings per share:
Basic $ 0.17   $ 0.17   $ 0.34   $ 0.44  
Diluted $ 0.17   $ 0.17   $ 0.33   $ 0.43  
 
Cash dividends declared per share $ 0.035   $ 0.03   $ 0.105   $ 0.09  
 
Average common shares outstanding:
Basic 33,923 34,375 34,017 34,347
Diluted 34,471 34,994 34,588 35,026
 
       
CTS CORPORATION AND SUBSIDIARIES
OTHER SUPPLEMENTAL INFORMATION
 

Earnings per Share

 
The following table reconciles GAAP diluted earnings per share to adjusted earnings per share for the Company:
 
Three Months Ended Nine Months Ended
September 30 October 2 September 30 October 2
2012 2011 2012 2011
 
GAAP diluted earnings per share $ 0.17 $ 0.17 $ 0.33 $ 0.43
Tax affected charges to reported diluted
loss per share:
Restructuring and related charges 0.02 - 0.10 0.01
Additional legal costs - - - 0.01
Takata and CEO search costs   0.01   -   0.02   -
Adjusted earnings per share $ 0.20 $ 0.17 $ 0.45 $ 0.45
 
 

Additional Information

 
The following table includes other financial information not presented in the preceding financial statements.
 
Three Months Ended Nine Months Ended
$ In thousands September 30 October 2 September 30 October 2

Expense

2012 2011 2012 2011
Depreciation and Amortization $ 4,937 $ 4,410 $ 14,583 $ 13,176
Equity Based Compensation 1,010 1,002 3,181 3,363
 

Non-GAAP financial measures are discussed below.

 

OTHER SUPPLEMENTAL INFORMATION
(continued)

Non-GAAP Financial Measures

Adjusted earnings per share is a non-GAAP financial measure. The most directly comparable GAAP financial measure is diluted earnings per share.

CTS adjusts for this item because they are discrete events which have a significant impact on comparable GAAP financial measures and could distort an evaluation of our normal operating performance.

CTS uses an adjusted earnings per share measure to evaluate overall performance, establish plans and perform strategic analysis. Using this measure avoids distortion in the evaluation of operating results by eliminating the impact of events which are not related to normal operating performance. Because this measure is based on the exclusion or inclusion of specific items, they may not be comparable to measures used by other companies which have similar titles. CTS' management compensates for this limitation when performing peer comparisons by evaluating both GAAP and non-GAAP financial measures reported by peer companies. CTS believes that this measure is useful to its management, investors and stakeholders in that it:

  • provides a truer measure of CTS' operating performance,
  • reflects the results used by management in making decisions about the business, and
  • helps review and project CTS' performance over time.

We recommend that investors consider both actual and adjusted measures in evaluating the performance of CTS with peer companies.

Segment Operating Earnings

Segment operating earnings is a non-GAAP financial measure outside the context of the Accounting Standards Codification ("ASC") 280 required reconciliation in the notes to the Company's financial statements. The most comparable GAAP term is operating earnings. Segment operating earnings exclude the effects of restructuring and restructuring-related charges when they are incurred by the Company. Segment operating earnings exclude interest expense, and other non-operating income and income taxes according to how a particular segment is measured. CTS' management provides the segment operating earnings measure to provide consistency between segment information in its earnings release and the business segment discussion in the notes to its financial statements.

                 
CTS Corporation and Subsidiaries
Condensed Consolidated Balance Sheets - Unaudited
(In thousands of dollars)
 
September 30 December 31,
2012 2011
 
Cash and cash equivalents $ 88,620 $ 76,412
Accounts receivable, net 81,014 88,345
Inventories 75,007 92,540
Other current assets   24,512   26,089
Total current assets   269,153   283,386
 
Property, plant & equipment, net 89,721 84,860
Other assets 122,502 112,569
   
Total Assets $ 481,376 $ 480,815
 
 
Notes payable and current portion
of long-term debt $ - $ -
Accounts payable 59,207 80,468
Other accrued liabilities   36,866   43,769
Total current liabilities   96,073   124,237
 
Long-term debt 94,500 74,400
Other obligations 18,450 18,881
 
Shareholders' equity 272,353 263,297
 
Total Liabilities and    
Shareholders' Equity $ 481,376 $ 480,815

CTS Corporation
Thomas A. Kroll, Vice President and Chief Financial Officer
Mitchell J. Walorski, Director of Investor Relations
Telephone 574-523-3800
FAX 574-293-6146

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.