Dorman(DORM) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated net sales for Q3 2025 were $544 million, representing a 7.9% year-over-year increase, primarily driven by tariff-related pricing actions [4][15] - Adjusted operating margin for Q3 2025 was 20.5%, a 340 basis point increase compared to the same period last year [6][16] - Adjusted diluted EPS grew 34% year-over-year to $2.62, supported by growth, margin expansion, and timing dynamics related to tariffs [6][16] - Operating cash flow was $12 million, and free cash flow was $2 million, showing slight improvement over Q2 but still impacted by higher tariff costs [7][17] Business Segment Data and Key Metrics Changes - Light-duty business net sales increased 9% year-over-year in Q3, driven by tariff-related pricing actions, with POS growth up mid-single digits [7][8] - Heavy-duty business net sales grew 6% year-over-year, although margins remained flat due to lower manufacturing productivity [10] - Specialty vehicle segment experienced flat top-line growth year-over-year, with operating margin impacted by lower manufacturing productivity [12][13] Market Data and Key Metrics Changes - Positive macro trends in the light-duty market, with vehicle miles traveled increasing year-over-year [8] - Specialty vehicle market continues to show strong UTV and ATV ridership, despite weak consumer sentiment due to tariffs and high interest rates [13][14] Company Strategy and Development Direction - The company aims to reduce overall supply from China to 30% to 40% by the end of 2025, enhancing supplier diversification [15][16] - Focus on innovation and new product development across all segments, with recent launches such as an electronic power steering rack for Ram trucks [9][10] - The company is positioning itself for future growth in the heavy-duty segment, despite current market pressures [10][11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to drive long-term growth, citing the non-discretionary nature of repair parts [8][25] - Anticipated lower gross margin in Q4 due to the impact of tariffs on cost of goods sold [20] - The company reaffirmed its net sales growth guidance for 2025 in the range of 7% to 9% and adjusted diluted EPS guidance of $8.60 to $8.90, reflecting a 21% to 25% increase compared to last year [19][20] Other Important Information - The company maintained a pause on share repurchases due to tariff and trade uncertainties but remains well-positioned to fund strategic growth initiatives [17][18] - Total liquidity at the end of September was $654 million, up from $642 million at the end of 2024 [18] Q&A Session Summary Question: Elasticity issues on the DIY side - Management noted that their portfolio is largely non-discretionary, which tends to be inelastic and performs well during inflationary periods [25][26] Question: Margin outlook with price increases - Management expects some margin compression in Q4 due to tariffs impacting COGS but remains optimistic about long-term margin potential [29] Question: Light-duty sales growth trajectory - Management indicated that light-duty sales growth of 9% is solid and consistent with previous quarters, driven by new products and favorable macro conditions [34][36] Question: Supply chain diversification - Management confirmed that they are currently about 30% to 40% reliant on China, with a robust supply chain that can adapt to changes [60][61] Question: Share position across segments - Management believes they are gaining share in light-duty and specialty vehicle segments, despite flat sales growth in specialty vehicles [66] Question: M&A appetite and pipeline - Management expressed a strong interest in M&A opportunities across segments, particularly in light-duty and specialty vehicles, although the current tariff situation has slowed potential seller activity [68][70]