CTS Corporation (NYSE:CTS) reported a decline in sales for the third quarter of 2023 due to weak demand in industrial and distribution markets, and a softening in commercial vehicle demand. Despite these challenges, the company added eight new customers and secured a significant development award for a motor position sensor for electrified vehicles. The company is now focused on cost reductions, expanding its customer base in industrial and medical markets, and driving growth through electrification.
Key takeaways from the call include:
- Sales for Q3 2023 were $135 million, down 11% from the same period last year.
- The company implemented temporary cost reduction measures in the second half of the year, resulting in lower operating expenses in the third quarter.
- CTS generated $22 million in operating cash flow and $19 million in free cash flow during the third quarter.
- The company repurchased shares worth approximately $8.3 million in the third quarter and has returned approximately $30 million to shareholders through buybacks and dividends year-to-date.
- The company expects the UAW strike to impact Q4 sales by around $2 million to $4 million.
- Despite challenges, CTS is focused on winning new business and has a promising pipeline of opportunities.
CTS is in the process of transitioning from its Juarez facility, with activity set to increase in the second half of 2023. The company has built up safety stock to facilitate this transition and expects a further increase in the fourth quarter.
The company updated its guidance for the full year 2023, with sales now expected in the range of $545 million to $555 million and adjusted diluted earnings per share in the range of $2.15 to $2.25.
During the earnings call, executives, Kieran O'Sullivan and Ashish Agrawal, discussed their plans for the second half of the year, focusing on winning new business and improving their book-to-bill ratio. They mentioned opportunities in the motor and sensor markets, as well as progress in medical and defense sectors.
CTS remains confident in its future growth prospects, driven by automation, connectivity, and energy efficiency trends. They highlighted their focus on driving profitable growth and launching new products. The company expects its eBrake product to generate commercial sales in late 2026 or 2027 and has the potential to be a $50 million-plus platform. Additionally, commercial sales for AC motor current sensors are expected to impact industrial applications already, with automotive applications taking around two years.
While the company acknowledges challenges such as labor wage increases and raw material costs, it believes that the impact on margins is not significant. The company is also monitoring the impact of China domestic competition, particularly with Toyota (NYSE:TM) and Honda (NYSE:HMC), who have lost some market share in the short term.
CTS Corporation ended the third quarter with a cash balance of $160 million and a long-term debt balance of $77 million. Despite the current challenges, the company remains committed to its strategic growth initiatives.
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