Gentex Corporation, the vehicle mirror supplier, reported financial results for the three and six months ended June 30, 2020.
For the second quarter of 2020, the company reported net sales of US$229.9m which was a decline of 51% compared to $468.7m in the second quarter of 2019.
The impact of the COVID-19 pandemic created extended shutdowns in the automotive industry for much of the quarter in various parts of Asia, Europe, and North America.
Global light vehicle production ended the second quarter of 2020 down 45%.
The majority of the light vehicle production decline occurred in Europe which experienced a 62% quarter over quarter reduction, and in North America, which experienced a 69% reduction.
“The impact of COVID-19, government enacted shutdowns in certain countries and states, and the resultant economic impact led to the most severe change in demand in a very short period of time that Gentex has ever experienced. In fact, our forecast in early March for the second quarter of 2020 was estimating a 6% growth rate for the company,” said president and CEO Steve Downing.
“A deeper dive into the global vehicle production environment provides compelling information about what happened in the quarter. For instance, while the China market expanded by 9% in the second quarter, our historical revenue from China has been less than 10% of sales, so this provided very little help to offset the losses in our primary markets. The company’s primary markets include North America, Europe, Japan and Korea and together these regions were down approximately 59% for the second quarter of 2020. While these production numbers are incredibly sobering, the silver lining is that we are continuing to find ways to significantly outperform our primary underlying markets.”
For the second quarter of 2020, the gross margin was 19.1%, compared to 37.7% for the second quarter of 2019. Gross margin declined on a quarter over quarter basis as a result of the lost sales and manufacturing inefficiencies due to the COVID-19 pandemic and the related shutdowns, severance related costs of $3.9m, and annual customer price reductions. When adjusted for the expenses related to severance, the adjusted gross margin for the quarter was 20.8%.
Operating expenses during the second quarter of 2020 increased by 4% to $50.7m which included severance related costs of $4.9m. This compared to operating expenses of $48.6m in the second quarter of 2019. When adjusted for the expenses related to severance, adjusted operating expenses in the second quarter of 2020 were down 6% when compared with operating expenses in the second quarter of 2019, which was primarily driven by reductions in wages and discretionary spending.
Gentex booked a loss from operations of $6.7m for the second quarter of 2020 as compared to income of $127.9m for the second quarter of 2019. The quarter over quarter reduction in operating income was primarily the result of the lost sales due to the COVID-19 pandemic and the impact this had on gross margins in the second quarter. Adjusted operating income was $2.1m for the second quarter, which reflected adjustments for the impact of severance related costs of $8.8m in the quarter, of which $3.9m were in cost of goods sold related areas and $4.9m were in operating expense related areas.
During the second quarter of 2020, the Company recognised a tax benefit of $1.5m, compared to a tax expense of $21.3m during the second quarter of 2019.
The company booked a net loss of $2.4m for the second quarter of 2020 which compared to net income of $109.0m in the second quarter of 2019. The reduction in net income was driven by the lost sales due to the COVID-19 pandemic and resultant change in profitability in the second quarter described above. Adjusted net income was $4.6m during the second quarter of 2020, when adjusting for the impact of the severance related costs, net of tax.
Automotive net sales in the second quarter of 2020 were $222.1m, compared with $456.6m in the second quarter of 2019. The 51% quarter over quarter decrease in automotive sales was driven primarily by a 51% quarter over quarter decrease in interior auto-dimming mirror unit shipments as a result of the overall 45% decrease in global light vehicle production and the more severe decreases in Europe and North America, stemming from the COVID-19 pandemic.