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    DORM
    Earnings call· Mar 2026(Q1 FY26)

    Dorman Products Q1 FY26 earnings call DORM

    May 5, 2026 Source

    Executive summary

    Dorman Products Q1 FY26 — Solid Performance Amidst Tariff Headwinds

    Dorman Products delivered solid first-quarter results, meeting expectations despite significant tariff-related cost headwinds that compressed margins. The company reaffirmed its full-year guidance, anticipating sequential margin improvement and modest volume growth in the latter half of the year. Strategic capital allocation, including record share repurchases, underscores confidence in long-term growth drivers like innovation and operational discipline.

    Highlights

    4

    • Consolidated net sales increased 4% year-over-year to $529 million.

    • Operating cash flow improved sequentially to $44 million.

    • Record share repurchases of $51 million, retiring approximately 435,000 shares at an average price of ~$118 per share.

    • Net leverage ratio at 0.99x adjusted EBITDA, demonstrating ample flexibility.

    Concerns

    4

    • Adjusted operating margin decreased 490 basis points year-over-year to 12.1% due to the highest levels of tariff-related costs.

    • Adjusted diluted EPS declined approximately 22% year-over-year to $1.57, primarily driven by higher tariff-related costs.

    • Lower volumes compared to the exceptionally strong first quarter of 2025.

    • Heavy Duty segment faces challenged market conditions with the continuation of the 'great freight recession' and limited near-term visibility.

    Guidance & targets

    5
    CategoryTargetConfidence
    Net Sales Growth
    7% to 9%
    high materiality
    High
    Adjusted Operating Margin
    15% to 16%
    high materiality
    High
    Adjusted Diluted EPS
    $8.10 to $8.50
    high materiality
    High
    Full-year Tax Rate
    ~23.5%
    low materiality
    High
    Heavy Duty Operating Margin Improvement
    not expecting significant year-over-year incremental improvement
    medium materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Light Duty
    Net sales increased primarily due to pricing actions, partially offset by lower volumes compared to an exceptionally strong Q1 2025. Customer ordering patterns normalized during the quarter. Operating margin reflected the highest tariff expense, expected to improve. Fundamentals remain positive with increasing vehicle miles traveled and growing Light Duty trucks/SUVs in VIO.
    POS with large customers: mid-single digits2-year net sales growth (vs Q1 2024): 18%
    		—4%—consistent with outlook
    Heavy Duty
    Net sales increased due to pricing initiatives and commercialization efforts. Operating margin improved year-over-year but overall margin reflects elevated tariff costs, with no significant incremental improvement expected for 2026 due to tariffs and infrastructure investments. Market conditions are challenged by the 'great freight recession', limiting visibility and freight tonnage growth. Focus on market share capture in OE dealer network.
    		—12%—improved 110 bps YoY
    Specialty Vehicles
    Net sales were flat as pricing actions offset slightly lower volume. Q1 is typically the slowest quarter. Operating margin reflected higher tariff-related costs. Early signs of market stabilization are noted, with strong ridership engagement and new lower-cost entry-level vehicles creating aftermarket opportunities.
    New vehicle sales: increasing YoY in Q1
    		—Flat—in line with expectations

    Operational metrics

    11
    Share repurchases executed
    $51Mrecord for company
    Q1 FY26

    Utilized strong balance sheet to return capital to shareholders due to market valuation dislocation.

    Remaining share repurchase authorization
    $408M
    Q1 FY26

    Extends through 2027.

    Total capital deployed
    $1.8B
    since 2020

    Reflects consistent capital allocation approach.

    Net debt
    $413M
    end of Q1 FY26

    Balance sheet remains a significant strength.

    Total liquidity
    $627M
    end of Q1 FY26

    Demonstrates ample flexibility to support the business.

    Target net leverage ratio
    <2x
    long-term

    Target for normal operations, with a higher temporary target post-acquisition.

    Light Duty 2-year net sales growth
    18%
    Q1 FY26 vs Q1 FY24

    Reflects growth over the last two years combined, offsetting difficult Q1 2025 comparison.

    Light Duty POS with large customers
    mid-single digits
    Q1 FY26

    Inflation embedded in growth, consistent with prior quarters.

    Heavy Duty operating margin improvement
    110 bpsYoY
    Q1 FY26

    Improvement versus prior year, despite lower overall margin reflecting elevated tariff costs.

    Specialty Vehicles new vehicle sales
    increasingYoY
    Q1 FY26

    Early signs of stabilization in the market.

    Adjusted EBITDA margin
    15.2%down 440 bps YoY
    Q1 FY26

    New metric included this quarter, driven by lower operating margins.

    Industry KPIs

    10
    MetricValueDetails
    EPS$1.57USD
    Revenue$529MUSD
    Gross margin36%%
    Market sharecapturing market share
    Operating margin12.1%%
    Adjusted EBITDA ebita15.2%%
    Operating income EBIT12.1%%
    Cash investments balance$627MUSD
    Tariff impact mitigationhighest levels
    Share buyback capital return$51MUSD

    Product announcements

    2
    ProductTypeDetails
    OE fix air suspension compressorlaunch
    Power steering kit for Polaris RANGER 500 platformlaunch

    Risks & headwinds

    5
    Tariff-related costsQ1 FY26 (highest levels)

    Adjusted operating margin down 490 bps YoY; Adjusted diluted EPS down 22% YoY

    Mitigation: Supplier diversification, productivity, and automation initiatives expected to improve margins as the year progresses.

    Lower volumesQ1 FY26

    Lower volumes compared to Q1 FY25

    Mitigation: Expect modest volume growth primarily in the back half of 2026.

    Heavy Duty market conditions ('great freight recession')Throughout 2026

    Limited near-term visibility; not expecting meaningful growth in freight tonnage

    Mitigation: Focus on capturing market share in certain channels (e.g., OE dealer network), cost discipline, and strategic investment for long-term growth.

    Uncertainty around IEEPA tariff refundsOngoing

    Excluded from guidance

    Mitigation: Working through the process of recovery; too early to tell the outcome.

    Potential tariff changes after May 4, 2026After May 4, 2026

    Excluded from guidance

    Mitigation: Assumption is that the new tariff regime will be roughly in the same neighborhood as today.

    What to watch in Q2 FY26

    5

    Adjusted Operating Margin Progression

    Q2 FY26 and subsequent quarters
    Current12.1% (Q1 FY26)
    TargetImprovement towards 15-16% full-year range, exiting Q4 in high teens

    Why it matters

    Key to achieving full-year guidance and returning to normalized profitability levels, as Q1 reflected the highest tariff impact🌐.

    As we move through the year, those tariff rates reduce because they were the highest when they first implemented starting back in April of last year. Also, all the initiatives that we undertook since April of last year in terms of further diversification, productivity initiatives, dealing with our supplier community, those also have to go through FIFO. We have very good visibility to what that looks like going forward⏳ because of FIFO. We feel confident that we'll continue to see margin progression as we move through the quarters.

    Q&A highlights

    5

    How will sales and margins progress through the year given Q1's tariff and customer disruption? What is the outlook for complex electronic parts and innovation?

    Q1 faced difficult comps and customer disruption, which normalized by quarter-end. Full-year sales guidance of 7-9% is reaffirmed, driven by pricing, new business, and product launches. Q1 had the highest tariff impact, with margins expected to improve sequentially and exit Q4 in the high teens. Complex electronics continue to grow faster than the overall portfolio.

    “As we move through the year, those tariff rates reduce because they were the highest when they first implemented starting back in April of last year. Also, all the initiatives that we undertook since April of last year in terms of further diversification, productivity initiatives, dealing with our supplier community, those also have to go through FIFO. We have very good visibility to what that looks like going forward because of FIFO. We feel confident that we'll continue to see margin progression as we move through the quarters.”

    asked by Jeffrey Lick · answered by Kevin Olsen

    3 min read6 chapters

    Detailed Narrative

    01

    Tariff Impact and Mitigation

    The first quarter of 2026 reflected the highest level of tariff expense, impacting adjusted operating and gross margins by 490 basis points year-over-year. This was due to the FIFO accounting method, recognizing costs from inventory purchased in 2025 when tariff rates peaked. Management expects margins to meaningfully improve through the year as these higher-cost inventories cycle through and benefits from supplier diversification, productivity, and automation initiatives are realized. The company noted that recent tariff changes (IES removal, Section 122 implementation) were net neutral to their current tariff exposure.

    02

    Capital Allocation Strategy

    Dorman's long-term capital allocation strategy remains consistent: prioritize debt levels and leverage ratios, then deploy capital on internal initiatives for highest returns, followed by M&A, and finally opportunistic share repurchases. The company has deployed $1.8 billion of capital since 2020. A record $51 million was used for share repurchases in Q1 2026, reflecting management's view of market valuation dislocation. The net leverage ratio stood at 0.99x adjusted EBITDA, well below the target of less than 2x.

    03

    Light Duty Market Trends and Innovation

    Light Duty net sales increased approximately 4% year-over-year, driven by pricing actions, despite lower volumes compared to a strong Q1 2025. Underlying fundamentals remain positive, with increasing vehicle miles traveled and higher used vehicle values extending vehicle life, supporting aftermarket demand. The growing portion of Light Duty trucks and SUVs in the vehicle in operation (VIO) provides opportunities for product portfolio expansion with higher average selling prices. An example of innovation is the OE fix air suspension compressor for GM SUVs, designed for improved heat dissipation and reliability.

    04

    Heavy Duty Market Conditions

    The Heavy Duty segment saw net sales increase approximately 12% year-over-year, driven by pricing initiatives and commercialization efforts, with operating margin improving 110 basis points. However, market conditions remain challenged by the 'great freight recession' and geopolitical tensions, leading to limited near-term visibility and no expectation for meaningful growth in freight tonnage. The company is focused on capturing market share in channels like the OE dealer network and investing strategically for long-term margin improvement, particularly in the diesel aftertreatment portfolio.

    05

    Specialty Vehicles Market Stabilization

    Specialty Vehicles net sales were flat year-over-year, with pricing offsetting slightly lower volumes. Q1 is typically the slowest quarter for this segment. The company is observing early signs of market stabilization, with new vehicle sales increasing year-over-year and strong engagement at national UTV-ATV events. The introduction of new lower-cost entry-level vehicles, such as the Polaris RANGER 500, creates attractive aftermarket opportunities for functional and performance enhancements, exemplified by Super ATV's power steering kit.

    06

    Complex Electronics and Product Portfolio

    Dorman continues to invest in complex electronics, a category whose growth consistently outpaces the overall portfolio. The company highlighted new product launches with embedded complex electronics, such as the OE fix air suspension compressor and the power steering kit for the Polaris RANGER 500. These innovations address common failure modes and enhance vehicle functionality, reinforcing Dorman's leadership in providing upgraded repair and enhancement solutions at attractive aftermarket price points.

    AI-generated summary of the company’s earnings call. Not investment advice.