Dorman Products, Inc. (DORM) Q3 2025 Earnings Summary

Executive Summary

Solid Q3: revenue $543.7M (+7.9% YoY), gross margin 44.4% (+390 bps YoY), GAAP EPS $2.48 (+38% YoY), adjusted EPS $2.62 (+34% YoY). Management reaffirmed full‑year 2025 guidance. Light Duty led growth; Heavy Duty improved; Specialty was flat.
Versus Street: EPS beat consensus ($2.62 vs $2.50*) while revenue was slightly below ($543.7M vs $548.6M*). FY25 Street EPS sits near the top half of the company’s range ($8.82* vs $8.60–$8.90). Values retrieved from S&P Global.
Margin dynamics: Q3 benefited from tariff‑related price timing; management flagged lower Q4 gross margin as higher‑cost inventory flows through COGS. Adjusted operating margin reached 20.5% in Q3.
Cash flow/liquidity: Operating cash flow was $12.2M; free cash flow ~$2M, constrained by tariff‑impacted inventory costs. Net leverage ~0.92x; liquidity $654M.

What Went Well and What Went Wrong

What Went Well
- Broad outperformance on profitability: gross margin 44.4% (+390 bps YoY); adjusted operating margin 20.5% (+340 bps YoY). “We delivered strong margin growth…driven by timing dynamics of pricing and costs associated with tariffs.”
- Light Duty strength: sales +9% YoY with 470 bps margin expansion to 23.7%, supported by tariff pricing, supplier diversification and innovation.
- Strategic execution: complex electronics launch (first‑to‑aftermarket EPS rack) underscores capability; management reiterated supply chain diversification (30–40% China exit 2025).
What Went Wrong
- Cash flow pressure: Q3 operating cash flow $12.2M and free cash flow ~$2M, down YoY on higher tariff‑related inventory costs; repurchases paused.
- Specialty Vehicle margin compression: segment sales flat YoY but margin down 420 bps to 12.8% on lower productivity; macro headwinds from rates/tariffs.
- Q4 caution: management expects Q4 gross margin below Q3 as higher‑cost tariffed inventory hits COGS; near‑term margin compression likely.

Financial Results

Quarterly performance and trajectory

Metric	Q3 2024	Q1 2025	Q2 2025	Q3 2025
Net Sales ($M)	$503.8	$507.7	$541.0	$543.7
Gross Margin %	40.5%	40.9%	40.6%	44.4%
Operating Margin % (GAAP)	15.7%	15.8%	15.2%	19.4%
Adjusted Operating Margin %	—	17.0%	—	20.5%
Diluted EPS ($)	$1.80	$1.87	$1.91	$2.48
Adjusted Diluted EPS ($)	$1.96	$2.02	$2.06	$2.62

Q3 2025 vs. S&P Global consensus

Metric	Actual	Consensus*	Surprise
Revenue ($M)	$543.7	$548.6*	-$4.9M (−0.9%)*
EPS (Primary/Adj)	$2.62	$2.50*	+$0.12 (+4.8%)*
Normalized Net Income ($M)	~$76.4	~$76.6*	~In line*

Values marked with * are from S&P Global.

Segment performance

Net Sales ($M)

Segment	Q1 2025	Q2 2025	Q3 2025
Light Duty	$408.8	$424.4	$430.3
Heavy Duty	$51.7	$62.1	$63.0
Specialty Vehicle	$47.2	$54.5	$50.4

Segment Profit Margin %

Segment	Q1 2025	Q2 2025	Q3 2025
Light Duty	19.9%	18.5%	23.7%
Heavy Duty	-0.3%	0.8%	4.5%
Specialty Vehicle	10.2%	17.3%	12.8%

KPIs and balance sheet (Q3 2025)

KPI	Q3 2025	Commentary
POS growth	Mid‑single digits YoY (dollars)	Tracks net sales; resilient non‑discretionary mix
Operating Cash Flow	$12.2M	Weighed by higher tariff‑cost inventory
Free Cash Flow	~$2M	Expect rebound in coming quarters
Net Leverage	~0.92x	Down from ~1.01x in Q1
Total Liquidity	~$654M	Up from $642M YE24
Cash & Equivalents	$55.5M	—

Non‑GAAP reconciliation highlights: Adjusted EPS adds back acquisition‑related intangible amortization (~$0.18/sh in Q3), minor transaction costs, and related tax effects.

Guidance Changes

Metric	Period	Previous Guidance (Aug 4, 2025)	Current Guidance (Oct 27, 2025)	Change
Net Sales Growth vs 2024	FY 2025	7%–9%	7%–9%	Maintained
GAAP Diluted EPS	FY 2025	$8.05–$8.35	$8.05–$8.35	Maintained
Adjusted Diluted EPS	FY 2025	$8.60–$8.90	$8.60–$8.90	Maintained
Tax Rate	FY 2025	24%	23.5%	Lowered

Notes:

Guidance includes tariffs enacted as of the announcement date (Aug 4 for Q2, Oct 27 for Q3) and excludes further tariff changes, material macro disruptions, and share repurchases.

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2 2025)	Current Period (Q3 2025)	Trend
Tariffs and pricing	Q1: Guidance excluded tariffs; timing ~6 months via FIFO; mitigation via supplier negotiation, productivity, and strategic pricing.	Q3 margins benefited from tariff pricing timing; explicit caution of lower Q4 gross margin as higher‑cost inventory hits COGS.	Pricing timing benefit peaked; margin normalization into Q4
Supply chain diversification	Q1: 30–40% China, ~30% U.S., balance RoW; advantage vs peers; target further reduce China share.	On track to reduce supply from China to 30–40% by YE25; confident footprint can handle trade shifts.	Continued progress, strategic hedge maintained
Segment trajectories	Q1: Light Duty +14%/19.9% margin; Heavy Duty -11% with negative margin; Specialty -9%/10.2% margin.	Q3: Light Duty +9%/23.7%; Heavy Duty +6%/4.5%; Specialty ~flat/12.8%.	Improvement in Heavy Duty; Specialty stabilizing; Light Duty strong
Cash flow & capital allocation	Q1: FCF $40M; repaid $20M debt; repurchased $12M stock; ample liquidity.	Q3: OCF $12M, FCF ~$2M; paused buybacks; liquidity $654M; leverage 0.92x.	Near‑term FCF pressure from tariffs; balance sheet strength intact
Technology/innovation	Q1: Innovation as key growth driver; strong new product mix.	Launch of first‑to‑aftermarket EPS rack; specialty long‑travel kit; focus on complex electronics.	Ongoing product leadership supports pricing power
Macro demand	Q1: Positive VMT; nondiscretionary parts resilient.	Light Duty POS up mid‑single digits; macro “still positive.”	Steady demand backdrop

Management Commentary

“We delivered strong performance in the third quarter… year‑over‑year net sales growth of 7.9% and diluted EPS and adjusted diluted EPS growth of 38% and 34%.”
“Adjusted operating margin for Q3 2025 was 20.5%… driven by timing dynamics of pricing and costs related to tariffs… we expect a lower gross margin in Q4 compared to Q3.”
“We remain on track to reduce our overall supply from China to 30% to 40% as we exit 2025.”
“POS was solid… our portfolio is generally inelastic and performs pretty well because of the non‑discretionary nature of it.”

Q&A Highlights

Elasticity and POS: Management sees Dorman’s nondiscretionary portfolio as relatively inelastic; POS up mid‑single digits (dollars).
Margin outlook: Q3 operating margin >20%; expect Q4 gross margin compression as tariffed inventory hits COGS; long‑term high‑teens operating margin target.
Supply chain exposure: Approximately 30–40% China, ~30% U.S., balance RoW; diversified footprint provides competitive advantage; able to pivot as needed.
Specialty mix: Business roughly 50/50 discretionary vs nondiscretionary now, up from materially lower nondiscretionary at acquisition; dealer expansion ongoing.
First Brands topic: Limited overlap; strong balance sheet; no change in factoring terms anticipated.

Estimates Context

Q3 2025 comparison: EPS beat ($2.62 vs $2.50*), revenue slight miss ($543.7M vs $548.6M*). Normalized net income roughly in line ($76.4M vs $76.6M*). Values retrieved from S&P Global.
FY 2025 consensus vs guidance: Street EPS $8.82* sits near the upper half of company’s $8.60–$8.90 adjusted EPS range; guidance reaffirmed (tax rate nudged to ~23.5%). Near‑term models should reflect lower Q4 gross margin due to tariff cost timing, with full‑year still within guidance.

Key Takeaways for Investors

Q3 quality beat on EPS driven by gross margin mix/pricing timing; near‑term caution into Q4 as tariffed COGS flow through. Monitor Q4 gross margin trajectory.
Light Duty remains the engine (23.7% segment margin), validating innovation and pricing power; Heavy Duty recovery continues; Specialty stabilizing.
Cash generation is the swing factor: tariff‑driven inventory costs suppressed FCF; management expects improvement and maintains strong liquidity and sub‑1x leverage.
Guidance intact despite tariff volatility; Street FY EPS near high end—limited upward revision room, but reset risk is mitigated by explicit Q4 margin caution.
Strategic edge: diversified supply chain and complex electronics innovation underpin resilience and share gains, supporting long‑term high‑teens operating margin profile.