Gentex Corp., a leading supplier of digital vision, connected car, dimmable glass and fire protection technologies, has reported financial results for the three months ended March 31, 2022.
For the first quarter of 2022, the company reported net sales of $468.3 million, compared to net sales of $483.7 million in the first quarter of 2021. For the first quarter of 2022, global light vehicle production decreased approximately 5% when compared to the first quarter of 2021.
In addition, light vehicle production in the company’s primary markets of North America, Europe and Japan/Korea, declined by 11% on a quarter-over-quarter basis. These declines were primarily a result of the ongoing industry-wide component shortages and global supply chain constraints.
“The company has been dealing with the impacts of component shortages and supply chain constraints since the beginning of 2021, which is why our forecast at the beginning of this year was more conservative than the original IHS Markit estimates for light vehicle production,” said President and CEO Steve Downing. “During the first quarter of 2022, we saw estimated light vehicle production decline by over 4% since the beginning of the quarter.
“While the effects of the electronic component shortages improved slightly during the first quarter of this year, our concerns about the lingering impact on light vehicle production were well-founded. Our first quarter 2022 sales improved sequentially from the fourth quarter of 2021, but were still below the levels suggested at the beginning of the quarter based on IHS Markit estimates and the release data from our customers. Despite the lower than planned sales levels in the first quarter, the industry backdrop and the under-production of light vehicles over the last year should create the opportunity for an improving sales environment as we move throughout the rest of 2022,” said Downing.
For the first quarter of 2022, the gross margin was 34.3%, compared to a gross margin of 37.9% for the first quarter of 2021. Gross margins were impacted in the quarter by raw material cost increases, elevated freight expenses, labor cost increases in response to a tight labor market, lower than expected sales levels, and ongoing customer order volatility.
“Considering the inflationary pressures in our business right now, the gross margin was within 70 basis points of our annual guidance range for gross margin performance, despite the fact that sales for the first quarter are expected to be at the lowest level of the year. The company is in active discussions with our customers about the inflationary aspects of our business and how to best formulate long term collaborative relationships that provide the opportunity to minimize the impact of these inflationary pressures on our business model, while preserving the ability to grow through the introduction of new, innovative products. We fully expect that these discussions will extend throughout calendar year 2022 and even into 2023,” added Downing.
Operating expenses during the first quarter of 2022 increased by 15% to $57.1 million, compared to operating expenses of $49.6 million in the first quarter of 2021. E,R&D expenses during the first quarter of 2022 increased 16% compared to the first quarter of 2021, primarily due to additional staffing and professional fees, related to new product development and the ongoing product re-designs necessary to mitigate electronics part shortages. On a quarter over quarter basis, S,G&A expenses were up primarily due to increases in outbound freight expenses and the return of in-person customer meetings and trade show related expenses.
Income from operations for the first quarter of 2022 was $103.3 million, compared to income from operations of $133.7 million for the first quarter of 2021.
Net income was $87.5 million for the first quarter of 2022, compared to a net income of $113.5 million for the first 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 first quarter of 2022 were $0.37, compared to earnings per diluted share of $0.46 for the first quarter of 2021.
Automotive net sales in the first quarter of 2022 were $458.0 million, compared with $475.6 million in the first quarter of 2021. Auto-dimming mirror unit shipments decreased 7% during the quarter compared to the first quarter of 2021.
Future Estimates
The company’s current forecasts for light vehicle production for the second quarter 2022, and full years 2022 and 2023, are based on the mid-April 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 be flat for the second quarter of 2022, versus light vehicle production for the second quarter of 2021. For calendar year 2022, light vehicle production in these markets is forecasted to increase 9% 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. Second quarter 2022 and calendar years 2022 and 2023 forecasted vehicle production volumes from IHS are shown below:
| Light Vehicle Production (per IHS Markit mid-April light vehicle production forecast) | |||||||||||||
| (in Millions) | |||||||||||||
| Region | Q2 2022 | Q2 2021 | % Change | Calendar Year 2023 | Calendar Year 2022 | Calendar Year 2021 | 2023 vs 2022 % Change | 2022 vs 2021 % Change | |||||
| North America | 3.59 | 3.19 | 13 | % | 16.49 | 14.75 | 13.05 | 12 | % | 13 | % | ||
| Europe | 3.98 | 4.14 | (4 | )% | 18.31 | 16.49 | 13.02 | 11 | % | 27 | % | ||
| Japan and Korea | 2.84 | 2.75 | 3 | % | 11.76 | 11.36 | 10.88 | 4 | % | 4 | % | ||
| China | 5.50 | 5.79 | (5 | )% | 26.94 | 24.63 | 24.84 | 9 | % | (1 | )% | ||
| Total Light Vehicle Production | 15.91 | 15.87 | — | % | 73.50 | 67.23 | 61.79 | 9 | % | 9 | % |
Based on this light vehicle production forecast, the company is making no changes to its previously provided guidance for calendar year 2022 as shown in the table below.
| 2022 Guidance | |
| Item | Amount |
| Revenue | $1.87 – $2.02 billion |
| Gross Margin | 35% – 36% |
| Operating Expenses | $230 – $240 million |
| Tax Rate | 15% – 17% |
| Capital Expenditures | $150 – $175 million |
| Depreciation & Amortization | $100 – $110 million |
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 2022 revenue guidance of $1.87 – $2.02 billion.
“While we are optimistic given the sales level achieved during the first quarter and what we expect to be increased revenue levels throughout the remainder of the year, we have also seen increased levels of volatility in customer orders in recent weeks, stemming from the electronics supply chain shortages and OEM shut-downs. The company has devoted significant resources to product re-engineering that has allowed us to maintain consistent supply to our customers and cleared the path for better revenue levels throughout 2022 and 2023. While the inflationary aspects of our business will continue to be a challenge over the next several quarters, we believe our recipe of out-growth versus the underlying vehicle production market will create record sales levels that will allow us to leverage our overhead to help offset some of the cost increases we have seen recently. We believe that this combination of record level sales when combined with our consistent and disciplined capital allocation philosophy will result in excellent shareholder returns over the next several years,” concluded Downing.
