Dorman Products Inc. has announced its financial results for the third quarter ended Sept. 29, 2018.
The company reported third quarter 2018 net sales of $248 million, up 10 percent compared to net sales of $224.6 million in the third quarter of 2017. Included in net sales were approximately $10 million of sales from MAS Automotive Distribution Inc. (MAS) which was acquired in October of 2017 and $1.7 million of sales from Flight Systems Automotive Group LLC (Flight) which Dorman acquired on Aug. 31. Excluding the sales contributions from MAS and Flight, net sales growth was approximately 5 percent.
Gross profit grew 8 percent to $95 million in the third quarter from $88.1 million last year. Gross profit percentage for the third quarter was 38.3 percent compared to 39.2 percent in the same quarter last year. The primary change (approximately 80 Bps) in gross profit percentage is a result of the impact of acquisitions, which carry lower gross margins compared to our historical levels.
Income tax expense was $9.8 million in the third quarter, or 22.3 percent of income before income taxes down from $16 million, or 37.1 percent of income before income taxes recorded in the same quarter last year. The reduction in tax rate compared to prior year is primarily a result of the Tax Cuts and Jobs Act of 2017.
Net income for the third quarter of 2018 was $34 million, or $1.03 per diluted share compared to $27 million, or 80 cents per diluted share, in the prior year quarter. Adjusted net income in the third quarter was $35 million, or $1.06 per diluted share, up 28 percent compared to $27.5 million or 81 cents per diluted share in the prior year quarter.
Matt Barton, Dorman Products CEO, said, “I’d like to take this opportunity to thank all of our Dorman contributors for delivering a solid quarter and to welcome all of our new contributors from Flight Systems Automotive Group that we acquired late in the third quarter. Flight generated approximately $22 million of net sales in fiscal 2017 and is a leading manufacturer and remanufacturer of complex automotive electronics and diesel fuel system components. Complex electronics and diesel fuel systems represent important growth opportunities for our company. By combining our capabilities with Flight, we believe we will be a firmly established leader in these areas for years to come.”
Kevin Olsen, Dorman Products president and chief operating officer, added, “We experienced improved end-market conditions with both sell-in and sell through rates improving in the quarter. Customer inventory destocking pressures, which had been a headwind earlier in the year, continued to ease in the quarter as well. New product development remains robust, positioning us well for the future. We launched 1,478 new SKUs in the quarter, a 55 percent increase over last year. Additionally, net sales from our Dorman Heavy Duty Solution lines continue to be strong, growing 30 percent year to date.”
Tariffs
Effective Sept. 24, the Office of the United States Trade Representative (USTR) imposed an additional tariff on approximately $200 billion worth of Chinese imports. The tariff will be approximately 10 percent until Dec. 31, 2018, and will increase to 25 percent effective Jan. 1, 2019. The tariffs enacted to date will increase the cost of many products that are manufactured for Dorman in China.
The company says it is taking several actions to fully mitigate the impact of the tariffs including, but not limited to, price increases to our customers and cost concessions from our suppliers.
“We do not anticipate that the tariffs will materially impact gross profit in the fourth quarter of 2018,” Dorman stated in its earnings release. “Although we expect to mitigate the impact of tariffs in fiscal 2019, we expect selling price increases associated with the tariffs to be fully offset by the higher tariffs incurred.”
2018 Guidance
Excluding the impact of Flight and tariffs, Dorman is maintaining our fiscal 2018 full year sales growth guidance range of 4 to 6 percent. On a GAAP basis, fiscal 2018 EPS is expected to be in the $3.96 to $4.08 range. We continue to expect adjusted EPS to be in the $4.15 to $4.27 range, or a 23 percent to 27 percent growth rate.
Share Repurchases
Under its share repurchase program, Dorman repurchased 86.1 thousand shares of its common stock for $6.4 million at an average share price of $73.84 during the quarter ended Sept. 29, 2018. The company has $42.9 million left under its current share repurchase authorization.
