With the robust small-cap rally having picked up steam through the summer months, we asked the portfolio management team for Royce Premier Fund to discuss four holdings that they think exemplify certain of the portfolio’s high-quality attributes.

Dorman Products (Nasdaq: DORM) is the dominant provider of “new to the aftermarket” (formerly OEM or original equipment manufacturer) parts for passenger and light duty vehicles, heavy duty vehicles, and specialty powersports vehicles. The company posted another quarter of results that came in ahead of expectations, with double-digit sales growth and 140 basis points of margin expansion in its largest segment, Light Duty vehicles. Key drivers of this strength included fulfillment of inventory for new program wins with key customers, continued new product innovation—including Advanced Electronics with higher average selling prices—and the secular aging of the U.S. auto parc (12.8 years, within Dorman’s sweet spot of seven to 14 years old).

Heavy Duty demand remained weak in 2025’s first half (when its shares fell) as the U.S. trucking recession continued and consumer spending on big ticket discretionary items such as powersports vehicles were cautious in the near term. However, the eventual normalization of demand in these markets over time should see Dorman’s earnings growth accelerate into a higher gear given the attractive profitability on incremental product sales along with the fixed customer nature of the segment. We may have seen signs of that in early August, when Dorman reported strong 2Q25 results and raised its full year guidance. Management cited better-than-expected top- and bottom-line growth, which was driven in large part by strong demand in its Light Duty business. Dorman also saw cost savings across the enterprise through its efforts on supply chain diversification, productivity, and automation initiatives.

Dorman Products (NASDAQ: DORM)
12/31/24-9/12/25

Past performance is no guarantee of future results.

ESAB Corporation (NYSE: ESAB) is one of the global leaders in a global, rational oligopoly for welding equipment and consumables. Its new product development efforts have expanded its industrial automation offerings, while acquisitions have given it a solid foundation in gas control systems used in industrial and medical applications. The company is a premier industrial compounder, but 2Q25 results contained a negative surprise in the form of a five-percentage point decline in America’s segment sales (with Mexico particularly hard hit) due to the tariff impacts of reduced demand and order delays. The results were out of sync with those of peer Lincoln Electric, which a few weeks earlier posted stronger than expected organic growth in the low single digits in its America’s welding segment.

We believe the recent decline in ESAB’s stock based on its earnings news was an overreaction to temporary factors—ESAB has already seen improving orders in the Americas in 3Q25. We therefore used the weakness to add to our position. The pullback also overshadowed the company’s recent purchase of EWM, the largest welding equipment company in Germany, which is accretive to gross margins, though its operating margins have room for improvement from ESAB’s operational excellence playbook. With 60% of sales from equipment and 25% from automation and robotics, EWM furthers ESAB’s goal of raising its mix of equipment relative to consumables and strengthening its European presence, while also opening up cross-selling opportunities between EWM’s equipment and ESAB’s welding consumables that could accelerate EWM’s organic growth.

ESAB Corporation (NYSE: ESAB)
12/31/24-9/12/25

Past performance is no guarantee of future results.

Quaker Houghton (NYSE: KWR) is a global leader in the development and production of formulated specialty chemicals solutions and industrial process fluids used in steel production and metalworking applications. After 15 consecutive negative quarters, Quaker posted positive organic volume growth in 2Q25, while continuing to outpace its end market demand by several percentage points via share gains and cross-selling. The Asia Pacific region remained the bright spot, though the Americas and EMEA also grew organically. While end market softness is expected to persist into 2025’s second half, the company is confident that its healthy pipeline of product trials, continued successful conversions, and improved customer churn will enable it to sustain growth by achieving its target of 200-400 basis points of market outperformance. The recent resumption of tuck-in acquisitions should provide a further boost, while revenue gains will likely be leveraged into faster earnings growth in the second half of 2025 and into 2026 thanks to a new program to reduce expenses by another $20 million, on top of its recently completed $20 million plan. In August, Quaker reported sluggish earnings growth for 2Q25 profitability but revenue was higher than anticipated, top-line momentum was robust, particularly in its Asia-Pacific segment.

Quaker Houghton (NYSE: KWR)
12/31/24-9/12/25

Past performance is no guarantee of future results.

TMX Group (X.CN / OTC: TMXXF:US) owns the Toronto Stock Exchange and the Montreal Exchange for equities, along with other listing, clearing, and trading capabilities for derivatives, fixed income securities, and energy. Over the past several years, new management, through its Global Insights segment, has begun to better leverage and monetize the company’s proprietary data that it has as a monopoly provider in Canada. The company has also acquired firms with indexing data and data analytics that it sells to relevant users on a recurring basis. With almost 50% of TMX’s revenue generated from these services, it has a higher margin, steadier income stream to counter some of the cyclicality associated with its more trading volume-dependent Capital Formation (exchange listings fees) and Trading & Clearing businesses.

Organic growth from these actions has accelerated, including a 19% gain in 2Q25, which along with healthier capital markets after the 90-day Trump Tariff pause, were key drivers of the stock’s strong performance in the first half of 2025. Late in July, the company reported its 2Q25 results, which included double-digit growth in revenue and operating income driven by higher trading volumes in derivatives and equities, as well as pronounced growth in TMX’s Global Insights business.

TMX Group (X.CN / OTC: TMXXF:US)
12/31/24-9/12/25

Past performance is no guarantee of future results.

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