Dorman Products, Inc. Q4 FY2025 earnings call

• Achieved strategic priorities in 2025: innovation with record new product sales and strong pipeline; operational excellence with productivity improvements and automation in DCs; supply chain excellence with diversified sourcing and reduced China supply; channel expansion in heavy-duty and specialty vehicle; strategic growth through organic opportunities and M&A evaluation.- 2025 financial highlights: net sales $2.13 billion, up 6% y/y; margin expansion and earnings growth; cash flow impacted by tariffs but continued investing and returning capital to shareholders.- Q4 2025 highlights: consolidated net sales $538 million, up slightly y/y but below internal expectations; gross margins exceeded expectations; adjusted diluted EPS $2.17 for the quarter; operating cash flow $42 million in Q4; strengthened balance sheet and returned $25 million to shareholders through share repurchases.

Light-duty: Q4 net sales $429 million, up slightly y/y; POS at large customers up mid-single digits y/y for Q4; drove stronger-than-expected gross margin due to more lower cost pre-tariff inventory shipped and supplier diversification/ productivity initiatives; operating margin down slightly due to higher factoring costs related to tariffs. Heavy-duty: Q4 net sales grew 6% y/y despite trucking/freight industry pressure; operating margin expanded 130 basis points y/y due to tariff timing; tracking market closely. Specialty vehicle: Q4 top-line growth flat y/y with pricing offsetting softer spending; operating margin down y/y due to increased wage/benefit expenses; UTV/ATV ridership strong, new machine sales rebounding, Super ATV launched new portal gear lift.

2026 net sales growth expected in range of 7% - 9% for total and each segment; operating margin expected to temporarily reduce in Q1 but meaningfully improve through back half, range 15% - 16% full year; full year tax rate approx 23.5%; adjusted diluted EPS expected in range of $8.10 - $8.50; guidance reflects timing impacts of tariffs with higher cost inventory hitting first half of 2026 before normalizing later; guidance assumes future tariff levels generally consistent with prior to IEPA ruling and does not reflect potential tariff refunds.

Uncertainty related to tariffs and global trade dynamics, including recent IEPA ruling and new Section 122 global tariffs which add complexity and uncertainty; potential material changes to tariffs or trade disruptions could significantly impact business and alter guidance.

Q: Scott Stever asked about light duty business POS growth, volume, and guidance; A: Light duty macros strong, POS up mid-single digit in Q4, one customer changed order patterns in Q4 but expected to normalize, new product sales record and will drive growth.Q: Brett Jordan asked about inventory growth and end user demand traction; A: Largest inventory growth component from higher tariff cost, POS similar in Q4 and Q3, January in line with Q4, February saw modest uptick.Q: Jeff Lick asked about sales exit rates and tariff benefit; A: One large customer shifted order patterns in Q4, disrupting sales, but expected to normalize, new product and pricing will drive growth, margin outlook explained with FIFO accounting impact.Q: Tristan Thomas Martin asked about complex electronics TAM and specialty vehicle new vehicle sales; A: Complex electronics part of portfolio, new product funnel highest proportion, specialty vehicle new vehicle sales rebounded, inventory stabilized, focus on expanding footprint and new product development.Q: David Lentz asked about light duty order fluctuations, sub segment performance, and M&A; A: Light duty order fluctuations expected to continue in Q1 but sales to grow and accelerate, sub segments have growth opportunities, capital deployment strategy includes debt management, organic growth, and M&A with dry powder and free cash flow expected to normalize.Q: Gary Prestapino asked about complex electronics growth contribution and TAM; A: Complex electronics new product sales record, forward-looking repair opportunity funnel highest, TAM growing as vehicles become more technologically advanced, focus on increasing throughput and reducing development time.Q: Justin Ages asked about heavy duty new business wins and margin productivity initiatives; A: Heavy duty new business wins from share gain and new product development, productivity initiatives include negotiating best acquisition costs, global supply chain team for optimal manufacturing, automation in DCs, and process improvement in functions.Q: Brett Jordan asked about complex electronics gross margin; A: Complex electronics gross margin depends on ASP, but in most cases, competing against OE, aiming for commensurate returns and high gross margins.