Gentex Keeps Growing As Light-Vehicle Production Falls

By Markets Fool.com

Gentex's full-display mirror. Image source: Gentex Corporation.

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Gentex Corporation(NASDAQ: GNTX) released third-quarter 2016 results Thursday after the market closed, and shares were little changed Friday as investors collectively shrugged at its effort. But that doesn't mean Gentex shouldn't be happy about what it achieved in its most recent quarter.

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Let's take a closer gaze, then, at howthe auto-dimming-mirror company kicked off the second half of the year.

Gentex results: The raw numbers

Metric

Q3 2016 Actuals

Q3 2015 Actuals

Growth (YOY)

Revenue

$429.6 million

$389.8 million

10.2%

Net income

$92.1 million

$78.3 million

17.6%

Earnings per share

$0.32

$0.27

18.5%

YOY = year over year. Data source: Gentex.

What happened with Gentex this quarter?

  • Revenue growth was driven by a 9% year-over-year increase in auto-dimming mirror shipments, which easily outpaced a 40-basis-point decline in light vehicle production in Gentex's primary regions.
  • Automotive segment revenue increased 10.5% year over year, to $419.8 million.
  • "Other" revenue -- which primarily includes dimmable aircraft windows and fire protection products -- fell slightly on a year-over-year basis, to $9.8 million.
  • There were 21 new nameplate launches of interior and exterior electrical mirrors and advanced electronic features, up 50% year over year and five times larger than the respective Q3 launches of 2013 and 2014.
  • Roughly 40% of net new launchesincluded advanced features and added electronic content.
  • Gross margin increased 150 basis points year over year, to 40.5%, reaching a three-year high.
  • Gentex repurchased 1.8 million shares of common stock in Q3 at an average price of $16.59 per share, leaving approximately 9 million shares available under Gentex's current repurchase authorization, including the most recent 7.5 million-share authorization approved by Gentex's board.
  • Cash flow from operations grew 9.1% year over year in Q3, to $99.6 million.
  • Gentex paid down $10 million on its revolver loan in addition to making the normally scheduled principal repayment on its term loan.
  • The company ended the quarter with cash and short-term investments of $686.8 million, up from $556.1 million at the start of the year, and long-term debt of $195 million.

What management had to say

Last quarter, Gentex management took the opportunity to highlight interest in its full-display mirror product from both its initial OEM launch partners -- which now includes four Cadillac vehicles fromGeneral Motors offering Gentex's full-display mirror --and from additional OEMs. During this quarter's call, Neil Boehm, Gentex VP of engineering, said that continues to be the case, particularly as a fifth unnamed OEM has formally sourced Gentex as a supplier of the new technology.

Boehm also offered an update to Gentex's toll module system project, stating:

The company continues to see strong interest from our customers, and we continue to work in the hardware and integration of the product. Over the next few quarters, we will be working to finalize the initial designs and complete drive testing of prototypes with the stated goal of having our first confirmed customer toward the end of next year. We continue to see evidence that this product can represent another growth channel for the company over the next several years.

Looking forward

Gentex selectively adjusted its guidance based on the IHS Automotive mid-October 2016 forecast for light-vehicle production in North America, Europe, Japan, and South Korea, which now calls for total light-vehicle production to increase 1% in 2016 over 2015.

More specifically, that guidance now calls for 2016 revenue of $1.68 billion to $1.71 billion, compared with previous guidance for $1.68 billion to $1.72 billion; gross margin of 39.3% to 39.7%, up from 39% to 39.5% previously; and operating expenses of $152 million to $157 million, narrowed from $150 million to $158 million previously.

For perspective, IHS's forecast last quarter called for light-vehicle production in 2016 to increase 3% at the time.

It's a testament to Gentex's business that yet another reduction to the IHS light-vehicle production estimates for this year required only a nominal coinciding decrease to the top end of its revenue guidance. As Gentex continues to penetrate its core markets while improving its balance sheet and developing promising new growth channels, I think investors should be more than pleased with its progress this quarter.

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Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Gentex. The Motley Fool has the following options: short December 2016 $17 puts on Gentex. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.