CTS Q2 2025 slides: diversification strategy drives recovery after Q1 miss

CTS Corporation (NYSE:CTS) presented its second quarter 2025 earnings results on July 24, showing signs of recovery after a disappointing first quarter. The company reported revenue growth of 4% year-over-year, reaching $135 million, with adjusted diluted earnings per share of $0.57, up 7% compared to the same period last year.

Quarterly Performance Highlights

CTS demonstrated improved performance in Q2 2025 compared to both the previous quarter and year-over-year results. The company’s adjusted gross margin expanded significantly to 38.7%, an increase of 296 basis points from Q2 2024 and up from 37.0% in Q1 2025. This quarter marks a notable recovery after CTS missed analyst expectations in Q1, when the company reported EPS of $0.44 against projections of $0.57.

As shown in the following financial summary chart:

The company’s net income reached $18.5 million in Q2 2025, up from $14.7 million in Q2 2024 and $13.4 million in Q1 2025. Diluted EPS was $0.62, compared to $0.48 in the same quarter last year. Adjusted EBITDA margin also improved to 23.0%, up from 21.7% in Q2 2024 and 20.5% in Q1 2025.

End Market Analysis

CTS’s diversification strategy appears to be gaining traction, with diversified end markets (including industrial, aerospace & defense, and medical) now representing 55% of total revenue, up from previous quarters. These markets collectively grew 13% year-over-year, helping to offset continued weakness in the transportation segment.

The aerospace & defense market was particularly strong, as illustrated in this end market update:

Aerospace & defense sales reached $21 million in Q2, representing impressive 34% year-over-year growth. The medical segment also performed well with sales of $19 million, up 8% compared to Q2 2024. The company added a new customer for medical ultrasound and received an award for a pacemaker application.

The industrial segment showed modest improvement while transportation continued to struggle:

Industrial sales grew 6% year-over-year to $34 million, with bookings up 22%. The company secured multiple wins for EMC (NYSE:EMC_old), switches, industrial printing, and temperature sensing applications. Meanwhile, transportation revenue declined 6% to $61 million, with continued softness in China and the commercial vehicle market. Despite these challenges, CTS maintained approximately $1 billion in total booked business in the transportation segment.

Financial Position and Cash Flow

CTS demonstrated strong cash generation in the first half of 2025, with operating cash flow reaching $44 million year-to-date, up from $38 million in the same period of 2024. The company’s balance sheet remains solid with $99 million in cash against $88 million in debt.

The following chart illustrates the company’s cash flow performance:

Free cash flow for the first half of 2025 totaled $36 million, while capital expenditures were $8 million. CTS returned $26 million to shareholders through dividends and share repurchases during this period. Management highlighted that this strong financial position provides a solid foundation for potential strategic mergers and acquisitions.

Forward Guidance and Outlook

Despite challenges in the transportation segment, CTS maintained its full-year 2025 guidance, projecting revenue of approximately $520 million and adjusted diluted EPS of $2.35. This represents modest revenue growth of about 1% from 2024, but a more substantial 11% increase in adjusted EPS.

The company’s guidance is illustrated in the following chart:

Management noted several key assumptions underlying this outlook, including the continuation of current market conditions while monitoring potential impacts from tariffs and the geopolitical environment. The company expects to maintain its focus on growth in diversified end markets and anticipates a tax rate between 19-21% excluding discrete items.

Strategic Initiatives

The Q2 results reflect CTS’s ongoing strategic shift toward diversification, with the company highlighting its progress in reducing dependence on the transportation market. The presentation emphasized the company’s transformation from primarily a transportation component supplier to a more balanced provider of sensors and subsystems across multiple industries.

As shown in this overview of the company’s performance drivers:

CTS added two new customers during the quarter and maintained a book-to-bill ratio of 1.0, indicating stable order flow. The company’s diversification efforts appear to be yielding results, particularly in the aerospace & defense segment where year-to-date revenue has increased from $27 million in 2024 to $37 million in 2025.

The second quarter results suggest that CTS is successfully navigating the challenging market environment, with its diversification strategy helping to offset weakness in its traditional transportation business. While the company still faces headwinds in certain markets, the improved performance compared to Q1 and the maintained full-year guidance indicate management’s confidence in continued recovery through the second half of 2025.

Full presentation:

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