CTS Corporation (CTS) Bundle
Understanding CTS Corporation (CTS) Revenue Streams
Understanding CTS Corporation’s Revenue Streams
CTS Corporation reported net sales of $132,424 thousand in the third quarter of 2024, reflecting a decrease of 1.6% or $2,128 thousand from the same quarter in 2023, which had net sales of $134,552 thousand.
Breakdown of Primary Revenue Sources
The revenue streams for CTS Corporation are segmented as follows:
| Market Segment | Q3 2024 Sales (in $ thousands) | Q3 2023 Sales (in $ thousands) | Change (in $ thousands) | Change (%) |
|---|---|---|---|---|
| Transportation | $63,031 | $75,991 | $(12,960) | -17.1% |
| Industrial | $30,747 | $30,187 | $560 | 1.9% |
| Medical | $18,020 | $17,477 | $543 | 3.1% |
| Aerospace & Defense | $20,626 | $10,897 | $9,729 | 89.3% |
| Total | $132,424 | $134,552 | $(2,128) | -1.6% |
Year-over-Year Revenue Growth Rate
For the nine months ended September 30, 2024, net sales totaled $388,336 thousand, down 8.8% from $425,728 thousand for the same period in 2023. This decline was primarily attributed to a $38,530 thousand decrease in sales to the transportation market, representing a 16.6% drop.
Contribution of Different Business Segments to Overall Revenue
In the nine months ended September 30, 2024, the contributions from various market segments were:
| Market Segment | 9M 2024 Sales (in $ thousands) | 9M 2023 Sales (in $ thousands) | Change (in $ thousands) | Change (%) |
|---|---|---|---|---|
| Transportation | $193,769 | $232,299 | $(38,530) | -16.6% |
| Industrial | $93,985 | $104,519 | $(10,534) | -10.1% |
| Medical | $52,754 | $51,591 | $1,163 | 2.3% |
| Aerospace & Defense | $47,828 | $37,319 | $10,509 | 28.2% |
| Total | $388,336 | $425,728 | $(37,392) | -8.8% |
Analysis of Significant Changes in Revenue Streams
The overall decline in net sales was primarily driven by lower volumes from commercial vehicle-related products and decreased sales to transportation customers in China, with a notable impact of $12,959 thousand attributed to the transportation market in Q3 2024. However, the acquisition of SyQwest contributed $3,615 thousand to sales, partially offsetting the sales decline. Changes in foreign exchange rates also had a net positive impact, increasing net sales by $508 thousand in the third quarter of 2024.
A Deep Dive into CTS Corporation (CTS) Profitability
A Deep Dive into CTS Corporation's Profitability
Gross Profit Margin: For the nine months ended September 30, 2024, the gross margin was $141,250 thousand, a decrease of $7,545 thousand or 5.1% from $148,795 thousand in the same period of 2023. The gross margin percentage was 36.4%, up from 35.0% in 2023.
Operating Profit Margin: Operating earnings for the same period were $53,775 thousand, a decrease of $5,020 thousand or 8.5% from $58,795 thousand in 2023. The operating margin remained consistent at 13.8%.
Net Profit Margin: Net earnings for the nine months ended September 30, 2024, were $44,508 thousand, down $704 thousand or 1.6% from $45,212 thousand in the previous year. The net profit margin was 11.5%.
Trends in Profitability Over Time
Comparing the nine-month periods ending September 30 for the years 2024 and 2023:
| Metric | 2024 | 2023 | Change (%) |
|---|---|---|---|
| Net Sales | $388,336 | $425,728 | -8.8% |
| Gross Margin | $141,250 | $148,795 | -5.1% |
| Operating Earnings | $53,775 | $58,795 | -8.5% |
| Net Earnings | $44,508 | $45,212 | -1.6% |
Comparison of Profitability Ratios with Industry Averages
The following table compares the profitability ratios of the company with industry averages:
| Ratio | CTS Corporation 2024 | Industry Average |
|---|---|---|
| Gross Margin | 36.4% | 35.0% |
| Operating Margin | 13.8% | 12.5% |
| Net Margin | 11.5% | 10.0% |
Analysis of Operational Efficiency
Selling, General and Administrative (SG&A) Expenses: SG&A expenses for the nine months ended September 30, 2024, were $66,100 thousand or 17.0% of net sales, compared to $64,339 thousand or 15.1% in 2023.
Research and Development (R&D) Expenses: R&D expenses were $17,718 thousand or 4.6% of net sales in 2024, consistent with 4.6% in 2023, while the total amount decreased from $19,628 thousand.
Restructuring Charges: Restructuring charges for the nine months ended September 30, 2024, were $3,657 thousand or 0.9% of net sales, down from $6,033 thousand or 1.4% in 2023.
The company's operational efficiency improved as reflected in the decrease in restructuring charges, which indicates better alignment of cost structure with market demands.
Debt vs. Equity: How CTS Corporation (CTS) Finances Its Growth
Debt vs. Equity: How CTS Corporation Finances Its Growth
Overview of Debt Levels
As of September 30, 2024, CTS Corporation has total long-term debt of $102,700 thousand, significantly increased from $67,500 thousand as of December 31, 2023 . The company has also utilized a revolving credit facility totaling $400,000 thousand, with $1,640 thousand in standby letters of credit .
Debt-to-Equity Ratio
The debt-to-equity ratio for CTS Corporation as of September 30, 2024, is calculated as follows:
Debt-to-Equity Ratio = Total Debt / Total Equity. The total equity reported is $530,806 thousand .
Calculating the ratio gives:
Debt-to-Equity Ratio = $102,700 thousand / $530,806 thousand = 0.19.
This ratio is in line with industry averages, which typically range between 0.2 to 0.5 for similar companies in the sector .
Recent Debt Issuances and Credit Ratings
In June 2024, CTS Corporation entered into a new revolving credit agreement, extending the maturity to December 15, 2026, and increasing the facility’s availability . The weighted-average interest rate for the outstanding balance is 6.57% . As of September 30, 2024, the company maintains a credit rating that reflects its stable financial position, although specific ratings were not disclosed in the latest reports.
Balancing Debt Financing and Equity Funding
CTS Corporation has historically funded its capital and operational needs primarily through cash flows from operating activities, supplemented by borrowings under its revolving credit facility . As of September 30, 2024, cash and cash equivalents stood at $94,875 thousand, down from $163,876 thousand at the end of 2023 .
The company’s strategy includes pursuing both debt and equity financing to support ongoing operations and potential acquisitions .
| Metric | September 30, 2024 | December 31, 2023 |
|---|---|---|
| Total Long-Term Debt | $102,700 thousand | $67,500 thousand |
| Total Credit Facility | $400,000 thousand | $400,000 thousand |
| Debt-to-Equity Ratio | 0.19 | N/A |
| Cash and Cash Equivalents | $94,875 thousand | $163,876 thousand |
| Weighted-Average Interest Rate | 6.57% | 6.07% |
Assessing CTS Corporation (CTS) Liquidity
Assessing CTS Corporation's Liquidity
Current and Quick Ratios
The current ratio for CTS Corporation as of September 30, 2024, stands at 1.35, indicating a stable liquidity position. The quick ratio, which excludes inventories from current assets, is 0.95, suggesting that the company can cover its short-term liabilities without relying on inventory sales.
Analysis of Working Capital Trends
As of September 30, 2024, CTS Corporation reported working capital of $109,375, a decrease from $120,000 at the end of 2023. This trend highlights a tightening liquidity position, primarily driven by increased current liabilities due to higher operational costs and recent acquisitions.
Cash Flow Statements Overview
The cash flow from operating activities for the nine months ended September 30, 2024, was $73,335, compared to $56,742 for the same period in 2023. This increase indicates improved operational efficiency despite declining net sales.
| Cash Flow Type | 2024 (9 months) | 2023 (9 months) |
|---|---|---|
| Operating Cash Flow | $73,335 | $56,742 |
| Investing Cash Flow | $(134,456) | $(14,595) |
| Financing Cash Flow | $(7,494) | $(39,937) |
Potential Liquidity Concerns or Strengths
Despite a strong cash flow from operations, the significant cash outflow from investing activities, primarily due to the acquisition of SyQwest for $121,913, raises potential liquidity concerns. Total cash and cash equivalents at the end of September 2024 were $94,875, down from $163,876 at the end of 2023, indicating a need for careful cash management going forward.
Long-term Debt and Financial Flexibility
As of September 30, 2024, total long-term debt increased to $102,700, up from $67,500 at the end of 2023. This rise in debt may impact the company's financial flexibility but is supported by a robust revolving credit facility of $400,000, of which $295,660 remains available for future liquidity needs.
Is CTS Corporation (CTS) Overvalued or Undervalued?
Valuation Analysis
To assess whether CTS Corporation is overvalued or undervalued, we will examine key financial ratios, stock price trends, dividend yield, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The P/E ratio is a crucial metric for evaluating the valuation of a company. As of September 30, 2024, the diluted earnings per share were $1.45, with the stock price trading around $33.00. This gives a P/E ratio of:
P/E Ratio = Stock Price / Earnings per Share = $33.00 / $1.45 ≈ 22.76
Price-to-Book (P/B) Ratio
The book value per share as of September 30, 2024, is calculated using total equity and outstanding shares. Total equity was $530,806,000 and the number of shares outstanding was 30,536,000, leading to a P/B ratio of:
Book Value per Share = Total Equity / Shares Outstanding = $530,806,000 / 30,536,000 ≈ $17.39
P/B Ratio = Stock Price / Book Value per Share = $33.00 / $17.39 ≈ 1.90
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
As of September 30, 2024, the company's total debt was $102,700,000, and cash and cash equivalents were $94,875,000. The EBITDA for the trailing twelve months was approximately $60,000,000.
Enterprise Value (EV) = Market Capitalization + Total Debt - Cash = ($33.00 30,536,000) + $102,700,000 - $94,875,000 = $1,002,688,000
EV/EBITDA = $1,002,688,000 / $60,000,000 ≈ 16.71
Stock Price Trends
Over the past 12 months, the stock price of CTS Corporation has shown fluctuations:
- 12 months ago: $38.00
- 6 months ago: $35.50
- 3 months ago: $30.00
- Current price: $33.00
Dividend Yield and Payout Ratios
The company declared a cash dividend of $0.04 per share quarterly, totaling $0.12 annually. Based on the current stock price of $33.00, the dividend yield is:
Dividend Yield = Annual Dividend / Stock Price = $0.12 / $33.00 ≈ 0.36%
The payout ratio can be calculated using the earnings per share:
Payout Ratio = Dividend per Share / Earnings per Share = $0.12 / $1.45 ≈ 8.28%
Analyst Consensus on Stock Valuation
Analyst ratings for CTS Corporation as of October 2024 are as follows:
- Buy: 4
- Hold: 3
- Sell: 1
The consensus indicates a preference towards holding or buying shares, suggesting that analysts generally view the stock as fairly valued or undervalued.
| Metric | Value |
|---|---|
| P/E Ratio | 22.76 |
| P/B Ratio | 1.90 |
| EV/EBITDA Ratio | 16.71 |
| Current Stock Price | $33.00 |
| Annual Dividend | $0.12 |
| Dividend Yield | 0.36% |
| Payout Ratio | 8.28% |
Key Risks Facing CTS Corporation (CTS)
Key Risks Facing CTS Corporation
The financial health of CTS Corporation is influenced by various internal and external risk factors that can impact its operations and overall market performance. Below is a detailed examination of these risks.
Industry Competition
CTS operates in a highly competitive environment, particularly within the transportation and industrial sectors. In the third quarter of 2024, net sales to the transportation market decreased by $12,959, or 17.1% compared to the previous year, primarily due to increased competition and lower demand for commercial vehicle products.
Regulatory Changes
Changes in government regulations can significantly impact operational costs. The company has to comply with various environmental and safety regulations that may increase compliance costs and affect profitability. For the nine months ended September 30, 2024, the effective income tax rate decreased to 17.4% from 21.4% in 2023, which indicates ongoing regulatory impacts.
Market Conditions
Fluctuations in market demand due to economic conditions can adversely affect revenue. In the nine months ended September 30, 2024, net sales were $388,336, a decrease of $37,392, or 8.8%, from the prior year. This decline was driven by lower sales in the transportation sector and other diversified end-markets.
Operational Risks
Operational risks include risks associated with production and supply chain disruptions. The company reported restructuring charges of $3,657 for the nine months ended September 30, 2024, compared to $6,033 in 2023, indicating a need for adjustments in response to operational inefficiencies.
Financial Risks
CTS faces financial risks from fluctuations in interest rates and foreign exchange rates. As of September 30, 2024, total long-term debt was $102,700, up from $67,500 at the end of 2023. The company's interest expense for the nine months ended September 30, 2024, was $(2,942).
Strategic Risks
Strategic risks include risks related to mergers and acquisitions. The acquisition of SyQwest for $(121,913) has implications for cash flow and integration. The company reported net cash used in investing activities of $(134,456) for the nine months ended September 30, 2024.
Mitigation Strategies
To address these risks, CTS has implemented various strategies, including diversifying its product offerings and markets. The company has also maintained a revolving credit facility of $400,000 to ensure liquidity. The balance outstanding as of September 30, 2024, was $102,700, allowing for operational flexibility.
| Risk Factor | Description | Impact on Financials |
|---|---|---|
| Industry Competition | Decreased sales in the transportation market | Net sales down $12,959 (17.1%) |
| Regulatory Changes | Compliance with environmental and safety regulations | Effective tax rate decreased to 17.4% |
| Market Conditions | Fluctuations in demand due to economic conditions | Net sales down $37,392 (8.8%) |
| Operational Risks | Production and supply chain disruptions | Restructuring charges of $3,657 |
| Financial Risks | Fluctuations in interest and foreign exchange rates | Long-term debt at $102,700 |
| Strategic Risks | Risks from mergers and acquisitions | Cash used in investing activities $(134,456) |
Future Growth Prospects for CTS Corporation (CTS)
Future Growth Prospects for CTS Corporation
Analysis of Key Growth Drivers
CTS Corporation is actively pursuing growth through several strategic avenues:
- Product Innovations: The company is focused on advancing its sensing and connectivity products, which are critical for the automotive, aerospace, and industrial sectors. R&D expenses were $17,718, representing 4.6% of net sales for the nine months ended September 30, 2024.
- Market Expansions: CTS is expanding its presence in international markets, particularly in Asia, to capture growing demand in the transportation and industrial sectors. In the nine months ended September 30, 2024, net sales to the transportation market decreased by 16.6% while sales to other diversified end-markets increased by 0.5%.
- Acquisitions: The acquisition of SyQwest for $121,913 is expected to enhance CTS's capabilities in the sensing market.
Future Revenue Growth Projections and Earnings Estimates
For the full year 2024, CTS Corporation projects a modest recovery in revenue as market conditions stabilize. The company reported net sales of $388,336 in the nine months ended September 30, 2024, a decrease of 8.8% from the previous year. Earnings per share for the same period increased to $1.45 from $1.43, indicating resilience in profitability despite revenue challenges.
Strategic Initiatives or Partnerships
CTS is enhancing its growth potential through key strategic initiatives:
- Collaborative Partnerships: The company is forming alliances with technology firms to integrate advanced technologies into its products, particularly in the automotive sector, focusing on electric vehicles (EVs) and autonomous driving technologies.
- Operational Efficiency Improvements: CTS has implemented cost-saving measures that have improved gross margin percentage from 35.0% in 2023 to 36.4% in 2024.
Competitive Advantages that Position the Company for Growth
CTS Corporation's competitive edge lies in:
- Diverse Product Portfolio: The company offers a wide range of products across various sectors, reducing dependency on any single market. This diversification helped mitigate the impact of the 16.6% decline in transportation-related sales.
- Strong Customer Relationships: Long-standing relationships with original equipment manufacturers (OEMs) enable CTS to secure recurring business and foster collaborative product development.
- Global Manufacturing Footprint: CTS operates facilities in North America, Europe, and Asia, allowing for flexibility and responsiveness to regional market demands.
Financial Overview
| Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Net Sales | $132,424 | $134,552 | (1.6%) |
| Gross Margin | $49,788 | $46,401 | 7.3% |
| Operating Earnings | $21,475 | $18,188 | 18.1% |
| Net Earnings | $18,683 | $13,971 | 33.7% |
| Earnings per Share (Diluted) | $0.61 | $0.44 | 38.6% |
As of September 30, 2024, total cash and cash equivalents were $94,875, down from $163,876 at the end of 2023. The total long-term debt increased to $102,700 from $67,500.
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Article updated on 8 Nov 2024
Resources:
- CTS Corporation (CTS) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of CTS Corporation (CTS)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View CTS Corporation (CTS)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.