COLMAR, PA — Dorman Products, Inc. (NASDAQ: DORM) recently announced its financial results for the second quarter ended June 25, 2022.
Second Quarter Financial Results
The Company reported second quarter 2022 net sales of $417.4 million, up 34% compared to net sales of $310.6 million in the second quarter of 2021. The record results reflect a continuation of favorable underlying industry dynamics across all customer channels, increased new product penetration, the addition of Dayton Parts, and price increases to offset rising supply chain costs, wage pressures and commodity inflation. Net sales growth excluding Dayton Parts was 13% compared to the second quarter of 2021.
Gross profit was $141.5 million in the second quarter of 2022, or 33.9% of net sales, compared to $110.1 million, or 35.5% of net sales for the same quarter last year. Adjusted gross margin* was 34.0% in the second quarter of 2022 compared to 35.5% in the same quarter last year. The addition of Dayton Parts had a 110bps dilutive impact on adjusted gross margin* in the second quarter. During the quarter, the Company continued to experience broad-based cost pressures due to global supply chain constraints as well as commodity and wage rate inflation. Dorman continues to implement cost-savings initiatives and price increases to offset the inflationary cost pressures experienced during the quarter that maintained gross profit dollars but resulted in a lower gross margin percentage.
Selling, general and administrative (“SG&A”) expenses were $92.1 million, or 22.1% of net sales, in the second quarter of 2022 compared to $69.5 million, or 22.4% of net sales, for the same quarter last year. Adjusted SG&A expenses* were $88.7 million, or 21.3% of net sales, in the second quarter of 2022 compared to $64.7 million, or 20.8% of net sales, in the same quarter last year. The increase in adjusted SG&A expenses as a percentage of net sales was primarily due to the impact of higher interest rates on the Company’s customer accounts receivable factoring programs, combined with higher wage and benefits inflation, partially offset by the dilutive impact of Dayton Parts and improved leverage from increased net sales compared to the second quarter of 2021.
Income tax expense was $10.1 million, or 21.1% of income before income taxes, compared to $9.1 million, or 22.3% of income before income taxes, recorded in the same quarter last year. The decrease in the effective tax rate was due to favorable discrete items in the quarter, partially offset by an increase in state tax expense and higher Canadian income tax associated with the Canadian operations acquired as part of the Dayton Parts transaction.
Net income for the second quarter of 2022 was $37.9 million, or $1.20 per diluted share, compared to $31.6 million, or $0.99 per diluted share, in the prior year quarter. Adjusted net income* in the second quarter of 2022 was $40.6 million, or $1.29 per diluted share, compared to $35.3 million, or $1.10 per diluted share, in the prior year quarter. In addition to the factors described above, net income for the second quarter of 2022 was also impacted by an additional $1.5 million of net interest expense primarily from borrowings under the Company’s revolving credit facility used to complete the acquisition of Dayton Parts in August 2021.
Kevin Olsen, Dorman’s President and Chief Executive Officer, stated, “I am pleased to report we had another strong quarter, and would like to thank all our Contributors for their tireless efforts in driving our continued success. Our performance in the quarter was driven by record net sales, as we saw double-digit organic sales growth year over year, and 4% sequential total net sales growth compared to the first quarter of 2022. Demand for our products remained strong throughout the quarter with solid orders across all of our customer channels.”
Mr. Olsen continued, “As innovation remains one of our key strategic growth pillars, we are committed to bringing new and innovative solutions to the aftermarket that solve customer problems. We believe that our pipeline of new products is as robust as it has ever been. In the second quarter, we launched numerous new OE FIX™ products, which included an aluminum engine oil filter housing, multiple aftermarket exclusive flexible stainless-steel braided fuel lines, and upgraded turbo charger accessories for millions of vehicles. These OE FIX products are re-engineered to increase reliability and improve the repair experience. We also launched high-quality suspension products that included light- and medium-duty leaf springs, leveraging an expanded product portfolio from our acquisition of Dayton Parts last year. Additionally, we have completed the transition of the legacy Dorman heavy-duty products into the Dayton Parts distribution network, which we expect will continue to drive sales synergies.
“While the demand environment remained strong throughout the quarter, we still face a challenging macroeconomic environment given the dynamics of inflation, rising interest rates, tight labor conditions and global supply chain disruptions. While these headwinds continue to challenge our business, we believe we are well-positioned to continue to successfully navigate through these uncertain times. This quarter, rising interest rates were a particular challenge as they affected the cost of our customer accounts receivable factoring programs and borrowings under our revolving credit facility.”
Mr. Olsen further stated, “Despite the macroeconomic challenges, we have a very resilient business model with the majority of our business focused on the repair category that consists primarily of replacement parts, which tends to be less cyclical as these are parts necessary for a vehicle to operate properly. We are also fortunate to possess deep relationships with our global suppliers and logistics partners, a flexible business model, and a strong product portfolio. We believe all these factors will enable us to successfully execute against our strategic growth initiatives while navigating the continuing challenges of the dynamic global macroeconomic environment.”
The Company is adjusting its full-year 2022 guidance, detailed in the table below, which includes the impact of the Dayton Parts acquisition but excludes any potential impacts from future acquisitions or further possible government-mandated shutdowns or supply chain disruptions. Finally, the Company’s guidance does not include any share repurchases that may take place in the remainder of 2022.
Mr. Olsen concluded, “We believe that customer demand will continue to be strong through the balance of the year allowing us to grow our net sales in line with our prior expectations. However, we also now expect the impact of significantly higher interest rates on our customer accounts receivable factoring programs, and to a lesser extent, borrowings under our revolving credit facility to increase through the remainder of the year, which is the primary reason why we are lowering our EPS guidance. To offset these cost pressures, we expect to execute further price increases and supply chain cost savings actions to protect operating profit dollars on a go forward basis. Finally, our balance sheet and liquidity remain strong, and we are well-positioned to execute on our strategic priorities.”
|2022 Fiscal Year||2022 Fiscal Year|
|Net Sales||$1,600 – $1,640 million||$1,600 – $1,640 million|
|Growth vs 2021||19% – 22%||19% – 22%|
|Diluted EPS||$4.50 – $4.70||$4.94 – $5.14|
|Growth vs 2021||9% – 14%||20% – 25%|
|Adjusted Diluted EPS*||$5.00 – $5.20||$5.35 – $5.55|
|Growth vs 2021||8% – 12%||15% – 20%|
|Tax Rate Estimate||22.5%||22.5%|
Dorman repurchased 67,700 shares of its common stock for $6.5 million at an average share price of $96.38 during the quarter ended June 25, 2022. The Company had $129.5 million remaining under its prior share repurchase authorization.
In July, the Company’s Board of Directors authorized a $100 million increase and two-year extension to the Company’s share repurchase program, raising the aggregate authorization under the program to $600 million and extending it through December 31, 2024.
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