Gentex Corporation (NASDAQ: GNTX) released first-quarter 2016 results on Friday, with the automatic-dimming-mirror and automotive-electronics specialist's sales growth continuing to outpace light-vehicle production. But Gentex shares declined around 3.5% to end the week, only to largely recoup those losses on Monday.
Let's take a closer look at what drove Gentex's business as it started the new year, as well as what investors can expect going forward.
Gentex results: The raw numbers
|Metric||Q1 2017||Q1 2016||Year-Over-Year Growth|
|Revenue||$453.5 million||$405.6 million||11.8%|
|Net income||$97.6 million||$80.3 million||21.5%|
|Earnings per share||$0.33||$0.28||17.9%|
Data source: Gentex Corporation.
What happened with Gentex this quarter?
- Automotive segment revenue climbed 13%, to $445.6 million, driven by 12% growth in auto-dimming-mirror shipments.
- Other revenue -- which primarily includes dimmable aircraft windows and fire-protection products -- fell 32%, to $7.9 million.
- Gentex saw 11 net new nameplate launches of interior and exterior mirrors during the quarter, which consisted of roughly 50% advanced features.
- Gross margin declined 30 basis points year over year, to 38.8%, as annual customer price reductions were partially offset by purchasing cost reductions and a favorable product mix.
- The company repurchased 1.5 million shares of common stock, leaving 5.3 million shares available under the current buyback authorization.
- Gentex generated cash flow from operations of $131.2 million.
- The company repaid $41.9 million in debt, including a $40 million payment on Gentex's revolver loan in addition to its normally scheduled term-loan principal repayment.
- Gentex ended the quarter with cash and equivalents of $559.6 million.
What management had to say
During the subsequent conference call, Gentex VP of Engineering Neil Boehm noted that General Motors recently began touting Gentex's full-display mirror product (calling it the "Rear Camera Mirror") on the all-new 2018 Chevy Traverse, which will mark the seventh GM vehicle to include the feature. Boehm also pointed out that Gentex began shipping full-display mirrors to its second original equipment manufacturer during the quarter, which will include the reverse-facing camera in addition to the flagship full-display mirror product. The details of this second customer should be available in the second quarter, once it begins public marketing of the new technology.
"Gentex continues to see strong launch rates for featured and base products of both inside and outside mirrors," Boehm elaborated, "which continues to be a leading indicator of our overall market interest from our customers in our product."
Based on the April 2017 IHS Automotive forecast for light-vehicle production in North America, Europe, Japan, and South Korea -- which predicts that total light-vehicle production will increase 1% year over year in 2017 -- Gentex continues to expect full-year 2017 revenue to be in the range of $1.78 billion to $1.85 billion, with gross margin between 39% and 40%.
However, Gentex did offer one caveat. Based on "weakening light-vehicle product estimates" in Europe and North America, it anticipates that second- and third-quarter revenue will be at or around the lower end of its underlying assumptions for full-year 2017 guidance. But those trends are expected to improve shortly thereafter, with revenue returning to the high end of expectations in the fourth quarter.
Finally, based on the latest IHS 2018 forecasts, Gentex reiterated its guidance for 2018 revenue to increase another 6% to 10% over its 2017 range.
Apart from Gentex's expected near-term weakness -- which should be offset with relative strength later this year -- there were no big surprises in this quarterly report. As Gentex's cutting-edge mirror technology further penetrates its core markets, in turn helping it to deliver outsize revenue and profit growth for shareholders, I suspect its stock price will continue to follow suit.
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