Gentex Corp (NASDAQ:GNTX) Q2 2019 Earnings Conference Call - Final Transcript
Jul 19, 2019 • 09:30 am ET
Steven R. Downing
gross margin was 37.7% which was a significant increase when compared to a gross margin of 36.2% in the first quarter of 2019. On a quarter-over-quarter basis, the gross margin for the second quarter of 2019 declined slightly compared to a gross margin of 38% for the second quarter of 2018. The gross margin in the quarter was negatively impacted by approximately 60 basis points due to tariffs that were not in place during the second quarter last year.
Our sequential gross margin expansion in 2019 was due to positive product mix driven by increases in Full Display Mirror and domestic exterior-mirror growth, better than expected purchasing cost reductions, cost discipline throughout the Company, and success in mitigating some of the escalating costs related to tariffs that have been impacting the Company since July of 2018. In fact, if you remove the 60 basis points of margin erosion due to tariffs, our gross margin was up 30 basis points versus last year. Our ability to maintain gross margins in a difficult production environment is a testament to the hard work and cost focus of the entire team at Gentex.
Operating expenses during the quarter were up 5% to $48.6 million when compared to operating expenses of $46.1 million last year. We managed our operating costs carefully during the quarter but with the deliberate intention of continuing to invest in future growth. The primary driver of increases in operating expenses is funding the resources needed for the development and launch of already sold products including additional auto-dimming mirrors, Full Display Mirrors, Integrated Toll Modules, and our new aerospace program. In addition, we are deploying resources to expand the product portfolio in the areas of connected car, digital vision and large area dimmable devices, which we believe will provide the potential for long-term growth.
Income from operations for the second quarter of 2019 increased 1% to $127.9 million when compared to income from operations of $126.7 million last year. The increase in income from operations was primarily due to the higher revenue on the quarter, but was partially offset by lower operating margins when compared to the same period last year. During the second quarter of 2019, the Company's effective tax rate was 16.4%, up from 15.5% during the second quarter of 2018, primarily driven by a decrease in discrete tax benefits related to stock-based compensation.
Net income for the second quarter of 2019 was relatively flat at $109 million compared to the second quarter last year. Earnings per diluted share for the second quarter of 2019 increased 5% to $0.42, when compared to $0.40 for the second quarter of 2018, primarily as a result of a 6% reduction in diluted shares outstanding from share repurchases, due to the continued execution of the Company's previously disclosed capital allocation strategy.
During the second quarter of 2019, the Company repurchased approximately 3.1 million shares of its common stock at an average price of $22.72 per share, for a total of $69.9 million of share