Dorman Products, Inc. has reported second quarter 2018 net sales of $238.1 million, up 4% compared to net sales of $229.3 million in the second quarter of 2017.
Included in net sales were approximately $10 million of sales from MAS Automotive Distribution Inc. (MAS) which was acquired in October of 2017.
Net income for the second quarter of 2018 was $34.3 million, or $1.03 per diluted share compared to $28.4 million, or $0.83 per diluted share in the prior year quarter. Adjusted net income in the second quarter was $36.2 million, or $1.09 per diluted share, up 30% compared to $28.7 million or $0.84 per diluted share in the prior year quarter. Please refer to the Non-GAAP Financial Measures reported in the supplemental schedules at the end of this release for a detailed reconciliation of the reported (GAAP) financial information to the adjusted financial information (Non-GAAP).
All figures in U.S. dollars.
Gross profit percentage for the quarter was 38.9% on a GAAP basis. Excluding the impacts of acquisition-related adjustments, adjusted gross profit was 39.3% in the quarter compared to 39.6% in the same quarter last year. The 30Bps difference is primarily a result of the MAS acquisition which carries slightly lower gross margins compared to historical Dorman levels.
Selling, general, and administrative (“SG&A”) expenses were $49.9 million in the second quarter on a GAAP basis. Excluding the impact of acquisition-related adjustments and a non-cash impairment related to the acquisition of the remaining outstanding shares of a previously unconsolidated entity, adjusted SG&A was $48.1 million or 20.2% of net sales in the quarter compared to $45.9 million or 20.0% of net sales in the same quarter last year.
Income tax expense was $8.5 million in the second quarter, or 19.9% of income before income taxes down from $16.8 million, or 37.1% of income before income taxes recorded in the same quarter last year. The reduction in tax rate compared to prior year is primarily a result of the recently enacted U.S. tax legislation known as the Tax Cuts and Jobs Act. Our tax rate was also down from the first quarter of 2018, a result of increased tax credits and, to a lesser extent, resolution of a prior period state tax matter.
Matt Barton, Dorman Products President and Chief Executive Officer, stated: “We experienced a moderately improved demand environment in the second quarter. Year to date customer sell through, as reported to us by our customers, was up over prior year in the mid-single digit range as sell through from new products more than offset continued sales growth headwinds resulting from our brand protection pricing policy that went into effect early in the fourth quarter of 2017. The impact from our brand protection policy will continue to weigh on our year over year organic growth comparisons through the end of the third quarter. Our team continues to execute well. We launched 1,534 new SKU’s in the quarter and our Dorman Heavy Duty Solution lines net sales grew 30% in the quarter. Our Complex Electronics lines net sales were also up 7% in the quarter despite being impacted by our brand protection policies. We firmly believe that our strategy of investing in both Heavy Duty and Complex Electronics, combined with Light Duty New Product development and strategic acquisitions is the right one, and will continue to drive attractive returns for our shareholders.”
The company is narrowing its fiscal 2018 EPS guidance range. On a GAAP basis, fiscal 2018 EPS is expected to be in the $4.05 to $4.15 range. Fiscal 2018 Adjusted EPS is expected to be in the $4.15 to $4.27 range or a 23% to 27% growth rate. It is lowering its previously guided full year effective tax rate to approximately 22% (from 24%), primarily as a result of higher tax credits than previously anticipated. It is also reducing its previously issued full year sales growth guidance to be in the 4% to 6% range, a result of longer than expected inventory control measures by its customers.
Effective July 6th, the Office of the United States Trade Representative (USTR) imposed an additional duty of 25% on approximately $34 billion worth of Chinese imports containing industrially significant technologies, including those related to China’s “Made in China 2025” industrial policy. These additional duties impact a subset of products that are manufactured for Dorman in China. The company expects the impact of these additional duties, after mitigating actions including, but not limited to, price increases to its customers, will not be significant to its financial results in 2018. However, its current guidance does not reflect any additional tariffs or duties not already in effect as of the date of this release.