Dorman Products (DORM -2.89%) has worked hard to ensure that it can help meet the booming demand for auto parts in the automotive industry. A combination of high consumer demand for new, technologically advanced vehicles and the need for state-of-the-art parts to integrate into advanced systems, has given Dorman an opportunity for growth. The parts specialist has met the challenge by offering new products with competitive advantages over existing offerings.
Coming into Tuesday's second-quarter financial report, Dorman investors were looking for the company to continue its trend of solid growth in revenue and earnings. Dorman's performance was mixed in that respect, but the company remains pleased with the way it has dealt with some industry headwinds to promote its long-term growth efforts. Let's look more closely at Dorman Products and what its latest numbers say about its future prospects.
Dorman puts in a mixed quarter
Dorman Products' second-quarter results were similar, in many ways, to what investors have seen for several quarters in the past. Revenue climbed more than 9%, to $229.3 million, which exceeded the 7% growth rate that most of those following the stock had expected to see. Net income also rose 9%, to $28.4 million, although the resulting earnings of $0.83 per share fell short of the consensus forecast among investors by $0.02 per share.
Looking more closely at Dorman's numbers, the company once again emphasized the number of new products that it put onto the market. Dorman launched more than 1,000 new stock-keeping units (SKU) during the quarter, seeing growth of about a sixth from the year-ago total new unique SKU count.
The parts-maker's emphasis on higher-end offerings also continued to pay off. The heavy-duty HD Solutions business had revenue jump by more than a quarter compared to the year-earlier period. The complex electronics line of products also showed strong growth, climbing 17% compared to the second quarter of 2016.
Dorman's cost management and efficiency efforts also showed signs of success. Gross margin was up almost half a percentage point, to 39.6%, with Dorman citing a more favorable sales mix of higher-margin products as the primary contributor to the positive trend. Overhead expenses jumped 11%, however, and that kept operating and net income margins flat from year-earlier levels.
CEO Matt Barton trumpeted Dorman's positive performance. "Despite an overall challenging automotive aftermarket demand environment," Barton said, "our top line sales growth remained robust, driven by the continued growth of new products." The CEO noted that strong execution from the company's team of employees was instrumental in producing favorable results.
Can Dorman drive higher?
Dorman sounded a note of concern about the immediate future. In Barton's words, "Although we are very pleased with our first half growth, we remain cautious entering the back half of the year, given current market conditions."
That caution wasn't enough to make Dorman change its views about how its full-year financials are likely to pan out for the rest of 2017. Earlier this year, Dorman said that it expects sales gains of mid- to high-single-digit percentages for the year, and net income should climb by high-single-digit to low-double-digit percentages over 2016's figures. The company said that those projections remain in place, suggesting that Dorman has plans to overcome challenging conditions in the industry and find ways to bolster its performance.
Dorman's new premium full-line chassis program could play a role in fostering new growth. Already, the company has generated what it called "meaningful revenue" from the program, and Dorman has the goal of becoming a market leader in that area.
However, investors in Dorman Products weren't satisfied with the earnings miss, and the stock fell 3% on Tuesday following the report. If the auto-parts environment ends up being as challenging as Dorman fears, then the company might well struggle to meet its guidance goals, and that could put even more pressure on Dorman to find new sources of business, even as it faces strengthening headwinds.