Dorman Products Q2 2025 Earnings Report

Dorman Products EPS Results

• Actual EPS: $2.06
• Consensus EPS: $1.76
• Beat/Miss: Beat by +$0.30
• One Year Ago EPS: $1.67

Dorman Products Revenue Results

• Actual Revenue: $540.96 million
• Expected Revenue: $517.13 million
• Beat/Miss: Beat by +$23.83 million
• YoY Revenue Growth: +7.60%

Dorman Products Announcement Details

• Quarter: Q2 2025
• Date: 8/4/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, August 5, 2025
• Conference Call Time: 8:00AM ET

Dorman Products (NASDAQ:DORM) supplies replacement and upgrade parts for passenger cars, light trucks, medium- and heavy-duty trucks, utility terrain vehicles, and all-terrain vehicles in the motor vehicle aftermarket industry in the United States and internationally. It offers engine products, including intake and exhaust manifolds, fans, thermostat housings, and throttle bodies; undercar products comprising fluid lines, fluid reservoirs, connectors, 4-wheel drive components and axles, drain plugs, other engine, and transmission and axle components; steering and suspension products consist of control arms, ball joints, tie-rod ends, brake hardware and hydraulics, wheel and axle hardware, suspension arms, knuckles, links, bushings, and leaf springs, as well as other suspension, steering, and brake components; body products, such as door handles and hinges, window lift motors, window regulators, switches and handles, wiper components, lighting, electrical, and other interior and exterior vehicle body components, including windshields for UTVs; electronics products comprise new and remanufactured modules, clusters and sensors; and hardware products, such as threaded bolts and auto body fasteners, automotive and home electrical wiring components, and other hardware assortments and merchandise. The company also provides air tanks, shock absorbers, and air springs; transmission control modules, variable geometry timing actuators, and other control modules and sensors; new control arms, suspension components, door lock actuators, and handles for electric vehicles; and leaf springs, intake manifolds, exhaust manifolds, window regulators, radiator fan assemblies, tire pressure monitor sensors, exhaust gas recirculation coolers, UTV windshields, and complex electronics modules. It markets its products under the DORMAN, DORMAN OE FIX, HELP!, Conduct-Tite, Dayton Parts, SuperATV, Keller Performance Products, Assault Industries, Gboost, and GDP brands. Dorman Products, Inc. was founded in 1918 and is headquartered in Colmar, Pennsylvania.

Dorman Products Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Net sales grew 8% year-over-year to $541 million in Q2, driven by strong light duty demand, leading Dorman to raise its full-year net sales growth guidance to 7–9% (from 3–5%).
• Positive Sentiment: Adjusted operating margin expanded 70 bps to 16.3% and adjusted diluted EPS increased 23% to $2.06, prompting an increase in full-year EPS guidance to $8.60–$8.90 (from $7.55–$7.85).
• Neutral Sentiment: Tariff costs dragged Q2 operating cash flow down to $9 million from $63 million, but Dorman plans to mitigate through supplier diversification, automation initiatives, and targeted price increases in Q3.
• Positive Sentiment: The light duty segment delivered 10% net sales growth and 140 bps margin expansion to 18.5%, fueled by new patented aftermarket products and a diversified, asset-light supply chain.
• Negative Sentiment: Heavy duty sales grew just 1% amid trucking industry softness and tariffs, while specialty vehicle sales fell 3%, with both segments awaiting broader market recovery to drive margin expansion.

Presentation

[Operator]

Good morning, and thank you for standing by. Welcome to the Dorman Products Second Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. Please note that this conference is being recorded. I'd now like to turn the conference over to Alex Whitelam, Vice President of Investor Relations. Thank you, sir. Please go ahead.

[Alexander Whitelam, VP - IR & Risk Management at Dorman Products]

Thank you. Good morning, everyone. Welcome to Doorman's second quarter twenty twenty five earnings conference call. I'm joined by Kevin Olson, Doorman's Chief Executive Officer and David Hessian, Doorman's Chief Financial Officer. Kevin will provide a quick overview of our recent performance, share our views across the business and provide our updated guidance.

[Alexander Whitelam, VP - IR & Risk Management at Dorman Products]

Then David will review the quarterly results, and Kevin will then provide closing remarks before opening the call for questions. By now, everyone should have access to our earnings release and earnings call presentation, which are available on the Investor Relations portion of our website at dormantproducts.com. Before we begin, I'd like to remind everyone that our prepared remarks, earnings release and investor presentation include forward looking statements within the meaning of federal securities laws. We advise listeners to review the risk factors and cautionary statements in our most recent 10 Q, 10 ks and earnings release for important material assumptions, expectations and factors that may cause actual results to differ materially from those anticipated and described in such forward looking statements. We'll also reference certain non GAAP measures.

[Alexander Whitelam, VP - IR & Risk Management at Dorman Products]

Reconciliations of these non GAAP measures to the most directly comparable GAAP measures are contained in the schedules attached to our earnings release and in the appendix to this earnings call presentation, both of which can be found on the Investor Relations section of Dorland's website. Finally, during the Q and A portion of today's call, we ask that participants limit themselves to one question with one follow-up and to rejoin the queue if they have additional questions. And with that, I'll turn the call over to Kevin.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Thanks, Alex. Good morning, and thank you for joining our second quarter twenty twenty five earnings call. As Alex mentioned, I'll start with a high level review of the results along with observations within each of our segments and then provide our updated guidance for 2025. Turning to Slide three, I would like to briefly discuss our recent performance.

[Kevin Olsen, President, CEO & Director at Dorman Products]

David will provide more details, but we had another outstanding quarter with top and bottom line results that exceeded our expectations. Consolidated net sales for the second quarter grew 8% year over year to $541,000,000 Strong volume growth from increased customer demand, especially within the light duty business led our top line growth. We also saw positive signs in our heavy duty business with slight year over year growth resulting from new business wins. Weak consumer sentiment persisted through the second quarter impacting our specialty vehicle business, but the team continues to do an excellent job managing through this downturn and positioning the business for future sales growth. We also delivered solid margin expansion in the quarter.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Adjusted operating margin for Q2 twenty twenty five was 16.3%, 70 basis point increase over last year's second quarter. Light duty business was also the primary driver behind this margin improvement largely due to strong demand in the quarter as well as ongoing supplier diversification, productivity and automation initiatives. The net sales growth and margin expansion we achieved resulted in a 23% year over year increase in adjusted diluted EPS, which was $2.6 for the quarter. And finally, operating cash flow in Q2 was $9,000,000 which was impacted by higher tariff costs and additional investments in inventory to support demand. David will discuss this in more detail shortly.

[Kevin Olsen, President, CEO & Director at Dorman Products]

So overall, we're pleased with our results in the second quarter and through the 2025. It's helped shape our expectations for continued momentum through the full year. Let me take a few minutes to cover our observations across each of our segments. I'll start with the light duty business on Slide four. As I mentioned, the underlying macro trends remain positive.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Vehicle miles traveled climbed higher year over year and according to the latest industry reports, the average age of light duty vehicles has increased to twelve point eight years. These underlying factors led to strong volume growth year over year. We continue to see strong performance out of the new products that we've recently launched, especially those that are new to the aftermarket or address flaws in OE parts. These products typically drive higher sales and margins and in some cases include patented features that provide a competitive advantage. Also, keep in mind that the majority of our product portfolio is nondiscretionary in nature, which has enabled us to perform well throughout various economic cycles.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Additionally, we view our asset light model and the flexibility of our diversified supply chain to be key competitive advantages as we navigate through uncertainty in various trade and economic environments. In our heavy duty segment, market pressures impacting the trucking and freight industry continued through the second quarter, especially as tariffs created uncertainty in the broader economy. Despite these market pressures, we achieved positive net sales growth in the quarter with new business wins. Looking forward, we remain cautious as market indicators continue to fluctuate and the trucking and freight industry remains somewhat unpredictable. That said, we believe the long term investments we've made in our product portfolio and productivity initiatives as well as improvements we're making in the customer's front end experience will help drive sales growth and margin expansion when the sector begins to stabilize.

[Kevin Olsen, President, CEO & Director at Dorman Products]

In Specialty Vehicle, reluctant consumer spending continued to impact our performance through the second quarter. However, as we saw in the first quarter, we continue to see strong engagement with our UTV and ATV ridership, especially at the enthusiast events across the country we attend throughout the year. We expect that as the broader economy strengthens over time, the Specialty Vehicle business will continue to outpace the market of our expanded product portfolio, including nondiscretionary parts and new dealer relationships. Next, let's move on to Slide five. I'll spend some time talking about our updated guidance for 2025.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Considering the impact of tariffs on our financials, we are covering guidance upfront in our discussion today. Before we get into the numbers, we felt it was important that we reiterate the actions we're taking to mitigate tariffs. As we discussed on our last call, our approach to managing tariffs is multifaceted and largely aligned with the approach we've taken and faced with inflationary environments in the past. First, we continue to diversify our supplier base, accelerate tariff cost reductions to our sourcing strategies. Second, we're driving solid savings by leveraging our scale and the deep relationships we have with our suppliers around the globe.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Third, we're continuing to drive cost savings internally through automation and productivity initiatives. And finally, we've been deliberate in our approach to implementing price increases to cover the net remaining cost from tariffs. We've been surgical on this front, keeping in mind the impact such price increases could have on our customers, their business and our end users. These price increases will go into effect in the third quarter. In light of our strong performance through the first half of the year, our improved outlook for the remainder of 2025 and the expected impact of pricing and costs resulting from tariffs, we have increased our net sales and EPS guidance for the year.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Please keep in mind that while we stand on more solid ground today compared to our earnings call last quarter, the trade situation remains fluid. Our updated guidance for 2025 is based on the tariffs that are currently enacted. We may update our annual guidance in the future should any material changes to tariffs or trade disruptions significantly impact our business or alter our expectations. Starting with the top line, we now expect net sales growth to be in the range of 7% to 9% over 2024. This is an increase from our previous growth guidance of 3% to 5%.

[Kevin Olsen, President, CEO & Director at Dorman Products]

The increase in the range is comprised of three factors. First, our performance through the first half of the year has outpaced our original expectations driven by strong volume demand and the positive underlying light duty macro trends. Second, we are expecting incremental year over year volume growth through the remainder of the year based on continuing positive market conditions for our light duty business. Finally, as I just mentioned, part of our approach to mitigating the impact of higher tariff costs is working directly with our customers on pricing. This was a critical step in the process to help maintain our high level of service and fund the higher cost of inventory that was capitalized on our balance sheet immediately at purchase.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Keep in mind that our customer notification periods when a price increase goes into effect, we will see the contribution of higher prices begin to make an impact in the third quarter twenty twenty five. Next, on the earnings front, we now expect adjusted diluted EPS to be in the range of $8.6 to $8.9 an increase from our previous guide of $7.55 to $7.85 Let me spend a few minutes on the nuances around this increase, including the timing dynamics and the role tariffs play in the change. As a reminder, we utilize a FIFO accounting methodology in our inventory turns approximately twice a year. This generally results in a six month timing lag between when cash is used to pay for inventory when the higher cost is recognized in our profit loss statement. As it relates to this year, while the increase in tariff costs and the inventory we purchased in Q2 had an immediate impact on our cash flow and balance sheet, the increase in cost of goods sold for this inventory isn't expected to start impacting our P and L until Q4.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Unlike cost of goods sold, net sales are recognized when incurred. And as we mentioned, new pricing on tariffs will go into effect in Q3. Therefore, we expect tariff pricing to have a positive effect on net sales in Q3 without the impact of tariffs on cost of goods sold, resulting in a higher than normal gross margin level. Then in Q4, we expect to see gross margin come back down as we begin to recognize tariff costs and cost of goods sold to counter the effect of tariff pricing. As a result, we expect that the increase in our EPS range will be slightly weighted more to Q3 than Q4.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Please note this additional color is to help align our view of the next two quarters with our analysts and investors for clarity, given the highly nuanced nature of tariffs and our current situation. With that, I'll turn it over to David to cover our results in more detail. David?

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

Thanks, Kevin. Let me kick off with our results for the second quarter on Slide six. Consolidated net sales in the second quarter were $541,000,000 up 8% year over year. As Kevin mentioned, our net sales growth was driven by solid customer demand in our light duty business fueled by continuing positive macro trends and the strength of new products. Adjusted gross margin for the quarter was 40.6%, a 100 basis point increase compared to last year's second quarter.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

This margin expansion was a result of higher sales and a favorable mix of new products, along with our cost savings across the enterprise, driven by our supplier diversification, productivity and automation initiatives. Adjusted SG and A expense as a percentage of net sales was 24.3%, up 30 basis points compared to the same period last year. Adjusted operating income was $88,000,000 for the second quarter, up 12% compared to the 2024. Adjusted operating margin expanded 70 basis points to 16.3, largely from the gross margin improvement I just discussed. Finally, adjusted diluted EPS in the second quarter was $2.06 up 23% compared to last year's second quarter.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

In addition to our operating income expansion, lower debt, a slightly favorable tax rate and share count reduction from share repurchases over the last twelve months have all positively contributed to our adjusted diluted EPS growth. Next, let me provide updates on each of our business segments starting with Light Duty on slide seven. Our Light Duty business had another strong quarter with net sales increasing 10% year over year in Q2. The growth was driven by strong customer demand, especially for our new products, with positive macro trends continuing through the second quarter. During the quarter, we delivered on certain customer programs, which resulted in higher shipment growth in the quarter compared to POS.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

That said, we're not seeing any significant overstocking from the inventory stock level data we received from our top customers. On the margin front, Light Duty did a nice job expanding margins. Segment operating margin increased to 18.5% for the quarter, a 140 basis point improvement over last year's Q2. This margin improvement was driven by supplier diversification, new product mix and cost savings from our ongoing automation and productivity initiatives along with higher leverage from our net sales growth. Now I'll turn to heavy duty on slide eight.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

Market conditions broadly remained soft across the freight and trucking industry as tariffs continue to prolong the economic uncertainty that is weighed on the heavy duty sector. Despite these market pressures, our business grew 1% for the quarter. This growth was largely the result of new business wins in categories where we believe we're gaining share. While we've seen positive signs within our customer base, uncertainty remains in the broader freight and trucking industry. Segment operating margin was slightly positive in the quarter at 80 basis points, down year over year largely on lower volume from the trucking and freight recession along with the investments we've made in the business to drive long term growth.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

While we were pleased with the new business wins in the second quarter, we expect we will see more significant margin improvement once higher level of sales return as the market rebounds. We believe the investments we've made in new product development, productivity initiatives and enhancing the front end experience for our customers position us well to drive market share gains and margin expansion as the business operates with greater efficiency. Moving to slide nine. The Specialty Vehicle team did a nice job managing market challenges with weakened consumer sentiment from tariffs and economic uncertainty. While net sales declined 3% compared to last year's second quarter, we continue to see participation at various enthusiast events in UTV and ATV ridership activity and engagement remaining strong overall.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

We expect that as the broader economy stabilizes and as consumer borrowing rates improve, riders will come off the sidelines to invest in new machines requiring upgrades and retooling and repairing their existing machines. We also expect our expanded portfolio of new products, along with our broader access across the dealer channel, will help us better reach our customers and continue to capture market share. Despite market pressures in the quarter, the Specialty Vehicle team did an excellent job on the margin front. We remain focused on continuing to drive higher volume, diversifying our supply chain and executing on our productivity initiatives to expand our margins in this business. Turning to cash flow on Slide 10.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

During the quarter, our cash flow was impacted by the investment we made in additional inventory to support our customers along with higher costs resulting from tariffs. As Kevin mentioned, higher tariff costs that started in April were immediately capitalized in our balance sheet. This led to operating cash flow of $9,000,000 compared with $63,000,000 in Q2 twenty twenty four and $51,000,000 in Q1 twenty twenty five. Given the uncertainty created in the market at the beginning of the quarter due to tariffs, we paused share repurchases to preserve our cash position. We also saw slightly reduced capital expenditures in the quarter as a result of timing, which led to slightly positive free cash flow.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

I think it's important to note that the liquidity position that we've built up over the last several years has positioned us well to manage this significant cost increase while maintaining our ability to fund the business. Please note that our long term capital allocation strategy has not changed. We'll continue to manage our debt levels and leverage ratio, then look to invest internally as that is where we get our greatest returns. We'll also continue to pursue strategic growth through mergers and acquisitions. And finally, we'll continue to opportunistically repurchase shares to return capital to our investors.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

On Slide 11, we highlight much of what we've already covered over the last two quarters, which is that we believe we have the balance sheet capacity and liquidity to manage higher tariff costs and continue to invest in strategic growth opportunities. As you can see, net debt was $4.00 $6,000,000 and our net leverage ratio was one times adjusted EBITDA at the end of the quarter. Additionally, our total liquidity was $656,000,000 at the end of the quarter, up from $642,000,000 at the end of twenty twenty four. Again, we expect the strength of our balance sheet will prove to be a competitive advantage and a key driver of our success as we work our way through this current cycle. With that, I'll now turn it back over to Kevin to conclude. Kevin?

[Kevin Olsen, President, CEO & Director at Dorman Products]

Thanks, David. I'll finish up on Slide 12 before we move into Q and A. Just to reiterate what was already been said, we had a strong second quarter and we're pleased with our performance through the first half of the year. While uncertainty exists, we believe our business is well positioned to deliver significant growth in 2025 and we're excited for what lies ahead.

[Kevin Olsen, President, CEO & Director at Dorman Products]

With a more diversified supply base, strong relationships with our customers and end users, a leading product portfolio, and a strong financial profile, we feel as though Dorman has never been better positioned for the future. We'll continue focusing on what we can control in driving long term growth. With that, I would now like to open up the call for questions. Operator?

[Operator]

Your first question comes from Scott Stember with ROTH Capital Partners. Please go ahead.

[Analyst]

Hey, guys. Good morning. This is Jack on for Scott. I wanted to ask about the heavy duty segment, specifically about what are the incremental margins for every dollar of sales recovery as I see it turned positive this quarter? And also like what are normalized heavy duty margins?

[Analyst]

When do you kind of expect this to get back to the normalized level? Thank you.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Thanks, Jack. It's Kevin. Great question. I believe we've talked a little bit about this in the past, but in our heavy duty business, we're weighted more, on the manufacturing side versus being much more asset light in the other two segments. So when volume is challenged in heavy duty, we do face more absorption issues.

[Kevin Olsen, President, CEO & Director at Dorman Products]

So when we do have growth, you mentioned in the quarter, we will leverage that very well. When we get back to kind of normalized levels, we expect this business to be a mid teen operating profit business. And we have before the downturn, we were demonstrating those levels.

[Analyst]

Great. And then just on tariffs, what do you see kind of the impact by segment, if you can break that out? I guess, mostly in specialty and heavy duty, has that been more difficult to, get prices, price increases through, more than light duty?

[Kevin Olsen, President, CEO & Director at Dorman Products]

Let me just it's Kevin again, Jack. I'll just characterize the tariff impacts by the segments. We're not disclosing the specific impacts by segment. I would say that on the light duty side, we have a very diversified supply chain there. So we believe we have less exposure than the overall aftermarket in general.

[Kevin Olsen, President, CEO & Director at Dorman Products]

So we think compared to a comp set, we're at a competitive advantage because of that. Heavy duty really is a very modest impact from tariffs. So when we kind of look at around the industry and who we compare to, believe we're very well positioned. And similar situation in the Specialty Vehicles segment. We do have exposure to China, but we also have a large manufacturing footprint in Madison, Indiana.

[Kevin Olsen, President, CEO & Director at Dorman Products]

And when we look at that industry, it's very heavily weighted to China. So we think we're in a good competitive situation there as well.

[Analyst]

Very helpful. Thank you, guys.

[Operator]

Your next question comes from Bret Jordan with Jefferies. Please go ahead.

[Bret Jordan, Managing Director at Jefferies LLC]

Hey. Good morning, guys.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Good morning, Brett.

[Bret Jordan, Managing Director at Jefferies LLC]

Could you talk a little bit more about light duty customer POS sort of sell in versus sell out? I think you said it wasn't dramatically different, but was there any bias to buy inventory ahead of price increases?

[Kevin Olsen, President, CEO & Director at Dorman Products]

So overall, Brett, POS in the quarter, we did have a gap in terms of sell in and sell out. Sell out or POS, as we talked about in the past, was actually low single digit in the quarter, but there was a lot of nuance to that. We had a very difficult comp as we look at last year. Very strong in the second quarter last year. But when you look at it for kind of a sequential basis, POS was very similar in dollars to where it's been the last few quarters.

[Kevin Olsen, President, CEO & Director at Dorman Products]

When you adjust for that comp issue, Brett, POS was more in line with the sell in growth, which has been obviously very strong. Mentioned inventory, as you know, we do receive customer inventory data, and it really tells us it's in line with historical levels, particularly when you look at the inventory turns. So we haven't seen any major changes there. We haven't seen any significant buy ahead of the tariffs so far.

[Bret Jordan, Managing Director at Jefferies LLC]

Okay. Great. And then I think you commented on new to the aftermarket product launch. Mean, talk about sort of We

[Kevin Olsen, President, CEO & Director at Dorman Products]

lost you, Brad. I missed that question.

[Bret Jordan, Managing Director at Jefferies LLC]

Yeah. The the cadence electronics.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Yeah. Brett, still could could you try repeating that again? We're we're you're not coming through.

[Bret Jordan, Managing Director at Jefferies LLC]

Okay. The Starlink systems don't work as well. We should talk to you then. I guess The new to the aftermarket can you hear me okay?

[Kevin Olsen, President, CEO & Director at Dorman Products]

A little bit. Yeah. Go ahead. Try it again.

[Bret Jordan, Managing Director at Jefferies LLC]

The pipeline of new to the aftermarket, the OE fixed product and complex electronics?

[Kevin Olsen, President, CEO & Director at Dorman Products]

Yes. All right. Great question. When we look ahead, the funnel of new products is very robust. It's as strong as we've seen it.

[Kevin Olsen, President, CEO & Director at Dorman Products]

And when we look at the composition of that funnel, obviously, as we've talked many times in the past, the composition of that funnel is becoming more and more complex, a lot more complex electronic components, which for us we obviously like to see. We believe that is a significant competitive advantage for us. So it remains a big part of our strategy to go after complex electronic components.

[Bret Jordan, Managing Director at Jefferies LLC]

Great. Thank you.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Got it.

[Operator]

Your next question comes from Justin Ages with CJS Securities. Please go ahead.

[Analyst]

Hi. It's actually Jeremy on for Justin. Thanks for taking the time to answer questions. Another solid quarter in margin growth for light duty. I know you guys touched on it briefly, but can you elaborate a little more on some of the initiatives that continue to drive this margin growth?

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

Yes. Hi, it's David. Yes, the margin growth for the business has been a strong focus over the last several years and we've had great progress. The drivers of it are supply chain diversification. It's diversifying our supply chain productivity in our distribution centers and across the organization as well as automation effort.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

Pretty consistent with what we've been talking about the last several quarters, and we continue to drive solid results.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Yes. I'll also add that new product has been a significant driver. It's a huge focus for us, particularly new to the aftermarket parts, which, again, are only available through Dorman and the OE dealer network. Those typically are higher highest margin products when we bring them to market.

[Kevin Olsen, President, CEO & Director at Dorman Products]

Or it can be OE fix where we're actually designing out the original flaw in the OE part. So that continued focus and the continued growth of the sweet spot, which is the eight to seven to fourteen year old vehicle, has continued to be able to drive accretive margins for us.

[Analyst]

I appreciate it. And then switching gears a little, would you just talk, and give us some more detail on how you guys are thinking about the capital allocation strategy?

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

Yeah. It's a great question. So the capital allocation strategy is consistent with what it's been over the last several years. The first thing we do is look to manage our debt, our leverage targets up against our internal target of two times, three times in the first year following an acquisition. So after we look at that, the first place we'll look is internal investment, where we get our greatest returns second is strategic M and A mergers and acquisitions And then third, opportunistically, we look to get shares to buy back shares and get capital back to our shareholders.

[David Hession, Senior VP, CFO & Treasurer at Dorman Products]

So like I said, that's the allocation strategy pretty consistent with what it's

[Operator]

Ladies and gentlemen, we have reached the end of the question and answer session. This will conclude today's call. Thank you all for joining. You may now disconnect.

Participants

Executives

• Alexander Whitelam, VP - IR & Risk Management
• Kevin Olsen, President, CEO & Director
• David Hession, Senior VP, CFO & Treasurer

Analysts

• Analyst
• Bret Jordan, Managing Director at Jefferies LLC