Gentex's Q3 Has Too Many Headwinds, but Financial Health and Prospects Remain Excellent in our View

Gentex’s third quarter saw many headwinds and diluted EPS of $0.31 fell by a penny year over year and missed the Refinitiv consensus of $0.38. We see no reason to change our fair value estimate. Gross margin fell by 550 basis points to 29.8%. Management cited some improvement in supply chain issues but also said customer work schedules continue to change last minute, hourly labor is in short supply at Gentex as well as at its customers and suppliers, and shortages of advanced electronic components for advanced mirrors such as the Full Display Mirror remain a problem and cost the company 750,000 units or as much as $40 million in lost sales. This lost volume combined with higher raw material costs, previously committed annual price reductions to customers, high labor, and mix headwinds led to the gross margin decline. Gentex said mix issues from lost advanced mirror production cost the firm 150 basis points of gross margin.