Gentherm Growth Warms As More Cars Get Heated Seats

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Luxury items don't become less luxurious just because they are made available on the mass market. They just become less exclusive.

That's true whether you are talking about handbags, liquor or the kinds of temperature control products sold byGentherm ( THRM ).

Gentherm, which was formerly called Amerigon, is best known for its climate-control seat technology used in the automotive industry. The technology lets drivers heat their seats on cold days and cool them on hot ones.

There was a time when this kind of gear was only available in high-end cars, but no more.

"This product was originally designed for luxury vehicles, but it is now being sold in midlevel cars," said Bill Selesky, an analyst at Argus Research. "They are appealing to a wider population. If that continues, Gentherm should have a good revenue stream for the next few years."

Automakers Boost Options

Gentherm CEO Dan Coker echoed that view on a third-quarter conference call with analysts, saying that a wider range of carmakers is selling heated and ventilated seats for the midrange market.

"That's a very significant future potential growth area for us," Coker said.

During the quarter, Gentherm launched or expanded climate-control seat programs in midpriced vehicles such as the Hyundai Sonata and theNissan ( NSANY ) Pathfinder as well as luxury vehicles such as theGeneral Motors' ( GM ) Cadillac CTX, Infiniti JX andTata Motors ' ( TTM ) Land Rover Range Rover.

In many cases Gentherm doesn't even need to market its technology to midmarket auto manufacturers, analyst Selesky says.

"The product is selling so well that some of the midlevel guys are coming to Gentherm saying we want to put your products in our cars," he said. "Drivers want a better experience, and this is one way to get it."

Luxury car brands account for about 10% to 15% of the overall automobile market, Selesky says. In contrast, midrange vehicles account for about 50%.

"That's a big addressable market," he said.

The market extends beyond the U.S., where Gentherm got about 42% of its revenue last year.

CCS technology has "started to get a lot of attention" overseas, Selesky said, especially in emerging markets. "About 70% to 75% of the addressable market right now is in the U.S., but Gentherm is looking at a 50/50 mix over time."

Gentherm bulked up its overseas business in 2013 when it acquired the remainder of the outstanding shares of W.E.T. Automotive Systems, a German maker of heated car seats and other thermal comfort products.

Gentherm initially acquired a majority interest in W.E.T. in May 2011 to create a larger and more global company.

"W.E.T. had been Gentherm's biggest competitor in Germany," Selesky said. "Now that Gentherm has taken over 100% control, they are basically the dominant player on the domestic level and also the international level in this segment of the business."

Germany ranked second in overall revenue for Gentherm last year, at 12% of the total. China came in next at 10%, followed by Korea at 8%, Japan at 6%, Canada at 3% and other countries at 19%. However, no geographic sales data are available for 2013.

Out From Under Car Seats

Gentherm's climate-control products extend beyond just car seats. The company also makes and sells heated and cooled cup holders, thermal storage bins, and heated steering wheel and cable systems.

Meanwhile, Gentherm looks to expand its reach beyond the automobile market.

The company also sells thermal heating and bedding technologies that allow consumers to control the temperature of their mattresses. Clients in this area includeMattress Firm ( MFRM ), a Houston-based bedding manufacturer and retailer; and Intercoil International, a Dubai-based sleep products manufacturer and retailer.

In addition, Gentherm is working on thermal technologies for the medical and health care industries.

One solution would help prevent the formation of ubiquitous ulcers, or pressure sores, in patients confined to wheelchairs and medical bedding. Another would give health care providers the ability to control the temperature of fluids and devices during surgical procedures to help improve outcomes and decrease the recovery time.

"Their technology is in high demand, and they are very proficient at what they do," Selesky said.

Financial Performance

That proficiency is evident in Gentherm's financial performance. The company regularly trots out double-digit or better sales growth. Earnings-per-share growth follows much the same pattern, with only the occasional hiccup.

Through the first nine months of 2013, Gentherm's earnings have more than doubled year-over-year, while sales have risen 18%.

Third-quarter earnings came in at 24 cents a share, up from 8 cents a year earlier. Sales gained 21% to $171.2 million -- the biggest top-line gain since the June 2012 quarter.

Revenue in Gentherm's W.E.T. business climbed 25% last quarter. The gain was driven by strong automotive volumes in North America and Asia, as well as continued market penetration in the automotive cable business.

Analysts polled by Thomson Reuters expect fourth-quarter EPS at 25 cents, up from 9 cents a year earlier. And they anticipate 89 cents EPS this year with a 33% rise in 2014, alongside revenue of $648.2 million this year with an 11% gain in 2014.

Gentherm shares touched a multi-year high of 26.52 on Dec. 26 and have roughly doubled since the beginning of the year.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: GM , MFRM , NSANY , THRM , TTM

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