CTS Corporation (CTS)

Q2 2010 Earnings Call

July 27, 2010 11:00 am ET

Executives

Mitch Walorski – Director, Planning and IR

Vinod Khilnani – Chairman, President and CEO

Donna Belusar – SVP and CFO

Analysts

John Franzreb – Sidoti & Company

Jim McIlree – Neuberger Berman

Hendi Susanto – Gabelli & Company

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the CTS Corporation’s Second Quarter Fiscal 2010 Earnings Conference Call. (Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Director of Investor Relations, Mr. Mitch Walorski. Please go ahead.

Mitch Walorski

Thank you, Greg. I’m Mitch Walorski, Director of Investor Relations. And I will host the CTS Corporation’s Second Quarter, 2010 Earnings Conference Call.

Thank you for joining us today. Participating from the company today are Vinod Khilnani, Chairman of the Board and CEO, and Donna Belusar, Senior Vice President and Chief Financial Officer.

Before beginning the business discussion, I would like to remind our listeners that the conference call contains forward-looking statements.

These statements are subject to a number of risks and uncertainties that could cause actual results to different materially from those expressed in the forward-looking statements.

Additional information regarding these risks and uncertainties was set forth in last evening’s press release and more information can be found in the company’s SEC filings.

To the extent that today’s discussion refers to any non-GAAP measures, relative to Regulation G, the required explanations and reconciliation are available on the website in the Investor Relation’s section.

I will now turn the discussion over to our chairman and CEO, Vinod Khilnani.

Vinod Khilnani

Thanks Mitch. And good morning everyone. Last evening we released our second quarter financial results for 2010. I’m pleased to report that total sales and earnings in the second quarter of 2010 improved year over year from the second quarter of last year, and sequentially from the first quarter of 2010.

Our components and sensor segment sales went up 46% year over year, EMS sales were lower 5.9% year over year, but they were up 19% sequentially; and excluding end-of-life Hewlett-Packard products, increased 3% year over year.

Favorable segment sales mixed with component and sensor representing 52% of total CTS sales, again, allowed us to post a stronger gross margin of 21.9% in the quarter, versus 18.2% in the same quarter last year.

We continue to increase our R&D activities and investment and new products prudentially, but at the same time, are keeping our expense base and cash flow tightly managed given the lingering, uncertain global economic conditions.

Total sales in the second quarter of 2010 at $138.9 million, went up 15% from the second quarter of 2009, driven by a strong 46% year-over-year increase in our component and sensor segment sales.

Within this segment, sales of automotive sensors and actuators increased by 42 % from the second quarter of 2009, as demand for light vehicles improved from the depressed 2009 levels.

Year over year, vehicle production volumes in the second quarter were up 71% in North America, but only 6% higher in Western Europe, and up approximately 22% in China, reflecting increased vehicle sales and inventory replenishment.

North America light-vehicle inventory levels at the end of June, at 48 days, were fairly reasonable and somewhat lower than historical levels. This is a good sign, and reduces the risk of sharp product curtailment in the second half of 2010, apart from the normal seasonality of the third quarter when most orients schedule their summer plant shutdowns.

Continuing with the component and sensor segment, sales of electronic components representing 20% of our total sales in the second quarter 2010 were up a strong 52% year over year as we saw a broad base of economy continue in our third markets.

Wireless and infrastructure sales went up 24% and Piezoceramic sales more than doubled as key third markets of medical ultrasound, commercial inkjet printers and hydrophone all recorded strong sales driven by improved demand and favorable impact from our new product introductions.

Distribution channel sales of electronic and electro components were up 53% and the demand seems to be staying fairly robust going into the third quarter with a 1.1 book-to-bill ratio.

Sales in other components and sensor business overall reflects not only improved macro economic conditions worldwide, but also the impact of our increased R&D initiatives, which are helping new product introductions and improved market share.

We filed 20 new patent applications in the second quarter this year, versus only nine last year. And we were granted 11 new patents in the second quarter of 2010, versus seven last year.

Our increased filings and patent grants are indicative of the effectiveness of our R&D initiatives and our future growth opportunities. And at the same time, helped protect our market position.

Our EMS segment sales were 48% of total CTS sales in the second quarter, compared to 59% in the same period last year.

EMS sales in the second quarter of 2010 at $66.6 million, went up 19% sequentially, but down approximately 6% year over year.

As I said earlier, if we exclude the end-of-life HP volumes of approximately $6 million from second quarter 2009, EMS sales were also up year over year by 3%.

EMS sales were helped by strong communication infrastructure markets.

On the design wins and business development front, we won four new programs in the automotive sensor and actuator arena, and captured five new customers in the EMS business in the second quarter of 2010.

Read the rest of this transcript for free on seekingalpha.com

More from Stocks

Video: Here Is Why Carvana Isn't Worried About Amazon

Video: Here Is Why Carvana Isn't Worried About Amazon

Jim Cramer: Okta Is a Very Expensive Stock

Jim Cramer: Okta Is a Very Expensive Stock

Here's Why Tesla's Solar Shakeup Makes Sense

Here's Why Tesla's Solar Shakeup Makes Sense

Dow Rises for First Time in 9 Days, Oil Soars as OPEC Agrees to Boost Output

Dow Rises for First Time in 9 Days, Oil Soars as OPEC Agrees to Boost Output

BlackBerry CEO: Stock Price Should Be Higher, We Are Looking at M&A

BlackBerry CEO: Stock Price Should Be Higher, We Are Looking at M&A