Dorman Products has announced its financial results for the first quarter ended March 30, 2019. The company reported first quarter 2019 net sales of $243.8 million, up 7% compared to net sales of $227.3 million in the first quarter of 2018. Sales growth in the quarter attributable to acquisitions was approximately 2%.
Gross profit was $87.5 million in the first quarter compared to $88.6 million last year. Gross profit percentage for the first quarter was 35.9% compared to 39% in the same quarter last year. The adjusted gross profit percentage was 36% in the quarter compared to 39.4% in the same quarter last year. The gross profit percentage declined primarily as a result of the pass-through of tariff costs to Dorman customers, as well as acquisitions completed in the past 12 months which carry lower gross margins compared to historical levels, and increased spending due to startup inefficiencies and backlog growth related to site consolidation activities. Compared to last year, the gross margin percentage was also impacted by the rollout of a significant new chassis program, which carried higher costs in the first quarter this year, according to the company.
Net income for the first quarter of 2019 was $23.4 million, or 71 cents per diluted share, compared to $30.6 million, or 93 cents per diluted share, in the prior year quarter. Adjusted net income in the first quarter was $25.8 million, or 79 cents per diluted share, compared to $31.7 million, or 96 cents per diluted share, in the prior year quarter.
Dorman engaged in several site consolidation activities during the first quarter of 2019. Most significantly, the company completed the consolidation of its Montreal facility (acquired as part of the MAS acquisition) into its new 800,000-square-foot distribution center in Portland, Tennessee. The company also completed the consolidation of a production facility in Michigan with its Flight facility in Pennsylvania. In addition, Dorman began to transfer its existing distribution operations in Portland to its new Portland distribution center. During the first quarter of 2019, the company incurred approximately $2.4 million of severance, accelerated depreciation and other integration expenses related to these site consolidation activities which are excluded from the calculation of adjusted net income (Non-GAAP).
During the first quarter of 2019, operations costs were $3.1 million higher than in the same period in 2018 due to startup inefficiencies and redundant facility capacity related to site consolidation activities, with approximately $1 million included in gross margin and $2.1 million included in SG&A expenses. Dorman says it anticipates incurring higher costs throughout 2019 as the company completes the consolidation of its Portland facilities. The impact of these costs is included in its 2019 diluted EPS guidance.
“2019 started out slow from an orders perspective but picked up significantly as we moved through the quarter,” said Kevin Olsen, Dorman Products president and CEO. “Given the planned consolidation activities, combined with high March sales volumes, we exited the quarter with higher than normal backlog and realized higher than normal operational expenses. We expect backlog to normalize during the second quarter and operational costs to moderate as we move through 2019 concluding with the final consolidation of our Portland facilities later in the year. These consolidations set us up well for the future and are expected to enable increased productivity and capacity to support future growth.”
Olsen continued, “Our end markets remain very healthy. We exited the quarter with POS (our customer’s point of sale) up high-single digits over last year and our new product pipeline remains robust. We continued to launch new products at a very healthy pace and expect to deliver our full year goals. During the first quarter, we also successfully launched a significant new chassis program to a major retail customer which increases our penetration in this targeted growth category. I’d like to thank our many Dorman contributors who were called upon to execute both the site consolidation activities and the launch of one of the largest new programs in our company’s history.”
2019 Guidance
The company confirms its previous 2019 guidance of estimated net sales growth of between 6 and 10% for 2019 and expected diluted EPS of between $4.22 and $4.38 on a GAAP basis and adjusted diluted EPS of between $4.37 and $4.53 or between a 4 and 8% growth rate.
Share Repurchases
Under its share repurchase program, Dorman repurchased 101,000 shares of its common stock for $8.4 million at an average share price of $82.89 during the quarter ended March 30, 2019. The company has $174.9 million left under its current share repurchase authorization.
