Dorman Products, Inc. — FY2014 Form 10-K
Reporting period: Fiscal year ended December 27, 2014 (52 weeks). The filing is an annual report, not a standalone Q4 filing; it also presents unaudited quarterly results. Amounts below are U.S. dollars.
Business context
Dorman supplies automotive aftermarket replacement parts and fasteners for passenger cars, light trucks and heavy-duty trucks. It markets about 140,000 SKUs, many developed in-house, and says its products include parts traditionally available only through original-equipment dealers. Approximately 85% of products are sold under Dorman-owned brands. Four major customers represented 60% of FY2014 sales.
Financial results and liquidity
| Metric | FY2014 | FY2013 |
|---|---|---|
| Net sales | $751.5 million | $664.5 million |
| Gross profit / margin | $287.2 million / 38.2% | $261.0 million / 39.3% |
| Operating income / margin | $140.7 million / 18.7% | $127.9 million / 19.3% |
| Net income | $90.0 million | $81.9 million |
| Diluted EPS | $2.49 | $2.24 |
| Cash from operations | $59.6 million | $61.6 million |
| Capital expenditures | $29.9 million | $24.7 million |
Sales rose 13% and net income rose 10%, but gross margin declined 1.1 percentage points. Management attributed the margin pressure mainly to competitive pricing and a mix shift toward lower selling prices. SG&A increased to $146.5 million from $133.0 million, while falling as a share of sales to 19.5% from 20.0%.
At year-end, cash was $47.7 million, working capital was $364.6 million, and shareholders’ equity was $462.1 million. The company reported no long-term debt or revolver borrowings; approximately $29.0 million remained available under its $30 million revolving facility after letters of credit. The facility was due to expire in June 2015. Operating cash flow was lower year over year, with receivables and inventory increases absorbing cash.
Dorman sold $477.9 million of receivables through customer-sponsored programs in FY2014 and incurred $6.2 million of related financing costs. Financing activities used $42.7 million, including $40.4 million spent repurchasing 855,600 shares under the share-repurchase program.
Fourth-quarter comparison
Unaudited Q4 FY2014 sales were $174.0 million, up about 2.5% from $169.8 million in Q4 FY2013. Operating income was $28.6 million versus $31.6 million, net income was $18.7 million versus $20.6 million, and diluted EPS was $0.52 versus $0.56.
Outlook, risks and notable items
- No specific FY2015 revenue or earnings guidance is provided. Management cited new-product growth, favorable aftermarket demand, vehicle aging and increased miles driven as supportive factors, and said available capital should cover needs for at least 12 months.
- Management expected customer pressure on pricing, product returns and payment terms to continue, potentially weighing on margins and cash flow. Sales are concentrated: four customers accounted for 60% of FY2014 revenue, and the five largest represented 81% of year-end accounts receivable.
- Approximately 73% of FY2014 products were sourced from foreign vendors, principally China, exposing the business to supplier, trade, currency and transportation risks.
- The ERP installation was completed in September 2014 without significant operational disruption. Management expected stabilization and transition work to continue into FY2015; FY2014 included about $5.5 million of incremental ERP-related costs.
- The company identified competition, customer consolidation, product quality and development execution, shelf-space constraints, cyber incidents, legal claims and reliance on key personnel among its risks. Management considered current legal matters immaterial. The company disclosed a related-party lease with the CEO’s family partnership and purchases from a supplier joint venture.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective at year-end.
Important facts for investors to verify
- Whether pricing concessions, returns and extended customer payment terms continue to pressure margins and working capital.
- Customer concentration, receivable collectability and the availability and cost of receivables-sale programs.
- Progress on ERP stabilization, including any subsequent implementation costs or operational effects.
- Renewal or replacement of the revolving credit facility that was scheduled to expire in June 2015.
- Execution and returns from new-product development, heavy-duty product expansion and the share-repurchase program.