Gentex Feels Earnings Pinch Even As Quarterly Sales Rise

June 20, 2002
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ZEELAND — Slowing automotive production pushed Gentex Corp’s. earnings lower during the third quarter, even as the company posted higher sales.

The Zeeland-based Gentex, as it has stated in past quarterly reports, expects pressure on earnings to continue as a result of the weakened economy, automakers’ demand for annual price cuts, heavy investments to research and development new products that will eventually contribute to the bottom line and the opening of foreign offices.

“Overall, we feel we had a fairly good quarter under the circumstances,” Gentex Executive Vice President Kenneth La Grand said during a conference call last week with brokerage analysts to discuss the company’s third-quarter results.

Gentex posted record third-quarter sales of $74.1 million, up 3 percent from $71.9 million. La Grand attributed the sales growth to new business Gentex has booked, offsetting the decreased vehicle production.

Gentex’s quarterly earning fell 6 percent from a year earlier, from $15.8 million, or 21 cents per share, to $14.9 million, or 20 cents per share. Per-share earnings were 1 cent short of analysts’ expectations.

Cutting into earnings were price cuts implemented Aug. 1 with the 2002 model year, an excess of production capacity from the opening a year ago of a new mirror facility in Zeeland, and a 19.2 percent increase in research and development costs.

Research and development costs went from $4.26 million during the third quarter of 2000 to $5.08 million in the same period this year. Year-to-date, Gentex’s research and development costs are up 23.4 percent, from $12.39 million to $15.3 million.

Executives for months have said the higher research and development costs are needed to position Gentex for the future and enable the company to meet its goal of growing revenues by 15 percent to 20 percent annually. With several major product programs launching or beginning to come to fruition, the company plans to increase its research and development spending by 20 percent to 25 percent annually, La Grand said.

“As long as there’s projects there to work on, I think we will expand our R&D, within some practical considerations,” La Grand said.

While the present slowdown, if it worsens, could affect product-development spending in the future, Gentex remains committed to investing for the long-term.

“Typically we wouldn’t just cut back on R&D because of a one-year aberration,” said Connie Hamblin, Gentex’s director of investor relations. “It would certainly depend on the circumstances, but generally we manage for the long run.”

In the first nine months of the year, Gentex earned $48.3 million, down 8 percent from the $52.7 million during the same period in 2000. Sales through Sept. 30 totaled $230.6 million, up 4 percent from the $222.6 million through the first three quarters of last year.

Despite the lower earnings, Gentex still fared better in the third quarter than many other automotive suppliers, which have been hit hard by the reduced vehicle production this year. Analysts even remarked that Gentex’s $14.9 million in net income for the quarter was more than half that of industry giant Delphi Automotive, which saw its earnings fall 82 percent to $26 million, or 5 cents per share, on third-quarter sales of $6.23 billion.

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