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CTS shares tank on profit warning, downgrades

The maker of electronic components for wireless applications warns its first-quarter and fiscal 2001 sales and earnings will fall short of analysts' estimates.

    CTS shares plummeted $13.65, or 36 percent, to close at a new 52-week low of $24.25 Wednesday after the company warned that its first-quarter and fiscal 2001 sales and earnings will fall short of analysts' estimates.

    The maker of electronic components for wireless applications told Wall Street that it now expects sales in the first quarter to drop by 7 percent to 12 percent from sales in the year-ago quarter. It expects to earn between 4 cents and 8 cents a share in the quarter.

    First Call consensus was expecting a profit of 67 cents a share in the quarter.

    Company executives said that sluggish sales to communications, automotive and computer customers will result in lower-than-expected sales and earnings for the fiscal year.

    CTS expects to earn between $2.10 a share and $2.40 a share in the fiscal year on sales roughly on par with the $866.5 million it recorded in fiscal 2000.

    Analysts were predicting fiscal 2001 earnings of $3.20 a share.

    Bear Stearns analyst Thomas Hopkins downgraded the stock Wednesday from a "buy" recommendation to "neutral," primarily because the company now expects a 10 percent decline in gross profit margins from the 30.4 percent it enjoyed in the fourth quarter.

    "Given the significant year-over-year and sequential decline in earnings, we believe it will be very difficult for the stock's multiple to advance," Hopkins wrote in a research note. "Furthermore, as is the case with many electronic component suppliers, the poor visibility is likely to add additional uncertainty to the near-term earnings outlook."

    Hopkins added that there is a chance the company could lower earnings estimates again if the economic climate doesn't improve.

    Reik Read, an analyst at Robert W. Baird, is maintaining his "market outperform" rating on the stock--for now.

    "Given management guidance and the potential for back-half improvement as inventories potentially clear and as CTS implements cost-reduction programs, we would recommend buying CTS below $28, a 25 percent discount to our new price target," Read wrote in a research note.

    Dresdner Kleinwort Wasserstein analyst Scott Merlis cut the stock from a "buy" rating to "add" after the profit warning.

    Last quarter, CTS pocketed $22.8 million, or 79 cents a share, on sales of $233.4 million. The company's stock peaked at $68 in May before falling to a 52-week low of $31.50 in December.

    In fiscal 2000, CTS earned $83.8 million, or $2.92 a share, on sales of $866.5 million.

    Two of the four analysts tracking the stock rate it either a "buy" or "strong buy." Shares closed off 10 cents to $37.90 ahead of the profit warning.