Q3 2024 Earnings Summary
- Dorman's focus on innovation and new-to-the-aftermarket complex electronic products is a major growth driver, leading to higher margins since these products carry the highest margin profiles. Complex electronics is mainly new to the aftermarket; it's the highest margin for us. It's the highest margin for our customers. ,
- Dorman is more indexed towards the commercial (do-it-for-me) side of the automotive aftermarket for nondiscretionary parts, which is experiencing stronger growth compared to the DIY market. This positions Dorman to outperform despite softening in the DIY sector. We're more indexed towards the DIFM or commercial side of the house for nondiscretionary parts... one of the major growth drivers for us has been new products, and it continues to be.
- In the Specialty Vehicles segment, Dorman has increased its focus on nondiscretionary repair parts, which now represent slightly above half the business, up from less than that 18 months ago. This shift provides more stable revenue and positions the company to outperform the overall Specialty Vehicle sector. We've made a lot of progress on that initiative, and we continue to do so.
- The Heavy Duty segment continues to face market headwinds, and the company does not expect significant growth in this segment in 2025 due to a cloudy market outlook, which could impact overall growth.
- Potential tariff increases next year could negatively impact the company's margins, and management is uncertain about the impact, indicating a possible risk to profitability.
- Industry-wide signs of softening demand even in the professional "do-it-for-me" market segment could affect Dorman's Light Duty segment, despite current growth driven by new products.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net Sales Growth | FY 2024 | 3% to 5% | 3.5% to 4.5% | no change |
Adjusted Diluted EPS | FY 2024 | $6.00 to $6.20 | $6.85 to $6.95 | raised |
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Heavy Duty Margins Outlook
Q: When will Heavy Duty margins recover?
A: The Heavy Duty market seems to be stabilizing, but it's difficult to predict when it will recover. We hope for an inflection in 2025. Before the downturn, this business generated mid-teen operating margins, and we expect to return to that level when the market improves. -
New Product Contribution
Q: How much are new products driving growth?
A: New products continue to be a major growth driver, with a strong focus on innovation and introducing new parts to the aftermarket. While we don't disclose the percentage of sales from new products, total new product sales dollars were up compared to last year despite SKUs being flat. Average selling prices are rising as we focus on more complex parts. -
Tariff Impact and Supply Chain
Q: How will potential tariff increases affect the business?
A: We're watching potential tariff changes closely. We're much better positioned now than in 2018 due to a more diverse supply chain. We have a playbook and know how to handle it, aiming to do what's right for our business, customers, and end users. -
Complex Electronics Margins
Q: Do complex electronics have higher margins?
A: Yes, complex electronics generally carry a higher margin profile. Many of these parts are new to the aftermarket, meaning they didn't exist before we launched them. These parts have higher margins for us and our customers. -
Electric Vehicle Parts Outlook
Q: What is the outlook for electric vehicle parts?
A: The car park will remain heavily ICE through 2035, but there will be a gradual increase in electric and hybrid vehicles entering the repair age. We have the capability to address parts on any electric vehicle, focusing on complex electronics. It will be some time before electric vehicles form a meaningful portion of the repair market. -
Specialty Segment Mix
Q: How much of Specialty is in repair vs. discretionary?
A: Slightly above half of our Specialty segment is now in nondiscretionary repair, up from less than that 18 months ago. We've made significant progress in developing the brake fix product line and will continue to focus on increasing this balance. -
Light Duty Performance
Q: How is Light Duty performing amid market softening?
A: While the aftermarket shows stronger growth in the commercial side compared to the DIY, which is softer, we're more indexed toward the DIFM or commercial side for nondiscretionary parts. Our growth is driven by new products and innovation. -
Other Income Clarification
Q: What was the $1.6 million other income this quarter?
A: The $1.6 million in other income reflects the impact of our joint venture income. -
Heavy Duty Market Outlook
Q: Will Heavy Duty be flat in '25 and grow in '26?
A: We haven't released guidance for 2025, but we're not planning on significant growth. The market outlook is cloudy, though we hope for an inflection. We're focusing on new product development to be well-positioned when the market recovers.