According to Gentex (GNTX 22.27, -1.14, -4.87%), automotive
production was less than the IHS forecasted; the implications are that the
production miss led to lower than expected sales. Shares of the automotive
product manufacturer touched two-month lows earlier this morning after both its
second quarter sales and earnings missed market views. What’s more, GNTX
lowered both its 2018 calendar year revenue and total light vehicle production
Jumping right into the second quarter miss, Gentex reported earnings of $0.40/share on revenues that rose 2.7% year/year to $454.98 mln yet still missed Street expectations. Second quarter gross margin were up 30 basis points year/year to 38.0%, primarily as a result of improved product mix and purchasing cost reductions.
Breaking down the sales growth, automotive net sales in the second quarter were up 2% to $444.2 mln, aided by an 8% increase in auto-dimming mirror unit shipments on a quarter over quarter basis but partially offset by certain advanced feature headwinds within the product mix.
Other net sales in the second quarter 2018, which includes sales of dimmable aircraft windows and fire protection products, were $10.7 mln, an increase of 16%, compared to other net sales of $9.2 mln in the second quarter of 2017.
Importantly, when compared with IHS's mid-April forecast for the second quarter of 2018, actual light vehicle production in North America declined about 3%, which resulted in lower than expected unit shipments and revenue for the company during the quarter. Additionally, original equipment manufacturer shutdowns related to a supplier fire caused a revenue headwind of about 1% during the quarter.
Gentex currently expects revenues in the second half of calendar year 2018 to increase between 7-10% when compared with the second half of calendar year 2017. As a result of the recently enacted tariffs by the Office of the United States Trade Representative related to imports from China, Gentex currently expects cost increases of between $5-8 mln for the second half of 2018 related to its planned purchases of imported raw materials from China.
Such cost increases are expected to negatively impact gross margin, which is reflected in the company's updated margin guidance.
As to the guidance cut, Gentex now sees 2018 calendar year net sales between $1.88-1.91 bln, down from prior forecasts of $1.89-1.97 bln. Gross margins are now slated to come in at 37.5-38.5%, down from 38.0-39.0%, while management also cut capital expenditure guidance to $110-120 mln from $115-130 mln.
For Q3, Gentex sees 7% growth in North American light vehicle production to about 4.24 mln units. Europe is expected to grow 1% to about 4.95 mln while Japan and Korea are forecasted to remain flat at 3.23 mln.
Finally, based on 2019 light vehicle production forecasts and current forecasted product mix, the company is making no changes to its previously announced revenue estimates for calendar year 2019, which continues to be estimated to be over and above the foregoing 2018 revenue estimates in the range of 5-10%.
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