Gentex Full Display Mirror

Gentex's Full Display Mirror. Image source: Gentex Corporation.

Gentex Corporation (NASDAQ:GNTX) released better-than-expected second-quarter 2016 results Friday before the market opened, and shares of the auto-dimming mirror specialist are up around 5% as of this writing. Let's take a closer look at what Gentex achieved in Q2:

Gentex results: The raw numbers

Metric

Q2 2016 Actuals

Q2 2015 Actuals

Growth (YOY)

Revenue

$423.8 million

$379.3 million

11.7%

Net income

$86.5 million

$74.6 million

16%

Earnings per share

$0.30

$0.25

20%

YOY = year over year. Data source: Gentex. 

What happened this quarter?

  • Revenue growth was driven by a 13%  year-over-year increase in auto-dimming mirror shipments, significantly outpacing a 3% increase in light-vehicle production.
  • Automotive segment revenue rose grew 11.8% year over year, to $414.4 million.
  • "Other" revenue increased 7% year over year, to $9.4 million, primarily driven by growth in dimmable aircraft windows.
  • Had 26 new nameplate launches of interior and exterior electrical mirrors and advanced electronic features, up from 11 last quarter and a marked acceleration in pace from the second half of last year.
  • Approximately two-thirds of those launches included advanced features and added electronic content, up from roughly half last quarter.
  • Gross margin increased 100 basis points year over year, to 39.4%, as purchasing cost reductions and favorable price mix more than offset the effect of annual customer price reductions.
  • Repurchased 3.1 million shares of common stock in Q2 at an average price of $15.48 per share, leaving 3.3 million shares available under Gentex's current repurchase authorization.
  • Cash flow from operations was $107.1 million.
  • Ended the quarter with cash and short-term investments of $644.8 million, up from $551.6 million at the start of the year, and long-term debt of $206.9 million.
  • Received a 2016 Automotive News PACE Award, which recognizes suppliers for "superior innovation, technological advancement, and business performance," for its Full Display Mirror.

What management had to say 

During the subsequent conference call, Gentex CFO Steve Downing once again highlighted the promise of Gentex's Full Display Mirror, which he noted is now enjoying interest not only from its original OEM launch partners, but also from additional OEMs. Downing went on to admit while Gentex cannot guarantee its FDM product won't need to endure more competitive designs going forward, Gentex believes its solution is unique in that it incorporates their full suite of functionality in one package, including the electrochromatic features for which the company is primarily known.

Looking forward 

Based on the IHS Automotive mid-July 2016 forecast for light-vehicle production in North America, Europe, Japan, and Korea, which now calls for total light-vehicle production to increase 3% in 2016 over 2015, Gentex selectively increased its guidance. That guidance now calls for 2016 revenue of $1.68 billion to $1.72 billion (up from $1.64 billion to $1.72 billion previously), gross margin of 39% to 39.5% (up from 38.5% to 39.5% previously), and operating expenses of $150 million to $158 million (down from $152 million to $160 million previously). 

In addition, recall IHS' forecast last quarter called for light-vehicle production to increase 2% at the time, and didn't include the impact of the recent earthquake in Japan. But we now know Gentex was right in telling investors at the time that it anticipated little disruption considering any lost volume was expected to be made up by the end of Q3.

In the end, investors have grown accustomed to seeing few surprises in Gentex's quarterly results, and typically rest easy knowing it continues to penetrate its core markets as revenue growth outpaces light-vehicle production. This quarter was slightly different in that it included several pleasant surprises as the gravity of that outperformance was more pronounced, and the inclusion of higher-margin advanced features appears to be accelerating. With that in mind, it's no surprise to see Gentex stock touching a fresh 52-week high as I write.

Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Gentex. The Motley Fool has the following options: short September 2016 $15 puts on Gentex. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.