Third Quarter Highlights:
- Net sales of $248.0 million, up 10% compared to $224.6 million last year.
- Diluted earnings per share (EPS) on a GAAP basis increased 29% to $1.03 compared to $0.80 last year. Adjusted diluted EPS of $1.06, up 31% compared to $0.81 last year.
- Completed the acquisition of Flight Systems Automotive Group LLC (Flight).
Dorman Products, Inc. Reports Second Quarter 2018 Results
COLMAR, PA (October 25, 2018) – Dorman Products, Inc. (the “Company” or “Dorman”) (NASDAQ:DORM), a leading supplier in the automotive aftermarket, today announced its financial results for the third quarter ended September 29, 2018.
3rd Quarter Financial Results
The Company reported third quarter 2018 net sales of $248.0 million, up 10% compared to net sales of $224.6 million in the third quarter of 2017. Included in net sales were approximately $10 million of sales from MAS Automotive Distribution Inc. (MAS) which was acquired in October of 2017 and $1.7 million of sales from Flight Systems Automotive Group LLC (Flight) which we acquired on August 31st, 2018. Excluding the sales contributions from MAS and Flight, net sales growth was approximately 5%.
Gross profit grew 8% to $95.0 million in the third quarter from $88.1 million last year. Gross profit percentage for the third quarter was 38.3% compared to 39.2% in the same quarter last year. The primary change (approximately 80 Bps) in gross profit percentage is a result of the impact of acquisitions which carry lower gross margins compared to our historical levels.
Selling, general, and administrative (“SG&A”) expenses grew 13% to $51.3 million in the third quarter on a GAAP basis compared to $45.3 million in the same quarter last year. Excluding the impact of acquisition -related expenses, adjusted SG&A increased 11% to $49.9 million or 20.1% of net sales in the quarter compared to $45.0 million or 20.0% of net sales in the same quarter last year. The increase in adjusted SG&A was due to the inclusion of expenses of acquired operations, the reinvestment of tax savings from the Tax Cuts and Jobs Act (TCJA) in our product development and sales organizations, and wage and benefit inflation.
Income tax expense was $9.8 million in the third quarter, or 22.3% of income before income taxes down from $16.0 million, or 37.1% of income before income taxes recorded in the same quarter last year. The reduction in tax rate compared to prior year is primarily a result of the TCJA.
Net income for the third quarter of 2018 was $34.0 million, or $1.03 per diluted share compared to $27.0 million, or $0.80 per diluted share, in the prior year quarter. Adjusted net income in the third quarter was $35.0 million, or $1.06 per diluted share, up 28% compared to $27.5 million or $0.81 per diluted share in the prior year quarter.
Please refer to the Non-GAAP Financial Measures reported in the supplemental schedules at the end of this release for a detailed reconciliation of the reported (GAAP) financial information to the adjusted financial information (Non-GAAP).
Matt Barton, Dorman Products Chief Executive Officer, stated: “I’d like to take this opportunity to thank all of our Dorman contributors for delivering a solid quarter and to welcome all of our new contributors from Flight Systems Automotive Group that we acquired late in the third quarter. Flight generated approximately $22 million of net sales in fiscal 2017 and is a leading manufacturer and remanufacturer of complex automotive electronics and diesel fuel system components. Complex electronics and diesel fuel systems represent important growth opportunities for our Company. By combining our capabilities with Flight, we believe we will be a firmly established leader in these areas for years to come.”
Kevin Olsen, Dorman Products President and Chief Operating Officer, stated: “We experienced improved end market conditions with both sell-in and sell through rates improving in the quarter. Customer inventory destocking pressures, which had been a headwind earlier in the year, continued to ease in the quarter as well. New Product development remains robust, positioning us well for the future. We launched 1,478 new SKU’s in the quarter, a 55% increase over last year. Additionally, net sales from our Dorman Heavy Duty Solution lines continue to be strong, growing 30% year to date.”
Tariffs
Effective September 24th, the Office of the United States Trade Representative (USTR) imposed an additional tariff on approximately $200 billion worth of Chinese imports. The tariff will be approximately 10% until December 31, 2018 and will increase to 25% effective January 1, 2019. The tariffs enacted to date will increase the cost of many products that are manufactured for Dorman in China. We are taking several actions to fully mitigate the impact of the tariffs including, but not limited to, price increases to our customers and cost concessions from our suppliers. We do not anticipate that the tariffs will materially impact gross profit in the fourth quarter of 2018. Although we expect to mitigate the impact of tariffs in fiscal 2019, we expect selling price increases associated with the tariffs to be fully offset by the higher tariffs incurred.
2018 Guidance
Excluding the impact of Flight and tariffs, we are maintaining our fiscal 2018 full year sales growth guidance range of 4%-6%. On a GAAP basis, fiscal 2018 EPS is expected to be in the $3.96 to $4.08 range. We continue to expect adjusted EPS to be in the $4.15 to $4.27 range, or a 23% to 27% growth rate.
Share Repurchases
Under its share repurchase program, Dorman repurchased 86.1 thousand shares of its common stock for $6.4 million at an average share price of $73.84 during the quarter ended September 29, 2018. The Company has $42.9 million left under its current share repurchase authorization.