- Fourth Quarter 2019 net sales of $239.6 million, down 8% compared to $260.3 million in the prior year.
- Diluted earnings per share (EPS) in the quarter on a GAAP basis declined 49% to $0.54 compared to $1.05 in the prior year. Adjusted diluted EPS of $0.52, declined 53% compared to $1.10 in the prior year.
- Another major premium chassis win with a large national customer expected to begin shipping in the second half of 2020.
- Strong operating cash flow in the quarter of $36 million.
- The Company expects fiscal 2020 net sales growth between 5%-8%, fiscal 2020 EPS of between $3.25 and $3.45 on a GAAP basis, reflecting an increase of between 27% and 35% year-over-year, and fiscal 2020 adjusted EPS of between $3.35 and $3.55, reflecting an increase of between 26% and 34% year-over-year.
COLMAR, Pa., Feb. 24, 2020 — Dorman Products, Inc. (the “Company” or “Dorman”) (NASDAQ:DORM), a leading supplier in the automotive aftermarket industry, today announced its financial results for the fourth quarter and fiscal year ended December 28, 2019.
Fourth Quarter Financial Results The Company reported fourth quarter 2019 net sales of $239.6 million, down 8% compared to net sales of $260.3 million in the fourth quarter of 2018. A primary driver of the net sales decrease in the quarter was an increase in customer return provisions (resulting in a reduction of net sales of $11.2 million) primarily from new business wins, including a recently launched premium chassis program with a large national retail customer.
Gross profit was $78.3 million in the fourth quarter compared to $96.9 million for the same quarter last year. Gross margin for the fourth quarter was 32.7% compared to 37.2% in the same quarter last year. The adjusted gross margin was 32.8% in the quarter compared to 37.8% in the same quarter last year. The adjusted gross margin decline was primarily due to the increased customer return provisions (~310 bps, or $11.2 million), a charge related to historical underpayment of customs duties described in further detail below (~100 bps, or $2.4 million), and redundant overhead costs as a result of operating out of two distribution center locations and lower productivity levels as we ramped up production at our new Portland, TN distribution facility (~80 bps, or $1.9 million).
Selling, general and administrative (“SG&A”) expenses were $56.4 million, or 23.5% of net sales, in the fourth quarter of 2019 compared to $52.3 million, or 20.1% of net sales, in the same quarter last year. Adjusted SG&A expenses were $57.7 million, or 24.1% of net sales, in the fourth quarter of 2019 compared to $51.2 million, or 19.7% of net sales, in the same quarter last year. Approximately 310 bps or $7.7 million of the increase in SG&A was due to redundant costs and lower productivity levels at our new Portland, TN distribution facility, and 20 bps or $0.4 million of the increase was for a charge related to historical underpayment of customs duties described in further detail below.
Income tax expense was $4.2 million in the fourth quarter of 2019, or 19.5% of income before income taxes, down from $9.7 million, or 22.0% of income before income taxes, recorded in the same quarter last year. The decrease in tax rate is primarily a result of lower foreign-sourced income.
Net income for the fourth quarter of 2019 was $17.5 million, or $0.54 per diluted share, compared to $34.6 million, or $1.05 per diluted share, in the prior year quarter. Adjusted net income for the fourth quarter was $16.8 million, or $0.52 per diluted share, compared to $36.4 million, or $1.10 per diluted share, in the prior year quarter.
During the fourth quarter, we recorded an estimated pre-tax charge of $2.8 million ($2.3 million after tax or $0.07 per diluted share) related to the underpayment of duties to US Customs arising from the misclassification of certain imported products over a five-year period. The charge, which is expected to be one-time in nature, follows an internal review and the Company’s notification to US Customs of its election to submit to a voluntary prior disclosure process to rectify historical misclassifications and underpayment of duties, as previously reported in the Company’s SEC filings. Since discovering the misclassifications, the Company has taken corrective actions with respect to the ongoing classification of products and payment of duties.
Fiscal 2019 Financial Results Fiscal 2019 net sales were $991.3 million, up 2% compared to $973.7 million in fiscal 2018. Net sales growth in the full year attributable to acquisitions was approximately 1%.
Net income for fiscal 2019 was $83.8 million, or $2.56 per diluted share, compared to $133.6 million, or $4.02 per diluted share in the prior year. Adjusted net income in fiscal 2019 was $86.8 million, or $2.65 per diluted share, compared to $139.4 million, or $4.20 per diluted share, in the prior year.
Kevin Olsen, Dorman Products’ President and Chief Executive Officer, stated, “Excluding the impact of increased customer return provisions which were primarily tied to new business wins with a large national retail customer, fourth quarter net sales were in line with our expectations and essentially flat to third quarter 2019 net sales. While fourth quarter 2019 net sales, excluding incremental customer return provisions, were down low single digits compared to fourth quarter 2018 net sales, we believe the periods are not directly comparable. Fourth quarter 2018 net sales were up 14% over fourth quarter 2017 primarily because of an increased level of new product rollouts that occurred in the fourth quarter of 2018. Operationally, we completed the move of our Portland, TN facility in the fourth quarter of 2019, and we expect inflated operating and overhead expenses to abate as we move through the first half of 2020. Operating cash flow was notably strong in the quarter as we generated $36 million of operating cash flow in the quarter, reflecting a 176% improvement over last year and one of our strongest quarters in recent history.”
Mr. Olsen continued, “We are very excited for 2020 and beyond despite 2019 being a challenging year as we worked through a number of transformative changes that we believe position us well to drive sustainable, long-term growth. We completed three major site moves this year, which we believe set us up well for increased profitability moving forward. Our growth prospects also continue to be robust. We exited 2019 with our Heavy-Duty lines growing 20% in the fourth quarter, and we were awarded another key premium chassis program for a large national customer that we expect to launch early in the second half of 2020. New products also continue to perform well, as we launched 5,239 new SKU’s in 2019, with 31% of those SKU’s being exclusive to the aftermarket. We doubled our new SKU’s for Heavy-Duty lines in 2019 and built out a fleet facing sales organization that is gaining traction by collaborating with our channel partners to increase awareness and demand. Overall, 17% of our net sales in 2019 came from new products launched in the last 24 months, showcasing our strong new product vitality. We also believe that the number of vehicles in operation (VIO) in our primary subsegment will be increasing over the next few years, which should provide a tailwind to our business. Underscoring all of this is our solid balance sheet and strong operating cash flow generation, as we remain committed to prudently deploying our capital, primarily through organic investments and strategic acquisition opportunities. As we look towards 2020, we believe we are firmly positioned to capitalize on the exciting opportunities ahead and create value for our shareholders.”
Distribution Facility Consolidation Activities Early in 2019, we began the process of transferring operations of our existing distribution facility in Portland, TN to a new, nearby larger facility. We successfully executed our plan, and the new facility was fully operational early in the fourth quarter of 2019. We expect this move to improve our customer service abilities and productivity and expect our distribution costs to be back to more typical levels during the second half of 2020. During fiscal 2019, we incurred approximately $25.9 million of costs ($20.5 million after tax or $0.63 per diluted share) due to start up inefficiencies and duplication of facility overhead and operating costs related to our consolidation activities, with $5.5 million ($4.4 million after tax or $0.13 per diluted share) included in gross profit and $20.4 million ($16.2 million after tax or $0.50 per diluted share) in SG&A expenses.
2020 Guidance The Company expects 2020 net sales growth between 5%-8% over 2019 net sales. The Company also expects 2020 diluted EPS of between $3.25 and $3.45 on a GAAP basis, reflecting an increase of 27% to 35% year-over-year, and adjusted diluted EPS of between $3.35 and $3.55, reflecting an increase of 26% to 34% year-over-year.
The Company’s guidance excludes any potential impact from supply chain disruptions caused by the coronavirus outbreak given the uncertainties from this rapidly evolving situation. The guidance also assumes no changes to U.S. import tariffs currently in place and that the Company does not conduct any share repurchases in 2020.
In the first quarter of 2020, we expect to face difficult comparisons to the prior year period results, but we expect our financial results to improve throughout the year as we benefit from efficiencies at our new Portland, TN facility, new contract wins that we expect to launch in the second half of 2020 and the continued introduction of new products.
Share Repurchases Under its share repurchase program, Dorman repurchased 227.0 thousand shares of its common stock for $16.6 million at an average share price of $73.22 during the quarter ended December 28, 2019. The Company has $143.9 million left under its current share repurchase authorization.
About Dorman Products At Dorman, we give repair professionals and vehicle owners greater freedom to fix cars and trucks by focusing on solutions first. For over 100 years, we have been one of the automotive aftermarket’s pioneering problem solvers, releasing tens of thousands of replacement products engineered to save time and money and increase convenience and reliability.
Founded and headquartered in the United States, we are a global organization offering more than 78,000 parts, covering both light duty and heavy-duty vehicles, from chassis to body, from underhood to undercar, and from hardware to complex electronics. See our full offering and learn more at DormanProducts.com.
Non-GAAP Measures In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), this earnings release also contains Non-GAAP financial measures. The reasons why we believe these measures provide useful information to investors and a reconciliation of these measures to the most directly comparable GAAP measures and other information relating to these Non-GAAP measures are included in the supplemental schedules attached. In addition, please refer to the 2020 Guidance table at the end of this release for a detailed reconciliation of the forecasted (GAAP) financial information to the adjusted financial information (Non-GAAP).