Earnings call transcript: Dorman Products beats Q3 2025 EPS forecast, stock dips

Dorman Products Inc. reported its third-quarter 2025 earnings, surpassing analyst expectations with an earnings per share (EPS) of $2.62, compared to the forecasted $2.48. However, the company missed revenue expectations, reporting $543.7 million against a forecast of $548.6 million. Following the earnings release, Dorman’s stock declined by 2.71% in after-hours trading, closing at $153.75, and continued its downward trend in premarket trading. According to InvestingPro data, four analysts have recently revised their earnings estimates upward for the upcoming period, suggesting continued confidence in the company’s performance trajectory.

Key Takeaways

• Dorman’s Q3 2025 EPS exceeded forecasts, marking a 34% year-over-year increase.
• Revenue fell short of expectations, despite a 7.9% year-over-year growth.
• Stock price experienced a decline post-earnings, reflecting mixed investor sentiment.
• Company continues to diversify supply chain and reduce reliance on China.
• Strong performance in light-duty and specialty vehicle markets.

Company Performance

Dorman Products demonstrated robust performance in Q3 2025, with consolidated net sales increasing by 7.9% year-over-year. The company’s adjusted gross margin rose to 44.4%, reflecting a 390 basis points improvement from the previous year. InvestingPro analysis reveals an impressive overall Financial Health Score of "GREAT," supported by strong liquidity metrics and moderate debt levels. Dorman’s strategic focus on non-discretionary parts and supply chain diversification has bolstered its competitive position, particularly in the light-duty and specialty vehicle markets.

Financial Highlights

• Revenue: $544 million, up 7.9% year-over-year
• Earnings per share: $2.62, up 34% year-over-year
• Adjusted gross margin: 44.4%, up 390 basis points
• Adjusted operating margin: 20.5%, up 340 basis points
• Operating cash flow: $12 million
• Free cash flow: $2 million

Earnings vs. Forecast

Dorman’s EPS of $2.62 surpassed the forecast of $2.48, resulting in a surprise of 5.65%. However, the revenue of $543.7 million was slightly below the expected $548.6 million, a miss by 0.89%. The EPS beat continues a positive trend for the company, which has consistently exceeded expectations in recent quarters.

Market Reaction

Despite the EPS beat, Dorman’s stock fell by 2.71% in after-hours trading and continued to decline by 0.42% in premarket activity. The stock’s performance can be attributed to the revenue miss and potential concerns over future tariff impacts. With a beta of 0.84, the stock historically shows lower volatility than the broader market. Dorman’s shares are currently trading below their 52-week high of $166.89, with analyst targets ranging from $135 to $185, reflecting mixed but generally positive sentiment among Wall Street experts.

Outlook & Guidance

Dorman has set a net sales growth guidance of 7-9% for 2025, with adjusted diluted EPS expected to range between $8.60 and $8.90, representing a 21-25% increase. The company anticipates a Q4 gross margin reduction due to tariff impacts and projects a full-year tax rate of 23.5%. Dorman continues to innovate, launching new products and enhancing its e-commerce platform.

Executive Commentary

CEO Kevin Olsen highlighted Dorman’s strong balance sheet and liquidity, stating, "We have a very healthy balance sheet and liquidity." He also emphasized the company’s focus on non-discretionary parts, which provides stability in uncertain markets. "Our portfolio differs quite a bit... we have a heavy non-discretionary majority of our parts," Olsen noted.

Risks and Challenges

• Supply chain disruptions: Ongoing diversification efforts are crucial to mitigate risks.
• Tariff impacts: Expected to affect Q4 gross margins, requiring strategic adjustments.
• Market saturation: Competition in the light-duty segment could pressure margins.
• Macroeconomic pressures: Global economic uncertainty may impact consumer spending.
• Regulatory changes: Potential shifts in trade policies could affect operations.

Q&A

During the earnings call, analysts inquired about the company’s supply chain strategy and potential elasticity concerns. Dorman addressed these by outlining its supplier diversification initiatives and exploring merger and acquisition opportunities. The company also clarified its tariff exposure and mitigation strategies, reassuring stakeholders of its proactive approach.

Full transcript - Dorman Products Inc (DORM) Q3 2025:

Conference Operator: Good morning and thank you for standing by. Welcome to the Dorman Products Q3 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference is being recorded. I’d now like to turn the conference over to Alex Whitelam, Vice President of Investor Relations. Thank you, sir. Please go ahead.

Alex Whitelam, Vice President of Investor Relations, Dorman Products: Thank you. Good morning, everyone. Welcome to Dorman Products’ Q3 2025 earnings conference call. I’m joined by Kevin Olsen, Dorman Products’ Chief Executive Officer, and David Hession, Dorman Products’ Chief Financial Officer. Kevin will provide a quick overview along with an update on each of our business segments and their respective markets. David will review the consolidated results and our guidance before turning it back over to Kevin for closing remarks. After that, we’ll open the call for questions. By now, everyone should have access to our earnings release and earnings call presentation, which are available on the Investor Relations portion of our website at dormanproducts.com. Before we begin, I’d like to remind everyone that our prepared remarks, earnings release, and investor presentation include forward-looking statements within the meaning of federal securities laws.

We advise listeners to review the risk factors and cautionary statements in our most recent 10-Q, 10-K, and earnings release for important material assumptions, expectations, and factors that may cause actual results to differ materially from those anticipated and described in such forward-looking statements. We’ll also reference certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are contained in the schedules attached to our earnings release and in the appendix to this earnings call presentation, both of which can be found in the Investor Relations section of Dorman Products’ website. Finally, during the Q&A portion of today’s call, we ask that participants limit themselves to one question with one follow-up and to rejoin the queue if they have additional questions. With that, I’ll turn the call over to Kevin.

Kevin Olsen, Chief Executive Officer, Dorman Products: Thanks, Alex. Good morning and thank you for joining our Q3 2025 earnings call. As Alex mentioned, I’ll start with a high-level review of the results, along with an update on our segments and market observations for each before turning it over to David. Let me start on slide three. First, I’d like to thank our contributors for all their hard work and dedication this year, which allowed us to execute exceptionally well and deliver for our customers. In the third quarter, we drove strong top and bottom line growth. Consolidated net sales were $544 million for Q3, up 7.9% year over year. This growth was primarily driven by tariff-related pricing actions that took effect in the quarter, which we covered in detail during our last earnings call. Additionally, we saw solid POS growth in the quarter, which was up mid-single digits year over year.

As we expected and discussed previously, we delivered strong margin growth in the quarter. This was largely driven by the timing dynamics of pricing and costs associated with tariffs. As a reminder, while the majority of our price increase went into effect in the third quarter, the inventory that we purchased in Q2 comes with higher tariff-related costs that will begin to impact our income statement in the fourth quarter of this year. As a result, we expect a lower gross margin in Q4 compared to Q3. Adjusted operating margin for Q3 2025 was 20.5%, a 340 basis point increase over last year’s third quarter. Adjusted diluted EPS grew 34% year over year to $2.62, which again was driven by our growth, margin expansion, and the timing dynamics of pricing and costs related to tariffs.

Finally, operating cash flow was $12 million, and free cash flow was $2 million in the quarter. While this is a slight improvement over Q2, our cash flow continues to be impacted by higher tariff costs. David will discuss this in more detail shortly. While there were some timing subtleties within the quarter, we’re pleased with our performance and expect to continue delivering strong year-over-year growth for our shareholders. Next, I’ll provide our results for each of our business segments. I’ll also dive into our market observations and share some highlights for each. Starting on slide four, our light-duty business had another strong quarter, with net sales increasing 9% year over year in Q3. The growth was primarily driven by tariff-related pricing actions that took effect in the third quarter. POS more closely aligned with our net sales, up mid-single digits year over year.

Similar to last quarter, we’re not seeing any significant oversupply in the inventory data we have from our largest customers. On the margin front, light-duty delivered a 470 basis point gain in operating margin, driven primarily by tariff-related pricing, as well as the impact of our supplier diversification initiative. Looking across the light-duty market, macro trends continue to remain positive, with vehicle miles traveled increasing year over year. However, uncertainty in the market related to tariffs and trade dynamics continues to persist. We’re closely monitoring the environment and continue to work with our suppliers and customers as part of our overall tariff mitigation strategy. While it appears that inflationary pricing has started to reach our end users, we remain confident in our ability to drive long-term growth, as non-discretionary repair parts have historically performed well through various economic cycles.

We also thought it would be helpful to provide some business insights and highlight new products and updates across our segments. In the light-duty business, we recently launched an electronic power steering rack for specific Ram truck models from 2013 to 2024. This is a first-to-aftermarket part and the only available option in the independent aftermarket that is manufactured new. This product is a great example of our capabilities within complex electronics, given the functionality and integration with various systems throughout the vehicle. The EPS rack is an OE fixed component with significant upgrades compared to the original manufacturer’s part that are designed to ensure a long, reliable service life. The electronics within have been redesigned with added surge protection and an improved layout to reduce heat and electrical interference. Additionally, protective coatings have been applied to resist contamination from water, salt, dust, and other harmful contaminants.

It has also been designed for simple, seamless installation with no dealer programming needed. This product is a culmination of extensive, complex, cross-functional work with our engineering teams, so I’d like to congratulate everyone involved. Next, let me turn to slide five for updates on our heavy-duty business. Net sales grew 6% year over year in the third quarter. While market conditions continued to pressure the segment, the team executed on the pricing front and drove volume through new business lines. The benefit of higher net sales growth in the quarter was offset by lower manufacturing productivity impacting margins, which were flat year over year. Longer term, we remain focused on driving a mid-teens operating margin profile for the heavy-duty segment. Digging more into the broader trucking and freight market, it remains difficult to predict an inflection point.

While we’re pleased with the recent net sales growth over the last two quarters, we continue to see mixed signals across our customer channels. We’re hopeful that the worst is behind us and we’ll see a turn in the coming quarters. Despite the headwinds, we continue to execute key initiatives to best position the business for the eventual rebound of the trucking and freight market. As an example, we just launched our redesigned website with an improved e-commerce platform that helps customers identify the right parts for the right applications and get our products to the right locations on time. We expect the new site, which has been designed with the next generation of heavy-duty repair professionals in mind, will enable us to scale and be even more competitive with the help of its user-friendly interface and modernized look and feel.

On slide six, I’ll provide an overview of the specialty vehicle segment. Top line growth was relatively flat year over year with continued market pressures in the quarter, including weak consumer sentiment from tariffs and interest rates remaining at higher levels. Operating margin was impacted by lower manufacturing productivity in the quarter as we proactively reduced production in our Chinese manufacturing facility in Q1, following a ramp-up of production in Q4 of 2024 to get ahead of tariffs. Long term, we are targeting a high-teens margin profile for the business. We remain focused on our innovative strategy and continuing to develop new products for both the current part and next-generation vehicles. Despite the challenging consumer sentiment during the quarter, UTV and ATV ridership remains strong, which is a continuation of the positive trends we’ve seen in prior quarters.

We expect that as the economy continues to stabilize and interest rates further decline, riders will increase their spending on their vehicles. OEs have also commented that machine inventory is starting to normalize, which should bring stability to the end market. Speaking of new products, I wanted to highlight the four-inch long travel kit that we introduced for Polaris XD 1500 models. This bundle widens the vehicle’s wheelbase by a total of eight inches, providing more stability and control on rough terrain. The kit is designed for more of a utility application, allowing operators to improve the rides that fit the work they do on a daily basis. This is a great example of a solution designed for those utilizing their vehicles for work, not just play. We continue to expand our portfolio of non-discretionary, utility-focused products to broaden our reach with new users.

With that, I’ll turn it over to David to cover our results in more detail. David?

David Hession, Chief Financial Officer, Dorman Products: Thanks, Kevin. Let me start with our consolidated results for the third quarter on slide seven. Net sales in the third quarter were $544 million, up 7.9% year over year. As Kevin outlined, our net sales growth was driven primarily by tariff-related pricing initiatives. Positive macro trends in our light-duty business and the success of our innovation strategy across all three segments remain foundational to the strong momentum of the overall business. Adjusted gross margin for the quarter was 44.4%, a 390 basis point increase compared to last year’s third quarter. As Kevin mentioned, this margin expansion was driven by the timing dynamics of when price and costs related to tariffs are recognized in our income statement. Additionally, our supplier diversification efforts contributed to margin improvement in the quarter.

We remain on track to reach our goal of reducing our overall supply from China to 30% to 40% as we exit 2025. Adjusted SG&A expenses, a percentage of net sales, was 23.9%, up 50 basis points compared to the same period last year. Adjusted operating income was $111 million for the third quarter, up 30% compared to last year’s third quarter. Adjusted operating margin expanded 340 basis points to 20.5%, primarily from the improvement in gross margin I just discussed. Finally, adjusted diluted EPS in the third quarter was $2.62, a 34% increase year over year. In addition to the increase in operating income, lower interest expense positively impacted our adjusted diluted EPS growth, offsetting a higher comparable effective tax rate given favorable discrete items in last year’s third quarter. Turning to our cash flow on slide eight.

For the third quarter, our cash flow was impacted by the higher cost inventory affected by tariffs. This led to operating cash flow of $12 million and free cash flow of $2 million in the quarter, which was a decline from last year but a modest improvement from last quarter. We expect that free cash flow will rebound in the coming quarters. With tariff and trade uncertainty impacting parts of our business, we maintained our pause on share repurchases through the quarter. As always, we’ll continue to monitor market conditions along with the cash needs of the business and opportunistically repurchase shares to return capital to our shareholders as part of our broader capital allocation strategy, which remains unchanged. We also believe we remain well-positioned to fund our strategic growth initiatives given our strong liquidity position, which I’ll cover on the next slide.

Slide nine reiterates what we’ve been saying for a number of quarters now. Our asset-light nature and long track record of generating strong levels of cash flow have enabled a liquidity position and balance sheet capacity that allow us to manage higher cost inventory while still investing in strategic growth opportunities. As you can see, at the end of the quarter, net debt was $401 million and our net leverage ratio was 0.92 times adjusted EBITDA. Additionally, our total liquidity was $654 million at the end of September, up from $642 million at the end of 2024. Again, we expect the strength of our balance sheet will stand as a competitive advantage and a key driver of our success going forward. Finally, let me discuss our guidance for 2025 on slide 10.

With our strong performance through the first nine months, we have reaffirmed our net sales and EPS guidance ranges for the year. Our guidance for 2025 is based on the tariffs that are currently enacted. Should any material changes to tariffs or trade disruptions significantly impact our business or alter our expectations, we may look to update our guidance prior to year-end. Starting with top line, we expect net sales growth to be in the range of 7% to 9% over 2024. For adjusted diluted EPS, we expect a range of $8.60 to $8.90 or an increase of 21% to 25% compared to last year. Finally, for modeling purposes and additional clarity on the final quarter of the year, we expect that Q4 will see a reduced gross margin percentage compared to this quarter as tariffs begin to impact our cost of goods sold.

We also expect the full-year tax rate will land at approximately 23.5%. With that, I’ll now turn it back over to Kevin to conclude. Kevin?

Kevin Olsen, Chief Executive Officer, Dorman Products: Thanks, David. Just to finish up, I’d like to commend the team on delivering strong top and bottom line performance in the quarter and year to date. Our results reflect the hard work and dedication of our contributors all around the globe, who are managing exceptionally well in a dynamic economic environment. Our business is well-positioned to deliver strong performance in 2025, and we’re pleased with the opportunities ahead. With that, I would now like to open the call up for questions. Operator?

Conference Operator: Ladies and gentlemen, we will now begin the question-and-answer session. I would like to remind everyone to ask a question. Please press the star button followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. We ask that you please limit your inputs to one question and one follow-up. One moment, please, for your first question. Your first question comes from the line of Scott Stember of ROTH Capital Partners. Please go ahead.

Good morning, and thanks for taking my questions.

Morning, Scott.

Morning, Scott.

Last week, one of your bigger customers commented that they were starting to see some elasticity issues, notably on the DIY side. Are you seeing any change in behavior, whether it’s DIY or DIFM, related to elasticity, or is it too soon to say at this point?

Kevin Olsen, Chief Executive Officer, Dorman Products: Hey, Scott. It’s Kevin. Good question. Look, I’m not going to comment on what our customers say, but I will tell you how we’re looking at it. Really solid quarter. Growth up 9% in light duty, 8% overall. POS was solid in the quarter. You know, new continues to be a strong driver of growth. Macros continue to look solid in terms of the sweet spot of the vehicle, miles, age of the vehicle. You know, keep in mind that our portfolio differs quite a bit from a lot of our customers and a lot of our other folks in the supplier community. We have a heavy non-discretionary majority of our parts. So, you know, either your car is not going to run or it’s not going to run safely. We have some benchmarks as well. We went through the 2018 and 2019 timeframe where we had some inflation.

We went through the time period of 2023 and 2022-2023 when we had that inflationary period and we raised prices. What we generally see over time is our portfolio is generally inelastic and performs pretty well because of the non-discretionary nature of it.

Got it. Last question before I jump back into the queue on margins. Typically, when price increases go through to cover tariffs, usually there’s some optical distortion on the margin line. It seems that you guys, at least recently, have been comfortable that you can keep margins relatively flat because of some of the self-help stuff that you have going on. Is that narrative still in play? I’m just trying to get a sense of where we should look at margins as we go forward in the next couple of quarters.

Yeah, look, really strong quarter for margins. We breached 20% operating margin. As David said in his prepared remarks, we do expect some compression as we move into the fourth quarter with the dynamic of the tariffs coming through COGS, cost of goods sold. There are a lot of activities that we’ve also talked about that we anticipate reading through, whether that be cost initiatives or productivity improvements in our DCs and throughout the business, frankly. Longer term, we continue to see this business as a high-teens operating margin business.

Great, thanks again.

Thanks, Scott.

Conference Operator: Your next question comes from the line of Jeff Lick of Stephens Inc. Please go ahead.

Good morning, guys. Congrats on a nice quarter. Thanks for taking my questions. Kevin, I was wondering if we could just maybe address the trajectory of light-duty, up 9.3% with price increases, relative to the 10.1% and 13.8% it was up the previous two quarters. Any additional color or clarity on what was driving that would be great.

Kevin Olsen, Chief Executive Officer, Dorman Products: Look, it was Jeff, we view it as a very solid quarter in light duty. You know, 9% sales growth, POS was very solid in the quarter. New products continue to drive exceptional growth there. We don’t see that stopping. As I mentioned before, the macroeconomic environment still looks very good there in terms of the sweet spot of the 7 to 14-year-old vehicle continues to rise. Miles driven continue to increase. I think the age of the vehicle now is around 12.8 years old. When we step back and we look at it, given the non-discretionary nature of our portfolio there, we feel really good about driving future growth.

David Hession, Chief Financial Officer, Dorman Products: Can I just add a little color?

Okay.

Add a little color there. The Q3 was 9.3%, was real consistent with the second quarter, and it’s pretty consistent with the first quarter as well, because if you look at the first quarter, it had a very easy comp. It’s pretty consistent growth through the year on the light-duty business.

Just a quick follow-up on the dynamics of price increases. I was just curious, as you know, let’s just say you guys decide, hey, you’re going to take a 4% price increase, which obviously goes to your customer, who then in turn will pass that along in one way, shape, or form to the end user. How does that dynamic play out? Is it typically that your customer is going to take your price increase and just pass that on at the same percentage? Or what’s the dynamic there?

Kevin Olsen, Chief Executive Officer, Dorman Products: Yeah, I mean, look, I really can’t comment on how our customers are going to react to, you know, a potential price increase from us or any other supplier. All I can tell you, Jeff, is kind of how we handle it. You know, it’s a multifaceted approach, right? I mean, it’s really in line with historical practices that I talked about earlier. We’ve been through this before in 2018, 2019, and 2022, 2023. First, we have a very defined strategy to diversify our supply chain, which we’ve made a lot of progress on over the years. We’re a much different company than we were from that respect from six, seven years ago. We negotiate with our suppliers, right? Obviously, these are our supply partners around the globe, and so we obviously look to get the best price-value combination we can from our supply base.

As I mentioned earlier, we continue to look at productivity initiatives across the company. When that’s all said and done, we’ll work with our customers to strategically implement price increases. Beyond that, Jeff, I really can’t comment on what our customers are going to do from that standpoint.

Great. Thanks very much, and best of luck in the next quarter.

Thank you. Thanks.

Conference Operator: Your next question comes from the line of Tristan Thomas Martin of BMO Capital Markets. Please go ahead.

Hey, good morning.

Hey, Tristan. Morning.

Good morning.

The first brand has been all over the news. How should we think about kind of like product overlap or any other overlap? What could it be potentially in terms of an opportunity for you guys?

Kevin Olsen, Chief Executive Officer, Dorman Products: Yeah, thanks for the question, Tristan. It’s a good one. I’ll start out by saying that we don’t view ourselves as a comparison to First Brands. I’ll also point out, from the Dorman perspective, we have a very healthy balance sheet and liquidity. I think we’re carrying less than one times leverage at this point. We don’t engage in any off-balance sheet financing. We only participate in the customer-sponsored factoring programs with our largest customers. Frankly, we’ve been doing that for decades. We do have publicly secured debt, but we haven’t speculatively financed our receivables or any other working capital assets. To address your question straight on, we do have some categories that overlap with First Brands, but not in a material way. It’s really around the edges. Of course, we stand ready to help our customers out if they need help from this situation, as we always do.

Okay. Thank you. Just one on specialty vehicles. I was just wondering, you introduced the new long travel suspension for the Polaris XD 1500. Do you see any change in aftermarket attachment rate on newer vehicles such as the Polaris XD 1500 that OEMs are focused a little bit more on factory accessories versus maybe some older, more mature vehicles that don’t have the same OEM kind of accessory support? Thanks.

Yeah, I mean, clearly, when you have less contented models, that’s a good thing for us. Frankly, with price points being what they are and they’ve increased so much over the years, we view that as a good dynamic going forward because I think we’ll start to see a lot more entry price point models in the future. I tell you that the specialty vehicle market continues. Look, we’re very, we love the business. Rider enthusiasm continues to remain high. We do surveys of dealers and riders consistently. The discretionary side of that business has definitely felt more impact, which is roughly half the business. That’s why we continue to double down on non-discretionary repair parts in that business, which we’ve really expanded that portfolio since the acquisition a few years ago.

Okay. Great. Thanks, everyone.

You got it.

Conference Operator: Your next question comes from the line of Bret Jordan of Jefferies. Please go ahead.

Hey, good morning, guys.

Hey, good morning.

Kevin Olsen, Chief Executive Officer, Dorman Products: Hey, Brett.

Hey, Brett.

I think you said that your POS was up mid-single digits. Is that units or is that POS dollars out the door of the customer? I guess if we could sort of look at the Q3, how much of the growth was price versus pieces?

Yeah, Bret, that’s dollars. We’ve always quoted POS in dollar terms. I hope you can appreciate that we don’t, and have never, disclosed unit growth for competitive reasons. It could really put us in a situation with some customers that they could triangulate price increases. We don’t disclose that. I’ll only say that POS growth in the quarter was very solid, particularly as we look at it compared to Q2. As I said before, the non-discretionary nature of our portfolio bodes well in a period of increasing inflation. We’ve seen it before. It’s not our first time going through a period like this.

Yeah. When you think about your customers have sort of thrown out same-skew inflation between 2.5% and 3%, at least 3%, and then 4%, where do you sort of that low mid-single digit or the right number?

You broke up a little bit there, Bret. I think I got the gist of your question, though. At the end of the day, I can’t comment on what my, you know, our customers that are publicly out there have very different product offerings than we do in terms of DIY. We tend to, you know, the majority of our portfolio is, as you know, hard parts, much more DIFM professional content. It’s not a real good compare, trying to compare some of our customers to our portfolio.

Okay. A question on supply chain. I think you’re saying you expect to be 30 to 40% China by year-end. What’s the supply chain map going to look like? A few years ago, you were 70% China. Are there other countries that are concentrated? I think, you know, sort of how diverse.

Right now, we’ve said previously that we’re about 30% to 40% China, depending on the mix, roughly 30% in the U.S., and the balance is the rest of the world. As we move forward, you’ll probably see a little bit less than that indexing towards China. To be honest, we feel pretty good about the nature of the footprint now. Even with regard to all these very fluid situations around tariffs, we’re very diversified. Frankly, we have a very robust supply chain, much more robust than we did six or seven years ago. I think we can handle anything that’s thrown at us on the trade front, given where we are. Frankly, if we need to pivot, we have the experience to do that. We have the know-how and the tools and the experience to do that.

It seems like some of your margin benefits have been sort of shifting the supply chain. Is the rest of the world cheaper than your prior average, or is it, you know, where are you picking up this margin from sort of revamping the supply chain?

There has certainly been some of that as we’ve, as we’ve over the years, Bret. It seems like we’ve been in a constant flux since 2018, 2019. We’re never going to, you know, move to a region where we become uncompetitive. That’s always a part of the calculus, you know, in terms of the cost. There are a lot of other things that factor in there too, in terms of the quality, the value that the supplier offers, the lead times. There’s a lot that goes into that equation. At the end of the day, the moves we’ve made, we feel comfortable that we can remain competitive in this environment.

Thank you.

Conference Operator: Your next question comes from the line of David Lance of Wells Fargo. Please go ahead.

Hey, good morning, and thanks for taking our questions. I guess considering strong light-duty sales and a sequential improvement in heavy-duty and specialty vehicle trends, curious if you could just talk about your share position across those segments in Q3.

Kevin Olsen, Chief Executive Officer, Dorman Products: Yeah. Sure. I mean, listen, in light-duty, we continue to believe we’re taking share. If you look at the overall market growth statistics that we look at over the years, anywhere between 3% and 4% historically, we’ve consistently outperformed that. That’s really driven by our new product efforts, particularly new to the aftermarket, where that part only exists in the OE channel the day before we launch it. That’s been a huge driver of growth. I’d say in heavy-duty, we did see some nice growth in the quarter. Some positive signs. Some of that growth was driven by tariff pricing, but we also had some key customer wins. We have a very small share in a large TAM in heavy-duty. We feel we have a lot of runway to go in that space.

In specialty, again, when you look at our overall share position, it’s pretty small in a fairly large market. We like the runway. It’s why we like the space. I would tell you that just in terms of share performance, we believe we’re outperforming the overall market. Although we’re not happy with flat sales growth, we believe that the rest of the market has been down. We do believe we’re taking share. We think it’s a combination of the initiatives that we’ve undertaken, whether that be expanding our non-discretionary repair portfolio or geographic expansion. We’ve seen a lot of success in that regard.

Got it. That’s helpful. The balance sheet is really healthy. Curious if you could talk about your appetite for M&A and what the pipeline looks like today.

Yeah, great question. You know, look, we have different acquisition strategies across the different segments. I think if you look at, and I’ll just remind you of what those are. In light-duty, you know, we’re always looking for potential technology acquisition. You know, as the vehicles continue to technologically advance, we want to make sure we stay ahead of that curve as we have in years past. Geographic expansion, you know, remains a priority for that segment. You look at specialty vehicle, you know, a lot of highly fragmented market. As you know, we have a fairly small share of that market. We view that as ripe for brand and product portfolio acquisition plays. In heavy-duty, you know, we’re still a small player in a very large market.

There are a lot of channel plays where today we have opportunity that, you know, acquisition would really help us penetrate some of those channels in a much greater way. I would tell you that the funnel looks very strong. We consistently work the funnel. I will tell you that targets, you know, the amount of actionable targets has been a bit slowed. I think it’s slowed by the tariff situation. I think a lot of potential sellers are probably waiting to see how the tariffs impact their business, whether that be from pricing or margins or demand, what have you. I think once that shakes out, I think there’ll be a lot more activity on the other side of that.

Yeah, just a little comment on the balance sheet. You know, the leverage right now in the quarter was 0.92 times. Strong balance sheet. We view that we’ve got the dry powder to not only absorb the higher cost of inventory, but also execute against the M&A program, which Kevin outlined. Got it. Thank you.

You got it.

Conference Operator: Your next question comes from the line of Justin Ages of CJS Securities. Please go ahead.

Hi, morning all.

Morning.

Kevin Olsen, Chief Executive Officer, Dorman Products: Morning.

I wanted to follow up on the comment about first brands. I think we’re aware about the customer-sponsored factory. Have you seen any or had any conversations about the terms that you guys, the terms that might be changing as a result of that, or completely unrelated and the terms are pretty clear set?

David Hession, Chief Financial Officer, Dorman Products: Yeah, the terms are pretty clear, and we don’t see any indication that there’s going to be any change in the terms.

Okay, that’s helpful. On the light-duty, can you give us some color on the amount of time, like the lead time for the power steering product that you outlined? I just want to get a sense of, you know, from idea to get to market, how long that took.

Kevin Olsen, Chief Executive Officer, Dorman Products: That’s a loaded question, but it’s also a great question. For that particular product, I mean, we have been in the market with an electronic power steering rack for a different make and model, starting about 18 to 24 months ago. If I look at total development time on a part like that, it’s substantial. Certainly a lot longer than a purely, you know, mechanical part, as you can imagine. There’s a safety component to that part. There’s a complex electronics component to that part. It’s a much longer cycle time on that part. Obviously, as a result, it has a much higher selling price than a pure mechanical part.

Got it. Okay, I appreciate you taking the question. Thank you.

You got it.

Conference Operator: Your next question comes from the line of Gary Prestopino of Barrington Research. Please go ahead.

Hi. Good morning, everyone. Could you guys give us some idea on specialty, what the mix is of non-discretionary versus discretionary at this point, and how that has shifted since the acquisition?

Kevin Olsen, Chief Executive Officer, Dorman Products: Yeah, Gary, sure. Absolutely. It’s roughly about 50/50 right now. It was materially less than that when we acquired the business, so it’s moved up quite a bit. I think we’re very well positioned for when that market does recover. You know, the pure accessory side and then the break/fix or non-discretionary repair to drive, you know, oversized growth compared to market when we do start seeing the recovery. The geographic expansion, which I talked about before too, we’ve seen some great progress there as well.

Yeah, that’s what I wanted to hit on too. The geographic expansion, as I recall, you said you were west of the Mississippi. You were pretty light with dealerships. Can you maybe help us out as to how that is going in terms of picking up new dealerships? Without getting too specific, overall growth in dealerships would be helpful.

Yeah, that’s a great question, Gary. We have been very focused on that. We’ve added a significant amount of new dealer relationships out west. Now our focus is on driving more share of wallet within those dealerships. The first step is getting in the dealers, getting relationships established, and now we’re driving share of wallet gains there.

Okay, thank you.

Got it.

Conference Operator: Your last question comes from the line of Scott Stember of ROTH Capital Partners. Please go ahead.

Yeah, just a quick follow-up on tariffs. Has there been any meaningful change to your exposure from a geographic standpoint, you know, whether it’s China or any other country since the last time you guys gave an update?

Kevin Olsen, Chief Executive Officer, Dorman Products: Scott, that’s a great question. I think the answer is yes. From the last quarter, certainly, we’ve seen some changes. There’s a lot of headline news around tariffs that actually haven’t made their way into law or implementation. It’s changed so much and it’s been so fluid, Scott, it’s hard for me to pinpoint an exact date. I’ll just summarize it this way. Where we sit right now, we feel well-positioned to handle the current tariff environment or any other potential changes that might come down the pike, particularly as we look at how we compare to the competitive set. We feel like we have a footprint that is as competitive as anyone else out there in the aftermarket. I think we can handle any changes that come our way. I’ll characterize it as manageable at this point.

Got it. That’s great. Thanks again.

You got it, Scott.

Thanks, Scott.

Conference Operator: There are no further questions at this time. Ladies and gentlemen, this concludes today’s earnings call. We thank you for participating. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.