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A month has gone by since the last earnings report for Gentex (GNTX). Shares have added about 2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Gentex due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Gentex Delivers Dismal Q2 Show
Gentex reported second-quarter 2020 earnings per share of 2 cents, missing the Zacks Consensus Estimate of 12 cents. The bottom line also declined from the year-ago earnings of 42 cents per share. Coronavirus-induced shutdowns in various parts of Asia, Europe and North America dented revenues and earnings of the automatic-dimming rearview-mirror specialist in second-quarter 2020.
During the quarter under review, total revenues came in at $229.93 million, which missed the Zacks Consensus Estimate of $262 million. Moreover, the top line fell from the year-ago figure of $468.7 million.
The company recorded adjusted gross margin of 20.8% in the quarter under review, down from the year-ago quarter’s 37.7% due to lost revenues amid the coronavirus pandemic, manufacturing inefficiencies and annual customer price reductions.
In the quarter, auto-dimming mirror shipments in the North America market plunged 65% from the prior-year quarter to 1.24 million units. In the International market, the same fell 45% from the prior-year quarter to 4.02 million units. Total shipments declined 51% year over year to 5.26 million units, as global light vehicle production dwindled 45% in the second quarter of 2020.
Operating expenses increased 4.2% year over year to $50.7 million in second-quarter 2020. SG&A expenses rose to $21.7 million from $20.2 million in the year-ago quarter. Engineering and R&D expenses increased to $28.9 million in second-quarter 2020 from $28.3 million recorded in the year-ago period.
During the quarter under review, the company tapped brakes on the share repurchase program in a bid to preserve cash. As of Jun 30, 2020, Gentex had around 13 million shares remaining under the buyback program. Nonetheless, it continues to pay dividends of 12 cents a share. Notably, the company had cash and cash equivalents of $343.8 million as of Jun 30, 2020.
Things are not looking up for the auto sector amid the COVID-19 pandemic, as is evident from depressed demand for vehicles amid weak consumer confidence. IHS Markit expects total light vehicle production to decline 20% year over year in 2020 and 7% for the second half of the year.
Gentex has provided guidance for the second half of 2020. The company envisions net sales in the band of $865-$915 million. Gross margin is anticipated in the range of 36-37%. Capex and operating expenses are estimated within $30-$40 million and $88-$93 million, respectively. Amid coronavirus-led uncertainty, Gentex is withdrawing revenue forecast for 2021.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 7.38% due to these changes.
Currently, Gentex has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Gentex has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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