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Published in Manufacturing

Gentex Q1 earnings drop while combating inflation, supply chain delays

BY Monday, April 25, 2022 08:00pm

ZEELAND — Tier 1 automotive supplier Gentex Corp. continued to absorb blows from a volatile market as its first quarter earnings for 2022 sank below last year’s during the same period.

The Zeeland-based manufacturer of digital vision, connected car, dimmable glass and fire protection technologies reported $468.3 million in total sales for the first quarter of 2021, which fell short of the $483.7 million it recorded during the first quarter of 2021 when production slowdowns and supply chain issues had already emerged.

Downing

In an announcement accompanying its earnings report, the company said the sales dip coincides with a slowdown in light vehicle production. Gentex noted that light vehicle production dropped 5 percent overall since the first quarter of last year and its primary markets of North America, Europe and Japan/Korea saw an 11-percent drop quarter-over-quarter.

Gentex came into the quarter expecting around a 4-percent drop in production based on forecasts by S&P Global (formerly IHS Market).

The drop in sales included a 7-percent decrease in auto-dimming mirror unit shipments for the quarter.

“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,” Gentex President and CEO Steve Downing said in a statement.

Rising costs for raw materials, shipping and labor also narrowed Gentex’s gross margins, dropping from 37.9 percent in the first quarter of 2021 to 34.3 percent this most recent quarter. Operating expenses increased by 15 percent, up to $57.1 million in the quarter.

Gentex also reported $87.5 million in net income, or 37 cents per diluted share, for the quarter compared to $113.5 million last year. Last year, EPS rang in at 46 cents per diluted share.

“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,” Downing said. 

“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,” he said.

Downing added that he expects these discussions to extend into 2023.

S&P Global forecasts light vehicle production to rise by 27 percent in Europe and 13 percent in North America by the end of this year. All together, S&P Global expects production to spike by 9 percent in 2022 for the markets Gentex serves and another 9 percent in 2023.

Based on those production forecasts, Gentex forecasted a total of $1.8 billion to $2 billion in gross revenue for 2022 and expected that number to rise by 15 to 20 percent the next year.

“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,” Downing said.

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