The market appears indifferent to Gentex Corp.'s (GNTX +3.71%) just reported first-quarter 2015 results, with shares waffling between positive and negative territory in Wednesday's trading and closing up 0.5% from the previous day's close. But that doesn't mean investors shouldn't be happy with the numbers.
Quarterly revenue climbed 10% year over year to $368.9 million, a welcome acceleration from last quarter's lower-than-expected 7% growth. This also came despite a 2% decline in light vehicle production in Gentex's primary markets, indicating the company's products are continuing to penetrate the market. Foreign currency fluctuations also created a roughly 1% revenue headwind during the quarter.
Gross profit margin came in at 38.8%, up sequentially from 38.4% last quarter but down from 39.1% in the year-ago period. The year-over-year decline was caused by a combination of annual customer price reductions, continued higher-than-expected manufacturing costs for new technology, and the negative effects of foreign currencies. But those factors were also partially offset by purchasing cost reductions and favorable product mix.
On the bottom line, that translated to 13% growth in net income to $77.2 million, or $0.26 per diluted share. The latter figure was helped by Gentex's repurchase of 1.4 million shares of stock for roughly $25 million during the quarter, good for a cost basis of roughly $17.86 per share.
Wall Street's analysts, on average, had been slightly less optimistic, calling for first-quarter revenue and earnings of $367.3 million and $0.25 per share, respectively.
Digging deeper; looking forward
Gentex's top-line results were driven primarily by its core automotive segment, where sales increased by 10% over the same period last year, to $360.6 million. For that, investors can thank an 11% jump in shipments of auto-dimming mirror units.
Meanwhile, revenue from Gentex's much smaller "other" segment -- which includes dimmable aircraft windows and fire protection products -- fell 11.7% over the same period, to $8.3 million. The decrease was mostly from reduced shipments of dimmable aircraft windows.
Going forward, based on the expectation of continued market penetration and a slight year-over-year decline in light vehicle production for 2015, Gentex reiterated 2015 guidance for net sales in the range of $1.47 billion to $1.54 billion, gross margin of 38.5% to 39.5%, capital expenditures of $95 million to $105 million, and depreciation and amortization of $85 million to $90 million.
Gentex, however, slightly reduced its expected full-year operating expense range to $148 million to $154 million, compared to the previous range of $150 million to $157 million. Gentex also lowered both ends of its expected full-year tax range by a quarter of a percentage point, to 31.25% to 32.25%.
In the end, there were really no big surprises here. Apart from the unconcerning chunky revenue of Gentex's "other" segment, there isn't much not to like about this solid quarter from a company that has room to grow and is steadily grabbing share in a significant market. As Gentex continues to invest in new technology, and as more consumers gravitate toward vehicles with supplementary safety features for a reasonable premium, the company should further bolster its leadership position in this niche. As a result, I see no reason Gentex can't continue to generate positive returns for patient investors willing to watch this trend unfold over the long term.
