CTS Q2 Deep Dive: Diversified End Markets Offset Transportation Softness, Margins Expand

July 25, 2025 at 01:31 AM EDT

CTS Cover Image

Electronic components manufacturer CTS Corporation (NYSE: CTS) reported Q2 CY2025 results topping the market’s revenue expectations, with sales up 4% year on year to $135.3 million. The company expects the full year’s revenue to be around $535 million, close to analysts’ estimates. Its non-GAAP profit of $0.57 per share was 3.6% above analysts’ consensus estimates.

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CTS (CTS) Q2 CY2025 Highlights:

Revenue: $135.3 million vs analyst estimates of $132.7 million (4% year-on-year growth, 2% beat)
Adjusted EPS: $0.57 vs analyst estimates of $0.55 (3.6% beat)
Adjusted EBITDA: $31.1 million vs analyst estimates of $29.01 million (23% margin, 7.2% beat)
The company reconfirmed its revenue guidance for the full year of $535 million at the midpoint
Management reiterated its full-year Adjusted EPS guidance of $2.28 at the midpoint
Operating Margin: 17%, up from 14.5% in the same quarter last year
Market Capitalization: $1.25 billion

StockStory’s Take

CTS delivered a second quarter that exceeded Wall Street’s revenue and profit expectations, with the market responding positively to the results. Management attributed the quarter’s performance to strong growth in diversified end markets—particularly medical, aerospace and defense, and industrial—while transportation sales faced headwinds from China market dynamics and softer commercial vehicle demand. CEO Kieran O’Sullivan highlighted the company’s ongoing diversification strategy, noting, “Our teams continue to execute on our diversification strategy to increase growth in diversified medical, industrial, aerospace and defense markets.”

Looking ahead, CTS’s full-year outlook is shaped by continued momentum in its diversified markets and expectations for stronger aerospace and defense sales in the second half, supported by the SyQwest acquisition. Management also cautioned about near-term transportation softness, citing ongoing tariff risks and market uncertainty in China. CFO Ashish Agrawal emphasized cost discipline and operational efficiency as margin drivers, stating, “We are continuing to look at operational efficiency on an ongoing basis... contributing to our gross margin expansion in the quarter.”

Key Insights from Management’s Remarks

Management attributed Q2 growth to a mix of organic expansion and contributions from recent acquisitions, while also addressing ongoing headwinds in transportation and evolving end-market demand.

Diversified end markets expanded: Sales to medical, aerospace and defense, and industrial segments collectively rose 13% year-over-year, now representing 55% of company revenue. Management credited both organic growth and the SyQwest acquisition, with CEO O’Sullivan calling out, “wins for medical ultrasound across all regions and an award for a pacemaker application.”
SyQwest acquisition impact: SyQwest contributed $4.5 million in revenue in the quarter, with management expecting stronger contributions in the second half of the year as government funding normalizes. O’Sullivan noted the integration is progressing, and the business maintains “a strong pipeline of opportunities.”
Transportation market remains mixed: Transportation revenue declined 6% year-over-year, primarily due to weak commercial vehicle demand and softness in China. However, CTS secured new product awards—including accelerator modules and chassis sensors—across North America, Europe, and Asia, and management sees a robust pipeline in North America.
Medical segment dynamics: Therapeutics posted a 60% year-over-year increase, driven by a large order, while diagnostic ultrasound saw some softness, particularly in Asia, likely due to reduced capital spending and tariff impacts. Management expects this dynamic to persist for a quarter or two.
Gross margin and operational efficiency: Adjusted gross margin expanded by nearly 300 basis points year-over-year, reflecting a favorable sales mix and continued cost discipline. CFO Agrawal described the impact of tariffs as “very, very minimal in the quarter,” but remains vigilant about potential future changes.

Drivers of Future Performance

Looking ahead, management expects continued growth in diversified end markets, margin improvement from operational efficiency, and ongoing headwinds in transportation due to tariffs and China market trends.

Pipeline strength in diversified segments: CTS anticipates further gains in medical, aerospace and defense, and industrial, supported by new product introductions and integration of SyQwest. Management expects “volume increases in portable ultrasound diagnostics and therapeutics will continue to enhance our growth profile.”
Transportation market headwinds: Revenue in transportation is expected to remain under pressure due to trade tariffs and China market dynamics. O’Sullivan signaled caution, stating, “It feels a little tenuous for the next few quarters,” particularly as OEMs recalibrate electric vehicle investments and commercial vehicle demand remains subdued.
Cost control and margin focus: Management plans to maintain margin discipline through operational efficiency and cost optimization. While tariffs had a minimal impact in Q2, future changes or disruptions in supply chains could affect profitability and guidance.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will watch closely for (1) sustained growth in medical, aerospace and defense, and industrial markets as new products and the SyQwest acquisition ramp, (2) progress on operational efficiency and margin expansion amid inflationary and tariff-related pressures, and (3) any signs of stabilization or recovery in transportation sales, especially in China. The pace and nature of future acquisitions will also be a key area of focus.

CTS currently trades at $42, up from $40.42 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free).

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