Dorman Products, Inc. Q3 FY2026 earnings call

• Consolidated net sales reached a record $562 million in Q3, up ~3% year-over-year, with growth primarily driven by volume increases in light duty and heavy duty segments.
• Adjusted operating margin was 15.8% and adjusted EBITDA margin was 18.5%. Adjusted diluted EPS was $2.08, down from $2.62 in the prior year period, largely due to the lack of tariff-related pricing benefits seen last year.
• Light Duty performance remains strong in DIFM channels, while DIY channels continue to face pressure. The vehicle population mix is shifting toward light-duty trucks and SUVs, which have a higher average age and offer margin opportunities through higher average selling prices.
• Heavy Duty sector faces pressures in trucking markets with compressed capacity but stabilizing tonnage indicators. The company is leveraging OE dealer relationships to capture share with aftermarket solutions.
• Specialty Vehicle segment saw significant growth in new vehicle sales for work-related utility machines. However, recreational enthusiast activity is softening due to higher fuel prices impacting trailer and ride costs.
• Innovation highlights include the launch of a four-wheel-drive locking hub actuator for light-duty trucks, a windshield wiper arm for heavy duty, and a hard cab enclosure for CFMOTO Z-Force vehicles.

Light Duty: Net sales of $444 million, up approximately 3% year-over-year. This segment represents the largest share of the portfolio and is driven by DIFM (Do It For Me) channels. Operating margin was 18.5%. Heavy Duty: Net sales of $66 million, up approximately 5% year-over-year, driven by volume and pricing in certain categories. Operating income margin was break-even due to higher tariff and shipping costs. Specialty Vehicle: Net sales of $52 million, up approximately 3% year-over-year, driven by portfolio expansion and pricing initiatives. Operating income margin improved to 13.1%, up 30 basis points year-over-year.

• Full-year 2026 net sales growth guidance narrowed to 2% to 3%, reflecting continued soft DIY demand and expected tariff-related price reductions in Q4.
• Full-year adjusted diluted EPS guidance narrowed to $8.50 to $8.70 (from previous range of $8.50 to $8.80).
• Full-year adjusted operating income margin guidance raised to the top end of the prior range, now expecting 16% to 16.5%.
• Full-year effective tax rate expectation updated to 23.5% to 24%.
• Fourth quarter gross margin expected to be approximately 40%, establishing a structural base for 2027.

• Tariff impacts: Higher tariff-related costs are absorbing margins in the Heavy Duty segment and impacting overall gross margins, with additional timing-related price reductions expected in Q4.
• DIY Demand Softness: Continued weakness in the Do-It-Yourself channel is negatively impacting top-line growth relative to expectations.
• Fuel Price Sensitivity: Rising fuel prices are reducing enthusiast activity in the Specialty Vehicle segment, specifically affecting recreational-oriented parts and accessories.
• Input Cost Inflation: Increases in diesel fuel costs and interest rates may impact factoring expenses and input components used in pricing decisions.

Q: Analyst Scott Stember asked if POS softness was strictly due to DIY products and how rising fuel/diesel costs affect pricing.

A: CEO Kevin Olsen confirmed DIY remained pressured while DIFM was stable, noting POS aligned with net sales growth (~3%) but lacked last year's tariff-driven price increases. CFO Charles Rayfield stated that fuel and interest rate increases are input costs considered periodically in pricing decisions, though no immediate changes were announced. CEO Olsen added the company has a long track record of handling inflationary/deflationary swings.

Q: Analyst Jeff Lick asked about the shift away from trucks/SUVs towards EVs/sedans and its impact on repair opportunities, as well as the proportion of guidance reduction due to pricing vs. softness.

A: CEO Olsen explained the VIO tail is long, and the company is drivetrain agnostic, seeing high ASP opportunities in BEVs regardless of new car sales trends. CFO Rayfield noted the 2-3% guidance reflects both DIY softness and negotiations regarding IEPA tariff refunds, without providing a specific percentage split.

Q: Analyst Gary Prestopino asked about the discretionary vs. non-discretionary portfolio split and the market share dynamics between OE dealers and aftermarket in Heavy Duty.

A: CEO Olsen declined to give an exact split but stated the vast majority is non-discretionary. He highlighted that OE dealers control ~60% of the Heavy Duty aftermarket (vs. 30% in Light Duty) via warranty repairs, presenting a significant opportunity for Dorman to take share with high-quality aftermarket solutions at lower price points.

Q: Analyst David Lentz asked about implied Q4 sales drivers given the guidance change and the reasons behind double-digit inventory declines in Q3.

A: CFO Rayfield stated Q4 growth will be volume-driven from new product launches and business wins, offsetting softened DIY demand. Inventory declines were largely due to capitalizing heightened IEPA tariff costs into inventory which then flowed through to P&L; inventory is expected to stabilize slightly in coming quarters.

Q: Analyst Justin Ages asked about capital allocation priorities and the relative size of DIY vs. DIFM channels.

A: CFO Rayfield outlined priorities as: 1) New product development (best returns), 2) M&A, 3) Opportunistic share buybacks (record $112M YTD), and maintaining low leverage (<0.7x). CEO Olsen clarified that the vast majority of the portfolio is DIFM/professional-focused (back room), while DIY-focused items are typically front-room products.