Gentex Records Exceptional 2Q

July 19, 2002
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ZEELAND — Strong automotive production volumes in North America and new product programs lifted Gentex Corp. to large gains in both revenues and earnings for the second quarter, breaking a two-year spell where the company scored sizable increases in just top-line or bottom-line growth.

The Zeeland-based automotive supplier last week reported quarterly revenues of $97.3 million, up 26.3 percent from the $77 million during the second quarter of 2001 and the best quarterly revenue Gentex has ever recorded.

Net income totaled a quarterly record $21.3 million, or 28 cents per share, up 24.4 percent from the $16.1 million in same period last year. The earnings performance exceeded Wall Street analysts’ expectations of 25 cents per share.

The quarter, for the first time in two years, saw revenues and earnings grow at similarly sizable rates. In many previous quarters, the company experienced strong growth in just one category, with strong increases in revenues, for instance, without the reciprocal bottom-line growth.

Gentex executives hope the second quarter performance “will be the benchmark by which we’ll measure future quarters,” Executive Vice President Ken La Grand said during a July 16 conference call with brokerage analysts.

“I hope this proves to be kind of the turning point. We’ll be able to tell after we go out a few quarters,” said La Grand, who called the second quarter “exceptional.”

The rest of 2002 “looks very promising” for mirror shipments. Based on the J.D. Powers & Associates recent forecast for North American vehicle production levels of 16.3 million vehicles, Gentex now expects mirrors shipments to grow by 20 percent to 25 percent this year, up from previous expectations of 15 percent to 20 percent unit growth.

The auto industry started the year with a production outlook of 15.5 million vehicles.

During the second quarter, Gentex also began to feel the benefits of new product programs for 10 mid-size vehicle models, a market segment the company has only recently begun to penetrate. Mirror shipments for the quarter rose 29 percent, to 2.3 million units, from a year earlier.

“Hopefully it was the tip of the iceberg we saw in the second quarter,” La Grand said. “We think that’s opening the door to greater potential.”

Looking ahead, Gentex expects to see strong revenues and earnings again in the third quarter, which analysts are targeting for earnings of 27 cents per share. Fourth-quarter expectations are for per-share earnings of 30 cents.

The third quarter will see Gentex’s profit margin squeezed, however, as the company passes on price cuts required by customers. More than 60 percent of the price cuts implemented annually come in the third quarter, La Grand said, as automakers gear up for the model year.

Gentex will also lose $2.4 million to $3.6 million in business with General Motors due to the automaker’s “de-contenting” of car features to save costs and make customers pay for certain items they want, although a new product program for GM’s new full-size truck and SUV platform will generate sales that far exceeds the cuts.

“We don’t think our overall story at GM is one of de-contenting. It’s one of adding quite a bit of content,” La Grand said.

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