Dana(US:DAN)2024-04-30 11:00markdown [Executive Summary & Q1 Highlights](index=1&type=section&id=Executive_Summary_Q1_Highlights) [Q1 2024 Performance Overview](index=1&type=section&id=Q1_2024_Performance_Overview) Dana reported strong Q1 2024 sales, adjusted EBITDA, and free cash flow, with net income impacted by a European hydraulics divestiture Q1 2024 Key Financial Highlights (YoY Change) | Metric | Q1 2024 | Q1 2023 | Change | % Change | | :----------------------- | :------ | :------ | :----- | :------- | | Sales | **$2.74B** | **$2.64B** | **+$91M** | **+3.4%** | | Adjusted EBITDA | **$223M** | **$204M** | **+$19M** | **+9.3%** | | Adjusted EBITDA Margin | **8.2%** | **7.7%** | **+50 bps** | - | | Net Income (attributable to Dana) | **$3M** | **$28M** | **-$25M** | **-89.3%** | | Diluted EPS | **$0.02** | **$0.19** | **-$0.17** | **-89.5%** | | Operating Cash Flow | **-$102M** | **-$170M** | **+$68M** | - | | Free Cash Flow | **-$172M** | **-$290M** | **+$118M** | - | - Profit conversion on traditional organic sales reached **39%** in Q1 2024, well above historical first-quarter conversion rates[4](index=4&type=chunk)[32](index=32&type=chunk) - Net income was significantly impacted by a **$29 million** loss recognized from the definitive agreement to sell its European Off-Highway non-core hydraulics business, classified as held for sale, and an additional **$7 million** in European valuation allowances, totaling a **$0.25** per share impact[7](index=7&type=chunk)[9](index=9&type=chunk) [Revised Full-Year 2024 Guidance](index=1&type=section&id=Revised_Full_Year_2024_Guidance) Dana raised full-year 2024 free cash flow guidance by **$25 million** due to working capital efficiency, maintaining strong sales and adjusted EBITDA targets Revised Full-Year 2024 Financial Targets | Metric | Guidance Range | | :------------------ | :--------------------- | | Sales | **$10.65 - $11.15 billion** | | Adjusted EBITDA | **$875 - $975 million** | | Operating Cash Flow | **$500 - $550 million** | | Free Cash Flow | **$50 - $100 million** | | Diluted EPS | **$0.35 - $0.85** | - Full-year 2024 free cash flow guidance was raised by **$25 million**, primarily due to improved working capital efficiency[9](index=9&type=chunk) - The implied adjusted EBITDA margin at the midpoint of the range is approximately **8.5 percent**[15](index=15&type=chunk) [Company Overview](index=3&type=section&id=Company_Overview) [About Dana Incorporated](index=3&type=section&id=About_Dana_Incorporated) Dana is a global leader in propulsion and energy-management solutions for mobility markets, focusing on sustainable technologies, reporting **$10.6 billion** in 2023 sales - Dana is a leader in the design and manufacture of highly efficient propulsion and energy-management solutions for all global mobility markets[18](index=18&type=chunk) - The company reported sales of **$10.6 billion** in 2023 with **42,000** people in **31** countries[19](index=19&type=chunk) - Dana was named among the 'World's Most Ethical Companies' for 2023 and 2024 by Ethisphere and as one of 'America's Most Responsible Companies 2023' by Newsweek[19](index=19&type=chunk) [Industry Recognition & Innovation](index=16&type=section&id=Industry_Recognition_Innovation) Dana received a PACE Award for its patented EMIVT, showcasing innovation and offering advancements in performance, cost, sustainability, and safety across operating modes - Dana received a PACE Award for its patented Electro-Mechanical, Infinitely Variable Transmission (EMIVT)[34](index=34&type=chunk) - The EMIVT operates in engine-only, hybrid, or full-battery electric modes, offering enhanced performance, reduced total cost of ownership, improved sustainability, and a safer working environment[35](index=35&type=chunk) - Key benefits of EMIVT include up to **40%** better fuel economy, **28%** faster acceleration, reduction of brake wear, zero-emission and low-noise operation, functional-safety compliance, pump and roll operation, and regenerative braking[35](index=35&type=chunk) [Business Environment & Outlook](index=15&type=section&id=Business_Environment_Outlook) [2024 Business Environment Outlook](index=15&type=section&id=2024_Business_Environment_Outlook) Dana anticipates improved production stability and cost reductions in 2024, with new programs driving growth despite commodity headwinds, alongside moderating inflation and stable OEM production - Company-wide efficiencies are expected from improved customer production stability and continued lowering of production costs[33](index=33&type=chunk) - Net commodities are expected to be a sales and profit headwind, with steel prices mostly flat and commodity recoveries reversing[33](index=33&type=chunk) - New programs and refreshed base business are expected to drive growth, market share gains in Commercial Vehicle, and higher efficiency due to a normalized annual launch cadence[33](index=33&type=chunk) - Industry trends indicate moderating cost inflation, stable OEM production, and fluctuating EV demand[33](index=33&type=chunk) [End-Market Outlook](index=15&type=section&id=End_Market_Outlook) The 2024 end-market outlook shows varied trends, with softening in Agriculture, slight improvement in Medium-Duty Truck, and no significant change anticipated for Construction, Mining, Light Truck, and Heavy-Duty Truck sectors compared to the previous year 2024 End-Market Outlook (from last year) | Market | Update | | :------------- | :------------- | | Agriculture | Softening | | Construction | No Change | | Mining | No Change | | Light Truck | No Change | | Medium-Duty Truck | Slight Improvement | | Heavy-Duty Truck | No Change | [First Quarter 2024 Financial Review](index=9&type=section&id=First_Quarter_2024_Financial_Review) [Consolidated Results](index=19&type=section&id=Consolidated_Results) Dana's Q1 2024 consolidated results showed increased sales and adjusted EBITDA, with cash flow improving, but net income and EPS were reduced by a European hydraulics divestiture charge Sales and Profit Analysis | Metric | Q1 2024 ($M) | Q1 2023 ($M) | Change ($M) | | :----------------------- | :----------- | :----------- | :---------- | | Sales | **2,735** | **2,644** | **91** | | Adjusted EBITDA | **223** | **204** | **19** | | Adjusted EBITDA Margin | **8.2%** | **7.7%** | **+50 bps** | | Loss on Business Held for Sale | (**29**) | **0** | (**29**) | | EBIT | **70** | **90** | (**20**) | | Net Income (attributable to Dana) | **3** | **28** | (**25**) | | GAAP Diluted EPS | **0.02** | **0.19** | (**0.17**) | - Higher sales were driven by renewed vehicle programs, new business, and market share gains in the commercial vehicle market, partially offset by lower sales in off-highway agriculture markets[39](index=39&type=chunk)[42](index=42&type=chunk) - Increased production efficiency, company-wide cost improvement actions, and more stable customer order patterns drove higher profitability, with company-wide cost management offsetting inflation[39](index=39&type=chunk)[42](index=42&type=chunk) - The announced divestiture of the European hydraulics business resulted in a **$29 million** impairment charge and **$7 million** of additional income tax expense, negatively impacting EPS by **$0.25**/share[39](index=39&type=chunk) Cash Flow Analysis | Metric | Q1 2024 ($M) | Q1 2023 ($M) | Change ($M) | | :----------------------- | :----------- | :----------- | :---------- | | Operating Cash Flow | (**102**) | (**170**) | **68** | | Free Cash Flow | (**172**) | (**290**) | **118** | - Free cash flow improvement was driven by higher profit, lower working capital requirements due to focused management of inventory and receivables, and reduced capital spending[44](index=44&type=chunk) - Net interest payments increased due to higher rates and payment timing from refinancing activities[44](index=44&type=chunk) [Segment Performance](index=9&type=section&id=Segment_Performance) In Q1 2024, most segments saw sales and adjusted EBITDA growth, notably Light Vehicle and Power Technologies, while Off-Highway experienced slight declines Q1 2024 Segment Sales (YoY) | Segment | Q1 2024 ($M) | Q1 2023 ($M) | Change ($M) | % Change | | :------------------ | :----------- | :----------- | :---------- | :--------- | | Light Vehicle | **1,098** | **962** | **136** | **14.1%** | | Commercial Vehicle | **524** | **522** | **2** | **0.4%** | | Off-Highway | **781** | **842** | (**61**) | **-7.2%** | | Power Technologies | **332** | **318** | **14** | **4.4%** | | **Total Sales** | **2,735** | **2,644** | **91** | **3.4%** | Q1 2024 Segment EBITDA (YoY) | Segment | Q1 2024 ($M) | Q1 2023 ($M) | Change ($M) | % Change | | :------------------ | :----------- | :----------- | :---------- | :--------- | | Light Vehicle | **67** | **49** | **18** | **36.7%** | | Commercial Vehicle | **17** | **17** | **0** | **0.0%** | | Off-Highway | **115** | **118** | (**3**) | **-2.5%** | | Power Technologies | **27** | **23** | **4** | **17.4%** | | **Total Segment EBITDA** | **226** | **207** | **19** | **9.2%** | [Full-Year 2024 Financial Guidance](index=2&type=section&id=Full_Year_2024_Financial_Guidance) [Revised Financial Targets](index=2&type=section&id=Revised_Financial_Targets) Dana updated its full-year 2024 guidance, raising free cash flow while maintaining strong sales and adjusted EBITDA targets, reflecting anticipated growth and improved efficiencies Full-Year 2024 Guidance Ranges | Metric | 2024 Guidance | Change from Prior Guide | Change from Prior Year | | :------------------ | :------------------ | :---------------------- | :--------------------- | | Sales | **~$10,900M** | - | **+$345M** | | Adjusted EBITDA | **~$925M** | - | **+$80M** | | Implied Profit Margin | **8.2% - 8.7%** | - | **+50 bp** | | Free Cash Flow | **~$75M** | **+$25M** | **+~$100M** | | Diluted EPS | **~$0.60** | **+$0.3** | - | - Sales growth is driven by new business backlog, improved end-market demand, new/refreshed programs, and market share gains[46](index=46&type=chunk) - Company-wide efficiency improvements are expected to drive higher margins[46](index=46&type=chunk) [Sales and Profit Outlook](index=22&type=section&id=Sales_and_Profit_Outlook) Dana projects full-year 2024 sales growth from organic expansion and improved profit margins from efficiencies, with cost recovery offsetting inflation and accounting for a hydraulics divestiture Full-Year 2024 Sales and Adjusted EBITDA Targets (YoY) | Metric | 2024 Target ($M) | 2023 ($M) | Change ($M) | | :---------------- | :--------------- | :-------- | :---------- | | Sales | **~$10,900** | **10,555** | **~$345** | | Adjusted EBITDA | **~$925** | **845** | **~$80** | | Adjusted EBITDA Margin | **8.5%** | **8.0%** | **+50 bps** | - Organic growth is driven by strong sales, pricing, and market share gains, with strong conversion on organic growth due to improved efficiencies and cost savings actions[50](index=50&type=chunk) - Cost recovery actions are expected to mostly offset inflation, and positive profit contribution on EV sales will be offset by investment in new program development[50](index=50&type=chunk) - Lower commodity costs are driving reduced sales recoveries, with profit impacted by commodity cost true-ups with customers as input commodities decline[50](index=50&type=chunk) [Free Cash Flow Outlook](index=22&type=section&id=Free_Cash_Flow_Outlook) Dana anticipates positive full-year 2024 free cash flow, driven by higher profit, lower capital investment, and improved working capital efficiency, despite increased net interest payments Full-Year 2024 Free Cash Flow Outlook (YoY) | Metric | 2024 ($M) | 2023 ($M) | Change ($M) | | :----------------------- | :-------- | :-------- | :---------- | | Adjusted EBITDA | **~$925** | **845** | **~$80** | | One-time Costs | (**40**) | (**20**) | (**20**) | | Interest, Net | (**150**) | (**116**) | (**35**) | | Taxes | (**160**) | (**148**) | (**10**) | | Working Capital / Other | (**20**) | (**85**) | **35** | | Capital Spending | (**450**) | (**501**) | **50** | | **Free Cash Flow** | **~$75** | (**25**) | **~$100** | - Full-year free cash flow guidance was raised due to improved working capital efficiency[52](index=52&type=chunk) - Positive free cash flow is driven by higher profit and lower capital investment requirements[52](index=52&type=chunk) - An increase in net interest payments is expected due to higher rates and payment timing from refinancing[52](index=52&type=chunk) [Non-GAAP Financial Measures](index=2&type=section&id=Non_GAAP_Financial_Measures) [Adjusted EBITDA Definition](index=2&type=section&id=Adjusted_EBITDA_Definition) Adjusted EBITDA is a non-GAAP measure defined as net income before specific non-operating adjustments, used by management and investors to assess strategies, evaluate acquisitions, and make compensation decisions - Adjusted EBITDA is defined as net income (loss) before interest, income taxes, depreciation, amortization, equity grant expense, restructuring expense, non-service cost components of pension and other postretirement benefit costs, and other adjustments not related to core operations (e.g., gain/loss on debt extinguishment, pension settlements, divestitures, impairment)[12](index=12&type=chunk)[53](index=53&type=chunk) - It is used to assess the effectiveness of business strategies, evaluate and price potential acquisitions, and as a factor in making incentive compensation decisions[12](index=12&type=chunk)[53](index=53&type=chunk) [Free Cash Flow Definition](index=2&type=section&id=Free_Cash_Flow_Definition) Free cash flow is a non-GAAP measure defined as net cash from operating activities less capital expenditures, useful for investors to evaluate operational cash flow and maintenance spending - Free cash flow is defined as net cash provided by (used in) operating activities less purchases of property, plant and equipment[13](index=13&type=chunk)[54](index=54&type=chunk) - It is useful to investors in evaluating the operational cash flow of the company, inclusive of the spending required to maintain operations[13](index=13&type=chunk)[54](index=54&type=chunk) [Financial Statements](index=4&type=section&id=Financial_Statements) [Consolidated Statement of Operations](index=4&type=section&id=Consolidated_Statement_of_Operations) The Consolidated Statement of Operations presents Dana's revenues and expenses for the three months ended March 31, 2024 and 2023, detailing net sales, cost of sales, operating expenses, and ultimately net income attributable to the parent company - Refer to the table in chunk 21 for detailed figures of the Consolidated Statement of Operations[21](index=21&type=chunk) [Consolidated Statement of Comprehensive Income](index=5&type=section&id=Consolidated_Statement_of_Comprehensive_Income) This statement outlines Dana's net income and other comprehensive income (loss) components, such as currency translation adjustments, hedging gains and losses, and defined benefit plan adjustments, for the three months ended March 31, 2024 and 2023 - Refer to the table in chunk 22 for detailed figures of the Consolidated Statement of Comprehensive Income[22](index=22&type=chunk) [Consolidated Balance Sheet](index=6&type=section&id=Consolidated_Balance_Sheet) The Consolidated Balance Sheet provides a snapshot of Dana's financial position, detailing its assets, liabilities, and equity as of March 31, 2024, and December 31, 2023, including current and noncurrent classifications - Refer to the table in chunk 23 for detailed figures of the Consolidated Balance Sheet[23](index=23&type=chunk) [Consolidated Statement of Cash Flows](index=7&type=section&id=Consolidated_Statement_of_Cash_Flows) This statement presents Dana's cash flows from operating, investing, and financing activities for the three months ended March 31, 2024 and 2023, illustrating the changes in cash and cash equivalents over the period - Refer to the table in chunk 24 for detailed figures of the Consolidated Statement of Cash Flows[24](index=24&type=chunk) [Reconciliations](index=8&type=section&id=Reconciliations) [Free Cash Flow Reconciliation](index=8&type=section&id=Free_Cash_Flow_Reconciliation) This section provides a reconciliation of net cash used in operating activities to free cash flow for the three months ended March 31, 2024 and 2023, highlighting the impact of property, plant, and equipment purchases Reconciliation of Net Cash Used In Operating Activities to Free Cash Flow | (In millions) | March 31, 2024 | March 31, 2023 | | :------------------------------------------ | :------------- | :------------- | | Net cash used in operating activities | **$ (102)** | **$ (170)** | | Purchase of property, plant and equipment | (**70**) | (**120**) | | **Free cash flow** | **$ (172)** | **$ (290)** | [Adjusted EBITDA Reconciliation](index=10&type=section&id=Adjusted_EBITDA_Reconciliation) This reconciliation details the adjustments from segment EBITDA to adjusted EBITDA and subsequently to net income for the three months ended March 31, 2024 and 2023, including depreciation, amortization, restructuring charges, and the loss on disposal group held for sale Reconciliation of Segment and Adjusted EBITDA to Net Income | (In millions) | March 31, 2024 | March 31, 2023 | | :---------------------------------------------------- | :------------- | :------------- | | Segment EBITDA | **$ 226** | **$ 207** | | Corporate expense and other items, net | (**3**) | (**3**) | | **Adjusted EBITDA** | **223** | **204** | | Depreciation | (**101**) | (**92**) | | Amortization | (**5**) | (**5**) | | Non-service cost components of pension and OPEB costs | (**4**) | (**3**) | | Restructuring charges, net | (**5**) | (**1**) | | Stock compensation expense | (**6**) | (**6**) | | Strategic transaction expenses | (**2**) | (**1**) | | Distressed supplier costs | (**8**) | - | | Loss on disposal group held for sale | (**29**) | - | | Other items | (**1**) | **2** | | Earnings before interest and income taxes | **70** | **90** | | Interest income | **4** | **4** | | Interest expense | **39** | **34** | | Earnings before income taxes | **35** | **60** | | Income tax expense | **37** | **30** | | Equity in earnings of affiliates | **2** | **1** | | **Net income** | **$ -** | **$ 31** | [Forward-Looking Statements](index=3&type=section&id=Forward_Looking_Statements) [Forward-Looking Statements Disclaimer](index=3&type=section&id=Forward_Looking_Statements_Disclaimer) This section contains forward-looking statements based on current expectations, subject to inherent risks and uncertainties, not guaranteeing future results, and Dana undertakes no obligation to update them - Statements and projections are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995, based on current expectations, estimates, and projections[16](index=16&type=chunk)[29](index=29&type=chunk) - These statements are not guarantees of future results and are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially and adversely[16](index=16&type=chunk)[29](index=29&type=chunk) - Dana's SEC filings (Form 10-K, 10-Q, 8-K) discuss important risk factors, and the company does not undertake any obligation to revise or update publicly any forward-looking statement[17](index=17&type=chunk)[29](index=29&type=chunk)