Over the years, Dorman Products (NASDAQ: DORM) has set a high bar for itself, as the auto parts manufacturer has taken advantage of strong conditions in the parts industry to produce solid growth. Despite facing plenty of competition, Dorman brings its own innovative approach to the industry, and that has helped differentiate the company from its peers and drive more business from its customers.
Coming into Monday's fourth-quarter financial report, Dorman investors were looking for modest advances in both revenue and profit to finish 2017, and they hoped that the company would have high expectations for 2018. Dorman wasn't able to produce all of the growth that its shareholders had wanted to see, but its optimism about its prospects for the coming year is encouraging. Let's look more closely at Dorman Products and what its results say about its future.
Dorman crosses the finish line
Dorman Products' fourth-quarter results were mixed. Revenue dropped less than 1% to $227.7 million, thwarting expectations for a 2% rise on the top line. Yet adjusted net income was higher by between 1% and 2% to $29.1 million, and the resulting adjusted earnings of $0.87 per share matched the consensus forecast among those following the stock.
A couple of factors had substantial impacts on Dorman's sales. On one hand, the acquisition of MAS Automotive Distribution added about three percentage points to the auto parts company's growth rate for the quarter. Yet a change in the calendar gave the fourth quarter of 2017 one less week than the corresponding year-earlier period had, and Dorman estimated that this effect had a roughly five percentage point downward impact on its top line.
Dorman took a small hit from the recent changes in tax laws. Revaluing deferred tax assets cost the company about $4.36 million. However, Dorman sees a net benefit going forward, with lower corporate tax rates helping to produce savings that it intends to use to invest in further growth initiatives, bolster its employee profit sharing plan, and use for other general corporate purposes.
Fundamentally, Dorman kept making progress. The company closed the year with more than 4,000 new SKUs, and products that it has launched in the past 24 months made up nearly a fifth of its total sales for the year. The areas of heavy duty products and complex electronics were substantial growth drivers for Dorman, and the parts maker sees that demand remaining strong.
CEO Matt Barton had good things to say about the year. "We remain bullish on the automotive aftermarket," Barton said, "despite slower market growth in 2017." The CEO said that Dorman's high-quality aftermarket parts strategy is well-positioned to help it grow at a faster pace than the overall auto-parts industry going forward.
What's ahead for Dorman?
Also helping Dorman going forward is the MAS acquisition. Barton was excited about the purchase of the premium chassis parts company, arguing that it "firmly positions us as a leader in the category and provides exciting opportunities for growth in the future."
Dorman's ongoing stock repurchase activity kept adding upward boosts to its per-share earnings results. Buybacks amounted to about 224,000 shares, with Dorman spending $15.7 million at an average price of just above $70 per share. For the full year, that brought Dorman's buyback activity to about $75 million, or 3% of its market capitalization.
Dorman's guidance for 2018 pointed to faster growth. Sales gains of 6% to 9% include the additional contribution that MAS will have. Even more encouraging is the expectation for full-year 2018 adjusted earnings to grow between 22% to 28%, with a corresponding range of $4.10 to $4.32 per share. That was higher than the consensus forecast among investors, but those figures include roughly $0.60 per share of added profit from lower tax rates, and it's not entirely clear whether investors had incorporated any of those expectations into their own projections.
Investors will want to see Dorman Products find ways to accelerate its growth in 2018. Although the auto parts maker is working hard to take advantage of opportunities in the space, shareholders will need to see more evidence of building momentum in order for the stock to return to the all-time highs it reached early last year.
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