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    Dorman Products Inc (DORM)

    Q4 2023 Earnings Summary

    Reported on Jan 27, 2025 (After Market Close)
    Pre-Earnings Price$96.27Last close (Feb 27, 2024)
    Post-Earnings Price$94.78Open (Feb 28, 2024)
    Price Change
    $-1.49(-1.55%)
    • Dorman Products expects 3% to 5% sales growth in 2024, including both volume and price increases, indicating healthy demand for their products. Additionally, they saw unit growth in both full year 2023 and Q4 2023, suggesting strong underlying demand.
    • The company experienced stable demand throughout Q4 2023, with point-of-sale (POS) sales up about 6.5%, indicating strong end-market demand despite some industry concerns.
    • Dorman anticipates margin growth over the course of 2024, particularly in the second half, suggesting improving profitability. They expect operating margin improvement due to cost-saving initiatives, including a workforce reduction program expected to yield $10 million of annualized savings.
    • Dorman expects a "softer first half" in their Heavy Duty and Specialty Vehicle segments, with improvements anticipated only in the second half of 2024. This reliance on a back-loaded recovery presents a risk if the expected improvements do not materialize, potentially impacting full-year results.
    • The company continues to incur significant expenses related to factoring, with $12.6 million in factoring costs in Q4 2023. If interest rates remain high, these costs may continue to negatively affect margins.
    • Dorman's growth is heavily reliant on their mature, slower-growing chassis business, which has become a larger portion of their total business. This may limit future growth opportunities if they are unable to accelerate new product introductions or expand other segments.
    1. Sales Growth Guidance
      Q: What's the expected sales growth for '24?
      A: Management forecasts sales growth of 3% to 5% for 2024, driven by both volume and pricing. While they didn't provide a detailed split for competitive reasons, they noted that 2023 saw similar trends with unit growth alongside industry-wide price increases.

    2. Margin Outlook
      Q: Will operating margins improve in 2024?
      A: Operating margins are expected to improve, benefiting from workforce reductions and cost-saving initiatives. These gains will be partially offset by investments in diversifying the supply chain and inflationary pressures, particularly in ocean freight and benefits.

    3. Second Half Growth
      Q: Is growth weighted towards the second half of the year?
      A: Yes, growth is anticipated to be stronger in the second half of 2024. Light duty sales are expected to be relatively flat in Q1, improving in Q2 and into the second half. Heavy and specialty segments are projected to have a softer first half, with improvements later in the year.

    4. Inventory Reduction
      Q: Has inventory normalization impacted fill rates?
      A: Fill rates have returned to pre-supply chain disruption levels. The company reduced inventory by $119 million as lead times normalized, without impacting product availability.

    5. Supply Chain Diversification
      Q: What's the status of supply chain diversification efforts?
      A: The company has been investing moderately over the past 2–3 years to diversify its supply chain and reduce exposure to China and Taiwan. They are sourcing from a range of countries, including India, Mexico, and Turkey, to de-risk their supply chain.

    6. Factoring Costs
      Q: How did factoring costs change, and what's the impact of interest rates?
      A: Factoring costs in Q4 2023 were $12.6 million, down from $14.2 million last quarter, primarily due to reduced volume. A 1% change in annual factoring costs equates to about $8 million impact; therefore, a 0.25% change would be approximately $2 million.

    7. Point-of-Sale Trends
      Q: How was demand throughout the quarter?
      A: The company observed a stable cadence in Q4, with point-of-sale (POS) sales up about 6.5% for the quarter and December specifically. Light vehicle sales growth was 4%, indicating a gap between POS and sell-in growth due to inventory adjustments by customers.

    8. New Product Launches
      Q: What is the contribution from new SKUs?
      A: In 2023, the company launched over 6,000 parts, with approximately 30% being new to the aftermarket. The focus on small niche categories and new-to-the-aftermarket products remains unchanged.

    9. First Quarter Expectations
      Q: Should we expect margin expansion in the first half?
      A: The first quarter is typically the lowest, mainly due to the light duty segment. Margin growth is expected to be ratable after Q1 over the rest of the year, with a heavier contribution in the second half.