CTS : First quarter results in-line with our estimates. Higher gross margins should be maintained and we are increasing our estimates for 2016 and 2017.
NYSE:CTS CTS Corp. (CTS) announced its first quarter 2016 results early morning on May 03, 2016 followed by a conference call. Results were in line with our estimates, Revenue was $96.7, slightly above our estimate of $96 but well above street consensus. Earnings of $0.24 a share was also above consensus but the same as our published number of $0.26 a share. Further improvement in gross margins and a positive contribution from CTG in the second half of the year should drive earning to above $1.00 a share in 2016. Business was good, revenue grew sequentially again with auto related sales up but computer hard drive components were down, as expected. The recent acquisition of CTG was completed but did not have a significant impact on the first quarter. The growth rate of CTG exceeds 10% a year (revenue) and its gross margins are better that the other areas. Medical is an important area for CTG, where CTS had $11 million in revenue last year and this should have above average profitability for CTS. Productivity, cost containment and favorable currency translations resulted in an improvement in gross margins from 4Q15 levels. When results are CTG are included we expect a further, modest, gain in gross margins. There may be other nonrecurring expenses from the acquisition in 2Q16 depending on decisions by the accountants. We have not included these in our current estimates. CTS has moved more cash out of China that will be used to finance growth outside the US and repatriated cash from Canada and the UK into the USA. Most of the redirection of cash has been done. These moves should reduce earnings fluctuations due to currency exposure. The tax rate in the 1Q16 was higher than normal at 34%. This rate should be the annual 2016 rate. Overall, this was a good quarter and we have increased our estimates for 2016, 2017 and beyond. READ THE FULL RESEARCH REPORT HERE SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR and to view our disclaimer.