Earnings reports are important for you in online stock trading to help you figure out the health of a company. In the case of lesser than expected earnings and profits, it is relevant to observe how the company handles it and succeeds in moving on.
Dorman Products ($DORM), manufacturers of car and truck parts, is looking to satisfy the growing demand for original and high-end equipment manufacturer parts in an economical manner. So Dorman wishes to lure customers with original parts at lower prices than what they’d get at their car dealership.
The Failed Q3 Expectations
In its third quarter though, Dorman could surprisingly not benefit from the more favorable conditions in the overall auto industry. Shareholders had hoped for the company to benefit from the positive currents in the industry, but its Q3 financial report states that it couldn’t deliver the kind of growth that had been expected. But the company is in a positive mood since it believes the future is brighter.
Revenue gains in Q3 were a meager 1%. The company could only post $212.8 million in sales, which is significantly off the consensus forecast investors had of $226 million. Net income rose to $26.7 million, a rise of only 2%. The resultant earnings translate to $0.77 per share, which missed the general expectation of $0.81 per share.
The Positive Factors
In spite of these results, $DORM is optimistic about the future. And it has an explanation for the poor Q3 results. The company states that in the year-ago period it faced extraordinary activity. Back in the third quarter of 2015, it had massive orders from a major customer which helped the company to push sales higher in the year-ago period. This skewed the company’s results when compared to the long term trends. If those orders had not come, Dorman’s growth rates this quarter would have reflected what is more in line with recent trends, which would have been positive.
Dorman has highlighted the nearly full percentage point improvement in gross margin to 39.1%. More efficient inventory control and favorable sales mix have helped reduce any need for write-offs. Dorman also continues to add new products, including 977 new and unique SKUs. This should enable it to drive future growth. The company itself expects growth in full year 2016 sales to be in the region of 6% to 7%. It also expects a mid-teens growth rate for 2016 EPS.
Future Looks Bright
Dorman is continuing to build up new business opportunities and has won a chassis contract in Q3. Shipments related to this business are expected to begin in Q4. All these would help Dorman to grow its net income and organic revenue in 2017 by up to high single digit percentages. It is investing in new capabilities as well, which would enable it to benefit from future opportunities.
These possibilities enabled the company to satisfy investors which resulted in its stock rising by over 2% after the earning announcement. With the auto industry generating a good deal of performance, Dorman Products should be on course to post more impressive growth figures again.
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