Gentex's First-Quarter Results Solid Despite Parts Shortages

Gentex’s first-quarter results gave us no reason to change our fair value estimate. Management seems to be doing a solid job handling supply chain disruptions. Diluted EPS of $0.37 beat the Refinitiv consensus of $0.32 but fell 20% year over year. Mirror unit volume declined 7%, which was better than the 11% industry decline in light-vehicle production across Gentex’s primary markets of North America, Europe, and Japan and Korea. Higher freight costs and lower volume were somewhat offset by finding operating efficiencies, but gross margin fell 360 basis points to 34.3%, slightly below full-year guidance of 35%-36% and identical to the fourth-quarter 2021 level. Gentex did not get any help from automakers on passing along cost increases; it said those negotiations are ongoing for the rest of the year and into 2023. These negotiations are often a slow process done automaker by automaker, and the current volatile environment makes it harder to negotiate terms. We agree with management’s optimism for the chance of favorable operating leverage after 2022.