Gentex Corporation (GNTX 0.81%) announced strong fourth-quarter 2017 results on Friday morning, including better-than-expected top-line growth and sequential gross-margin improvements, as the auto-dimming mirror technologist continued to permeate the global automotive market.
With shares up around 4% in today's early trading as of 1:30 p.m. EST, let's take a closer look at what drove Gentex's business at the end of the year, as well as what investors should expect from the company in the coming quarters.
IMAGE SOURCE: GENTEX.
Gentex results: The raw numbers
| Metric |
Q4 2017 |
Q4 2016 |
Year-Over-Year Growth |
|---|---|---|---|
|
Revenue |
$459.6 million |
$419.9 million |
9.5% |
|
Net income |
$130.5 million |
$88.8 million |
47% |
|
Earnings per share (diluted) |
$0.46 |
$0.31 |
48.4% |
Data source: Gentex Corporation.
What happened with Gentex this quarter?
- Revenue arrived near the high end of Gentex's guidance provided last quarter, which called for year-over-year growth of between 5% and 10%.
- GAAP net income is slightly deceiving this quarter, as it included a positive $37.2 million impact (or $0.13 per share) related to remeasurement of deferred tax liabilities under the Tax Cuts and Jobs Act of 2017.
- Even excluding that one-time item, however, Gentex exceeded investors' expectations for earnings of $0.32 per share.
- Total auto-dimming mirror unit shipments climbed 13% year over year, including a 4% decline in North America, and 22% growth in international mirror unit shipments.
- Automotive segment sales grew 9% year over year to $450.4 million.
- "Other" segment sales -- including dimmable aircraft windows and fire-protection solutions -- increased 9% to $9.2 million.
- Gross margin declined 110 basis points year over year to 39.2%, as purchasing cost reductions only partially offset annual customer price reductions, as well as an "unusually strong" mix of advanced features in last year's fourth quarter. But the metric also improved 20 basis points from last quarter.
- Around 55% of the quarter's nameplate auto-dimming mirror launches contained advanced features.
- Full Display Mirror (FDM) progress:
- Gentex began shipping the FDM during the quarter to Toyota -- its fourth OEM to adopt the product -- for the Lexus LS and Toyota Alphard in Japan.
- After the end of the quarter, at CES 2018 (the Consumer Electronics Show), Gentex announced that Jaguar Land Rover had become the fifth OEM to adopt its Full Display Mirror.
- Today, the company announced that it recently won another FDM program with its sixth OEM.
- The company repurchased 5.1 million shares of common stock at a price of $19.96 per share, leaving 9.8 million shares remaining under its current authorization.
- Gentex paid down $27 million on its term loan during the quarter, in addition to normally scheduled repayments of $1.9 million.
- It generated quarterly cash flow from operations of $145.1 million, ending the year with cash and equivalents of $569.8 million.
What management had to say
Gentex CEO Steve Downing stated he was "pleased" with improved revenue and unit growth trends, as well as the company's gross margin improvement. Downing also elaborated on what's to come:
The next two years present many challenges due to a flat-to-down light vehicle production environment, but we are currently forecasting solid revenue growth for both 2018 and 2019. The Company recently showcased its expanding efforts to develop, market and sell, uniquely designed and engineered future-focused products at CES. We have received very positive feedback from our customers who visited us at CES where we were able to demonstrate Gentex technology in mirrors, digital displays, camera monitoring systems, large area dimmable devices and connected car technologies which we believe will deliver profitable growth and shareholder value for years to come.
Looking forward
More specifically, based on the January 2018 IHS forecast for growth in light vehicle production this year -- flat to slightly down -- Gentex expects revenue in 2018 will arrive in the range of $1.89 billion to $1.97 billion -- good for year-over-year growth of 5.3% to 9.7% -- with gross margin ranging from 38% to 39%. Gentex similarly expects revenue will climb another 5% to 10% in 2019.
It's clear that Gentex believes its cutting-edge products will continue finding homes in more vehicles, even given an absence of broader growth in light-vehicle production. More than anything, that represents an extension of the underlying trends that have driven the bullish case for Gentex stock in recent years. But it's encouraging, nonetheless, to see that case appears to remain intact.
