Gentex Corp., a leading supplier of digital vision, connected car, dimmable glass and fire protection technologies, has reported financial results for the three and six months ended June 30, 2022.
For the second quarter of 2022, the company reported net sales of $463.4 million, compared to net sales of $428 million in the second quarter of 2021, an 8% increase quarter over quarter.
For the second quarter of 2022, global light vehicle production in North America, Europe, Japan/Korea and China decreased approximately 3% when compared to the second quarter of 2021. Light vehicle production in the company’s primary markets of North America, Europe and Japan/Korea, was down 1% on a quarter over quarter basis, primarily driven by vehicle production increases in North America that were more than offset by reductions in Europe and Japan/Korea.
“We were pleased with our sales performance compared to the light vehicle production market, which represented an 9% outperformance to our primary markets and 11% outperformance to the global market. With that said, sales for the quarter fell short of our beginning of quarter forecasts by approximately $70 million to $80 million for the quarter. The sales shortfall was primarily driven by the fact that light vehicle production in our primary markets was 4% lower than forecasted at the beginning of the quarter and then was further compounded by supply shortages of certain electronic components that negatively impacted mix for some of our advanced feature products. While there appears to be some improved stability in the light vehicle production environment as compared to a year ago, the company is still experiencing significant customer order fluctuations on a week-to-week basis. The industry dynamics continue to create a difficult forecasting environment. Nevertheless, the continuing strong demand for light vehicles, combined with the historically low level of light vehicle inventories, should create the opportunity for an improving sales environment as we move throughout the rest of this year and into 2023,” said President and CEO, Steve Downing.
For the second quarter of 2022, the gross margin was 32%, compared to a gross margin of 35.4% for the second quarter of 2021. Gross margin was impacted on a quarter over quarter basis by raw material cost increases, labor cost increases, lower than expected sales levels, product mix shifts and ongoing customer order volatility, the company stated.
“Inflationary pressures on our raw materials, logistics costs and labor costs are currently impacting our margin profile. In the second quarter of 2022, these challenges were made even more difficult by the lower than forecasted sales levels, mix issues created by supply chain challenges and constant fluctuations in customer orders. While we currently expect that many of these challenges will continue throughout 2022 and into 2023, we are optimistic about our ability to stabilize and offset many of these headwinds due to the progress we are making with our customers regarding the inflationary aspects of our business by building collaborative relationships that provide opportunities to minimize the impact of these inflationary pressures on our respective business models,” added Downing.
Operating expenses during the second quarter of 2022 increased by 21% to $62.6 million, compared to operating expenses of $51.7 million in the second quarter of 2021. Operating expenses increased during the second quarter of 2022 due to staffing and professional fees, outbound freight expenses and travel related expenses. “Our operating expense growth rate for the second quarter of 2022 was significantly higher than our sales growth rate for the same quarter but was necessary to support previously sourced new program launches, product re-designs in support of component issues and our ongoing commitment to new technology areas. Additionally, the higher levels of operating expenses are needed based on our current forecasted growth rate throughout 2022 and into 2023,” said Downing.
Income from operations for the second quarter of 2022 was $85.8 million, compared to income from operations of $99.9 million for the second quarter of 2021.
Net income was $72.4 million for the second quarter of 2022, compared to net income of $86.5 million for the second quarter of 2021. The change in net income was primarily the result of the quarter over quarter changes in sales, gross margins and operating profits.
Earnings per diluted share for the second quarter of 2022 were $0.31, compared to earnings per diluted share of $0.36 for the second quarter of 2021.
Automotive net sales in the second quarter of 2022 were $452.9 million, compared with $420.6 million in the second quarter of 2021. Auto-dimming mirror unit shipments increased 3% during the quarter compared to the second quarter of 2021.
Future Estimates
The company’s current forecasts for light vehicle production for the third quarter of 2022, and full years 2022 and 2023, are based on the mid-July 2022 IHS Markit forecast for light vehicle production in North America, Europe, Japan/Korea and China. Light vehicle production in these markets is expected to increase 21% for the third quarter of 2022 as compared to light vehicle production for the third quarter of 2021. For calendar year 2022, light vehicle production in these markets is forecasted to increase 4% when compared to calendar year 2021. The company continues to expect that revenue will remain difficult to forecast for the remainder of the year as a result of high levels of volatility in customer orders and vehicle production volumes, electronics supply chain constraints, the Ukraine-Russia conflict, labor shortages, and overall economic uncertainty.
Additionally, based on the company’s forecasts for light vehicle production for calendar year 2023, the company still expects calendar year 2023 revenue growth of approximately 15% – 20% above the new 2022 revenue guidance of $1.87 billion to $1.97 billion.
“As we look back at the quarter, we did see some stabilization in our sales levels due to the significant amount of re-design work that we have completed over the last several quarters and some modest improvement in the overall supply base. Unfortunately, many of these improvements were offset by new component shortages and customer order changes and volatility that we expect to continue throughout the rest of 2022 and into 2023. Despite these challenges, we still believe that the overall backdrop in the industry should lead to a demand increase in the automotive market over the next 12-18 months, and will be supported by growth in Full Display Mirrors, exterior auto-dimming mirrors, and other new technologies that we have been investing in over the last few years. So while we acknowledge that the inflationary aspects of our business will remain a challenge that needs to be addressed, we are optimistic about our growth opportunities driven by our commitment to new technology and our team’s ability to handle the cost challenges that are inundating our industry,” concluded Downing.
