Cti Industries (NASDAQ:CTIB)

LAKE BARRINGTON, IL, Jul 17 (Marketwire) -- CTI Industries Corporation (NASDAQ: CTIB), today announced that, on July 17, 2012, the company completed an enhancement to its senior loan facility with BMO Harris and entered into a $5 million subordinated term loan agreement with BMO Equity. The enhancement to the BMO Harris senior loan facility increases the amount available under the revolving loan facility from $9 million to $12 million and also extends the term of the senior loan facility to July 17, 2017.

Stephen M. Merrick, Executive Vice President and Chief Financial Officer of the Company, said, "This enhancement to our senior loan facility and subordinated loan provide up to $8 million in additional working capital to CTI and we believe will be extremely important in providing capital to support our growth. This additional working capital will help to finance increased levels of inventory and receivables and general working capital needs as well as anticipated investments in production equipment and facilities."

Fourth Quarter Highlights:

• Consolidated net sales for the fourth quarter of 2010 were $11,701,000 compared to consolidated net sales of $10,738,000 for the fourth quarter of 2009, an increase of 9%.
• For the fourth quarter of 2010, CTI had net income of $379,000, compared to net income of $296,000 for the fourth quarter of 2009, an increase of 28%.
• Earnings per share for the fourth quarter of 2010 were $0.12 (basic and diluted), compared to $0.11 (basic and diluted) for the same period of 2009.

On August 4, 2010 CTIB reported second quarter results:

• Consolidated net sales were $12,964,000 compared to consolidated net sales of $10,779,000, an increase of 20.3%.
• The Company earned net income of $607,000 or $0.21 per share (basic) and $0.20 per share (diluted) compared to net income of $409,000 or $0.15 per share (basic and diluted).

The company did not provide much insight into its future business outlook.  However, we listened to the conference call which was very bullish and it appears that current levels of operations will at least be maintained for the near term. EPS consistency has been one of our concerns with this story. It will be interesting to see if management can continue to deliver

CTIB has haunted us from the first day it elusively crept its way into our portfolio. We have always seemed to get sucked into it after it reported a good quarter or two, only to be blindsided by several sub par quarters. The year 2008 was case and point. We were excited to follow the story in the beginning of 2009 due to the addition of a new product line and strong analyst estimates which resulted in a strong 2008 third quarter:

GeoInvesting Research Excerpt, January 6, 2009:

The recent Third Quarter report showed strong growth in sales and earnings. All segments seem to be performing well due to recession resistant components. In particular, their new product line of vacuum storage bags is benefiting from an exclusive long term contract with SC Johnson and may be able to give the company some needed earnings consistency.

Margin Picture Set to Improve:

"With the recent decline in the market price of oil and latex, we are now beginning to see reductions in our raw materials costs."

Our enthusiasm was quickly deflated when the company reported three straight quarters of reduced sales and EPS, while missing analyst estimates.

Once again, CTIB has snuck in two good quarter in row, culminating in a record 2010 first quarter:

Is this turn for real and sustainable?

We listened to the conference call for some answers:

The company has changed its product mix which has resulted in increased sales volumes and margins. When asked if this trend would continue, management did its best to sidestep the question. However, it seemed a slightly less non-committal than in previous calls, possibly inferring that EPS consistency may be in the cards. Management also commented that CTIB has a robust product pipeline that has yet to show up in the company's bottom line. Thus, we are going out on the limb once again. This time we will code CTIB as a GeoSpecial. In the slight chance that CTIB has turned the corner, the stock small float of 1 million shares could mean big rewards for risk tolerant investors with a strong stomach and a good sense of humor.

Data Inputs: (As of March 6, 2009)

EPS numbers have been adjusted to reflect a fully taxed scenario and any one time charges or gains. Future EPS numbers have been obtained from public sources. The GeoTeam® feels that an adjustment to net income to reflect a standard tax rate is necessary for investors to make proper investment decisions.

Short Term Scenarios

Long Term (12 Months Forward) Scenario

Peg Ratio Analysis (Aggressive):  Common rule of thumb that the P/E should equal the future EPS growth rate

These scenarios are not intended to be investment advice, but are scenarios based on some commonly used investment guidelines. They are provided to aid investors in making their own investment decisions.

Third Quarter Financial Results Ended September

*CTIB has not paid a full United States tax rate in 2008.

Third Quarter Financial Table Adjusted for a Standard Tax Rate:

• Tax Adjusted ROE is approaching 15%
• Not sure if the company will be able to obtain 8% pre-tax margins.
• The GeoTeam® would like to see a reduction in the company's long-term debt position, which stood at $5.34 million as of September 30, 2008.

NewGeo feature: The GeoTeam® does not limit its research to just Asia, thus we will also be including some commentary on stocks based in the United States.

CTIB Quick Note:

The recent Third Quarter report showed strong growth in sales and earnings. All segments seem to be performing well due to recession resistant components.  In particular, their new product line, vacuum storage bags,is benefiting from an exclusive long term contract with SC Johnson and may be able to give the company some needed earnings consistnency.

 Margin Picture Set to Improve:

"With the recent decline in the market price of oil and latex, we are now beginning to see reductions in our raw materials costs."

The stock is selling at only 4 times the 2009 analyst earnings estimate of $.64  (5 times tax adjusted estimate of $.49).  This is a significant discount to the 39% EPS growth rate implied for the coming year, assuming the company meets analyst expectations for 2008. (Tax Adjusted PEG Ratio is .16)  Established a position.