CTS shares tank on profit warning, downgrades

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CTS shares plummeted $11.40, or 30 percent, to a 52-week low of $26.50 Wednesday after the company warned that its first-quarter and fiscal 2001 sales and earnings will fall woefully short of analysts' estimates.

CTS (NYSE: CTS) executives told the 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.

CTS is a manufacturer of electronic components for wireless applications.

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

It 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," he 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 was a chance the company could lower earnings estimates again if the economic climate doesn't improve.

Reik Read, an analyst at Robert W. Baird & Co., 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," he wrote in a research note.

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

Last quarter, CTS pocketed $22.8 million, or 79 cents a share, on sales of $233.4 million.

Its shares closed off 10 cents to $37.90 ahead of the profit warning.

The stock peaked at $68 in May before falling to a previous 52-week low of $31.50 in December.

Two of the four analysts tracking the stock rate it either a "buy" or "strong buy."

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