Shares of Gentex Corporation (GNTX) were down 6.8% on October 22 to close at $34.36 after the auto-parts manufacturer and seller reported worse-than-expected Q3 results. Electronic component shortages and continuing supply chain constraints also lead to an increase in costs. Furthermore, the company reduced its outlook for the second half of 2021.
Disappointingly, adjusted earnings of $0.32 per share fell six cents short of analysts’ expectations of $0.38 per share. The company reported earnings of $0.48 per share in the prior-year period. (See Gentex stock charts on TipRanks)
Furthermore, net sales decreased 18.8% year-over-year to $399.6 billion and failed to meet consensus estimates of $437.09 billion. The top-line decline was attributable to a 23% year-over-year decrease in light vehicle production across the company’s primary regions of Europe, North America, Japan/Korea, and China.
On top of this, gross margins declined 440 bps to 35.3%, compared to 39.7% in the prior-year quarter. Margins were negatively impacted by certain component, freight, and supply chain-related cost increases, as well as lower sales levels due to the decline in light vehicle production in key end markets.
CEO Steve Downing commented, “Since the beginning of the pandemic, we have worked hard as an organization to reduce overhead costs which helped stabilize our profitability in the third quarter despite this unpredictably large change in revenue. In fact, our estimates show that had the sales levels been as forecasted, then our gross margins would have been more in line with our previous second half of 2021 guidance range.”
Based on the anticipated impact from lower vehicle production levels, higher raw material prices, freight expenses, and labor costs, the company trimmed its guidance for the second half of 2021. The company now projects 2H2021 revenues of between $770 million and $840 million, down from the previous guidance range of $970 million – $1.07 billion.
Moreover, gross margins are expected to range between 35% – 36%, lower than the prior guidance of 37.5% – 38.5%.
Robert W. Baird analyst Luke Junk recently maintained a Buy rating on Gentex with the price target of $37 (7.7% upside potential).
Junk forecasts the company to report earnings of $0.36 per share for the fourth quarter of 2021.
Overall, the stock has a Moderate Buy consensus rating based on 5 Buys, 1 Hold, and 2 Sells. The average Gentex price target of $36.25 implies 5.5% upside potential from current levels. Shares have gained 19.5% over the past year.
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