- change ups
Gentex hits 1 billion but analysts disappointed
Gentex reported record net sales in the fourth quarter last week and the fact that its calendar year 2011 sales reached $1 billion for the first time, but its stock price fell later that same day due to fourth-quarter profits and sales being lower than expected by a consensus of analysts.
The Zeeland-based high-tech automotive mirror manufacturer reported its highest ever sales for a fourth quarter: $260.3 million compared with $222.1 million in the fourth quarter of 2010. The gross profit margin decreased from 35.8 percent in the fourth quarter of 2010 to 34.7 percent in the fourth quarter of 2011, which was attributed to annual price reductions demanded by the company’s auto industry customers.
Earnings per diluted share were 28 cents in the fourth quarter, compared to 26 cents in the fourth quarter of 2010. However, a Bloomberg survey of seven industry analysts averaged out to an expectation of 30 cents per share. Five of the analysts’ expectations on fourth quarter sales averaged out to $273 million, as opposed to the actual $260.3 million.
On Jan. 30, the stock closed at $30.12. The quarterly and 2011 results were announced early Jan. 31, and by market close that day, the stock had dropped to $26.87 on trades totaling 6.6 million shares.
Gentex chairman/CEO Fred Bauer said the year 2011 “was a year unlike any other that we have experienced, with the earthquake and tsunami in Japan in March, plus the flooding in Thailand that began in July. These natural disasters put significant additional stresses on a supply chain that was already shipping parts at record numbers due to the recovery in the global economy and automotive market.”
“We’re no longer being impacted by the events in Japan, and are gradually working our way out of the aftermath of the Thailand flooding. We are hopeful that 2012 will be easier on the automotive supply chain,” added Bauer.
Total auto-dimming mirror shipments by Gentex increased by 26 percent in 2011 compared to 2010. Those shipments to North America automotive companies increased by 26 percent. North American light vehicle production increased by 10 percent in 2011.
Automatic-dimming mirror shipments to overseas auto makers increased by 26 percent in 2011; the increase was primarily due to larger orders by certain European automakers. Light vehicle production in Europe increased by 7 percent in calendar year 2011 and decreased by 5 percent in Japan and Korea in calendar year 2011, according to Gentex.
North American light vehicle production increased by 16 percent in the fourth quarter of 2011 compared with the same prior-year quarter. Light vehicle production in Europe decreased by approximately 1 percent in the fourth quarter of 2011, and increased by 12 percent in Japan and Korea in the fourth quarter of 2011, compared to the prior year quarter.
Steve Dykman, Gentex vice president of finance and CFO, said the company estimates its net sales for the first quarter this year to increase by approximately 15-20 percent over the same quarter in 2011, based on an auto industry forecast of light vehicle production levels.
Strong sales by Gentex in conjunction with light vehicle production increases around the world continued in 2011 but “began narrowing in the fourth quarter, reflecting the slowdown in the growth rate of light vehicle production in China and at the major German automakers. European light vehicle production is currently expected to decline by 11 percent in the first quarter of 2012 compared with the same period last year, and light vehicle production is expected to decline by four percent in China for that same period.”
However, Gentex sales to Chinese automakers are “immaterial,” according to Dykman.
Dykman said Gentex expects that its gross profit in the first quarter will be in the same range as that reported in the fourth quarter just ended.
Gentex expects shipments of its SmartBeam automatic high beam will increase by approximately 40 to 45 percent in 2012.
A key part of the company’s anticipated future sales is its rear camera display mirror, of which Gentex shipped 1.7 million in 2011. Gentex leads the industry now in sales of mirrors containing the RCD video screen and expects shipments in the first quarter of 2012 to increase by 10 to 15 percent, compared to the first quarter of 2011.
The RCD activates when a vehicle is put in reverse; Gentex’s RCD mirror shows the driver what is on the ground immediately behind the vehicle. Scores of toddlers are killed accidentally in the U.S. each year by vehicles backing up without seeing them, and the federal government is now considering final implementation rules of the Cameron Gulbransen Kids Transportation Safety Act, which was signed into law in 2008. The law is expected to require that all new vehicles under 10,000 pounds sold in the U.S. as of September 2014 are equipped with an RCD. The final rule has been delayed but is now expected to be issued Feb. 29, 2012.
Dykman said there is a “wait and see” phase expected over the coming year, while the auto industry waits for the final federal rules pertaining to RCDs.
“Many customers have deferred any final sourcing decisions on programs until the final rule is published,” he said.
Dykman said Gentex anticipates there will be two primary market segments regarding RCDs. The “top 20 percent of the vehicle market” will mainly offer the video display in the “navigation system,” with the option of purchasing an RCD mirror display, such as that made by Gentex.
The rest of the market is most likely to offer the camera display in the mirror or in other multi-purpose displays in the vehicle, such as radio, instrument panel, console, etc.
“This is the segment of the market with the greatest volume potential, but also has the greatest and increasing competition” with the Gentex RCD mirror, according to Dykman.