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Dorman Products (DORM) 2 Aug 24 2024 Q2 Earnings call transcript

AInvestSaturday, Aug 3, 2024 2:15 pm ET
2min read

Dorman Products, Inc. (DORM) held its second quarter 2024 earnings call on August 2, 2024, highlighting a strong set of financial results. The company reported a consolidated net sales increase of 5% year-over-year, with a 430 basis point improvement in adjusted operating margin. Dorman's performance is attributed to higher sales volume, the continued abatement of inflationary costs, and productivity initiatives that drove cost savings. The company's adjusted diluted EPS increased by 65% over the same period last year, demonstrating a remarkable turnaround.

Operational Highlights

In terms of operational highlights, Dorman Products continues to see positive overall market trends, particularly in the Light Duty segment. The company's POS sales grew high single digits, aligning with Dorman shipments. One of Dorman's largest customers transitioned a majority of their spend from private label to Dorman branded packaging, reflecting the value customers place on Dorman's brand. The Light Duty business also deployed hundreds of new products, including a keyless entry keypad and a diesel particulate filter muffler housing kit, highlighting Dorman's innovation strategy.

The Heavy Duty segment, however, faced challenges due to the soft freight industry. Despite this, Dorman's Heavy Duty sales performance improved sequentially, with a new product commercialization process launch and a diesel particulate filter muffler housing kit launch showcasing the company's focus on new product development. Dorman remains optimistic about the Heavy Duty sector, expecting the softness to improve by early 2025.

In the Specialty Vehicle segment, Dorman is focused on gaining share in a sector facing headwinds. Despite a slight decrease in sales year-over-year, the segment delivered solid margin growth, driven primarily by cost savings initiatives. Dorman remains confident in the long-term opportunity for the Specialty Vehicle market, particularly with the growth of alternative transport vehicles.

Financial Highlights

Financially, Dorman Products achieved a 45% increase in adjusted operating income and a 430 basis point improvement in adjusted operating margin year-over-year. The company's free cash flow of $51 million continued its positive trend, allowing for $15 million in debt repayment and $25 million in share repurchases. Dorman's increased full-year earnings guidance reflects its confidence in the company's performance and future outlook.

Innovation and Operations

Dorman Products has been investing in operational efficiency, particularly in its largest warehouses in Portland, Tennessee, and Warsaw, Kentucky. These investments include deploying autonomous mobile robots, vertical lift modules, and a state-of-the-art warehouse execution system software package. These initiatives are expected to yield an annualized net savings of approximately $8 million and provide operational efficiency benefits to Dorman in the long term.

Market Outlook

Looking ahead, Dorman Products remains optimistic about its growth prospects, particularly in the Light Duty segment. The company expects Light Duty sales growth to remain consistent with the first half of the year and is focusing on continuing to drive innovation and productivity initiatives across its businesses.

In conclusion, Dorman Products, Inc. (DORM) delivered a strong second quarter 2024 earnings report, highlighting impressive financial results and strategic investments in operations and innovation. The company's focus on new product development, operational efficiency, and customer satisfaction positions it well for continued growth and success in the automotive aftermarket sector.

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