The market for auto parts is extremely strong, with robust demand for high-quality products that can work with today's technologically advanced cars and trucks. Dorman Products (NASDAQ: DORM) prides itself on meeting that demand, and its efficient ability to produce original equipment manufacturer-quality parts has opened the door to huge profit growth over time.
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Coming into Tuesday's first-quarter financial report, Dorman investors wanted to see steady growth continue on both the top and bottom lines. Dorman's results were generally consistent with those expectations, and the company pointed to new product lines as the driver for its success both now and in the future. Let's take a closer look at Dorman Products to see how things shaped up for the company and what its future looks like.
Image source: Dorman Products.
Dorman maintains its momentum
Dorman Products' first-quarter results continued to reflect the progress the auto parts company has made recently. Sales were up 6.5% to $221.6 million, which was somewhat less than the 8% growth that most investors had wanted to see. However, net income jumped 18% to $29.2 million, and that worked out to earnings of $0.85 per share. That figure compared favorably to the consensus forecast for $0.80 per share among those following the stock.
Taking a closer look at the report, Dorman attributed much of its success to the new products that it has launched during the year. During the quarter, the company brought on 1,290 new unique SKUs, which is 17% more than it did during the first quarter of 2016. In particular, Dorman emphasized the role of the heavy-duty aftermarket, with its Dorman HD Solutions seeing sales growth accelerate to 24%. Complex electronics are also a market with solid potential for the company, and Dorman saw top-line figures climb by a fifth from year-ago levels in that area.
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Dorman also managed to hold onto the efficiency gains that it has achieved in recent quarters. Gross margin climbed by more than a full percentage point over the past year to hit the 40% mark. Overhead expenses rose 5% from year-ago levels, but they represented a smaller percentage of overall sales and therefore helped to improve margins further down the income statement.
CEO Matt Barton was happy with how Dorman started 2017. "Sales growth met our expectations," Barton said, "and sound execution enabled us to deliver substantial bottom line leverage on the sales growth." The CEO also pointed to solid prospects in maintaining and building on organic growth for the remainder of the year.
What's ahead for Dorman?
Dorman also has high expectations for the future. As Barton said simply, "Our outlook for the business remains positive," and good conditions in the auto industry generally offer support for that thesis going forward.
In particular, Dorman is still confident that the full 2017 year will go well for the company. Revenue is likely to rise by mid- to high-single-digit percentages during the year compared to 2016. Net income will see even better growth rates, which are likely to come in somewhere around the high-single-digit to low-double-digit percentage range for the year.
Dorman also remains optimistic about the value of its stock. The company spent $11 million to buy back nearly 139,000 shares of stock during the quarter, paying an average of $79.43 per share. With the stock trading in the mid-$80s, that's been a good investment so far for Dorman.
Investors in Dorman Products were pleased with the results, and the stock quickly jumped out to gain of 2% at the open of regular trading on Tuesday morning. If Dorman's fundamental strategy of offering high-quality auto parts to its customers keeps resonating with its target audiences, then the resulting growth could keep the company on track for years to come.
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