From Grand Rapids Business Journal
ZEELAND, MI — The first quarter of 2006 has been a bit tumultuous for Gentex Corp., the lakeshore manufacturer of automotive mirrors and fire suppression systems.
In January, the value of the company’s stock dropped by 18 percent, reacting to weaker-than-expected results in the final quarter of 2005. In March, longtime CFO Enoch Jen announced that he would retire at the end of this year. In April, another key member of the company’s leadership announced his departure. Now, instead of smoothly transitioning out of the company, Jen faces increased responsibilities.
Executive Vice President Garth Deur, who in many ways fulfilled the public role typically held by CEOs, left Gentex over a dispute over compensation. Jen was promoted to senior vice president, filling Deur’s absence on an interim basis while continuing his role as CFO.
Gentex Chairman and CEO Fred Bauer said that the company wishes Deur well, despite their disagreement over pay.
“We were, unfortunately, unable to reach a mutually agreeable solution to Garth’s short- and long-term compensation requirements, as an integral part of our culture mandates that all team members share in the financial opportunities and sacrifices alike at the company just as our shareholders and other employees do.”
Shareholders and employees will watch the markets closely to see how investors react to the news of the management change, and the announcement of the company’s first-quarter financial performance.
In the first quarter, Gentex recorded record sales of $139 million, up 9 percent from the same period last year. However, cost of goods rose by 14 percent, resulting in an increase in profits of just 1.7 percent.
On a diluted per-share basis, this quarter’s 17-cent profit is the same as that of 2005’s first quarter.
Bauer referred to the company’s performance as “solid financial results in what continues to be a very challenging automotive industry environment.”
In addition to the higher cost of goods, another negative factor in Gentex’s performance was the price it was able to extract from its auto mirrors.
“While our unit shipment growth was higher than we had forecasted for the quarter, the average selling price of our auto-dimming mirrors was lower than expected due to product mix,” said Jen.
Automakers also chose not to buy as many high-end mirror systems as Gentex had hoped.
“We shipped more base feature mirrors to certain European and Asian customers during the quarter than we had forecasted. In addition, a high-volume, advanced-feature mirror program for a number of models at a European customer has been delayed until the third quarter, and we will continue to ship base mirror subassemblies for those models until the new contented mirror programs begin to ramp up.”
Jen also cited rising interest rates and uncertainty over the global petroleum market as variables in the company’s ability to make accurate sales forecasts. Gentex is taking what it considers to be the safe route, forecasting sales of autodimming mirror systems to be flat. Any increase would come from the mild growth in light vehicle production.
While global forces are at play affecting the company’s sales, market forces may also have an impact at home. The news of Deur’s departure did not have a dramatic impact on the company’s stock price, but the stock has continued to creep downward since the fourth-quarter performance announcement in January. Should investors react similarly to the flat profits in the first quarter of this year, putting in place a strong executive leadership team will take on an even greater sense of urgency for Gentex.
Copyright 2006 Grand Rapids Business Journal. All Rights Reserved.
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