Dana(DAN) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company achieved record second quarter sales of $2.7 billion, a $162 million increase over the same period last year, driven by strong customer demand and ongoing cost recovery efforts [18] - Adjusted EBITDA for the quarter was $243 million, up $81 million or 50% year-over-year, reflecting strong operational execution [18] - Adjusted earnings per share improved to $0.37, an increase of $0.29 per share compared to the previous year [19] - Free cash flow was reported at $134 million, down $33 million from last year due to higher capital spending [42] Business Line Data and Key Metrics Changes - The company noted strong demand across all end markets, with approximately 120 active program launches this year, including a balance of EV and ICE programs [22] - The electrification business saw organic sales increase by $36 million in the second quarter compared to last year, with adjusted EBITDA up by $4 million [54] - The Power Technologies segment experienced weaker margins, attributed to ongoing investments in EV technology and the diverse nature of the business [62] Market Data and Key Metrics Changes - Demand across all end markets remains strong as vehicle manufacturers work to restock inventory, with expectations for improved market conditions in the second half of the year [20] - Commodity costs are expected to remain a tailwind, although prices have not fallen as quickly as anticipated [21] - Foreign currency translation negatively impacted sales by $21 million, but is expected to moderate in the back half of the year [27] Company Strategy and Development Direction - The company is focused on being a leading supplier for both ICE and zero-emissions vehicle manufacturers, emphasizing the importance of in-house capabilities in electrification [19] - The strategy includes leveraging expertise in e-Transmission capabilities across multiple applications and markets [24] - The company aims to maintain a balance between in-house production and outsourcing, ensuring flexibility in meeting customer needs [76] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing challenges such as inflationary pressures and supply chain disruptions but expressed optimism about stabilizing market conditions [20] - The company expects to see benefits from decreasing production volatility, although higher net inflation is anticipated [22] - Management emphasized the importance of total profitability and return on invested capital over traditional margin metrics, given the current market dynamics [80] Other Important Information - The company has taken proactive measures to enhance its product portfolio and operational efficiency, positioning itself well for the transition to electrification [36] - The company reported a significant new electrification business partnership with a major North American OEM, highlighting its capabilities in e-Propulsion systems [23] Q&A Session Summary Question: What are the dynamics of net cost inflation? - Management confirmed a $50 million headwind expected in the second half due to net unrecovered inflation, contrasting with over recoveries in the first half [4] Question: Can you provide details on the timing and investment for the e-beam axle? - Management indicated that the launch timing would be outside the traditional three-year backlog window and would require increased investment [5] Question: How does the company view the impact of lower inflation on supplier margins? - Management noted that even with lower inflation, margins might remain structurally lower due to the inability to recover all costs, emphasizing the focus on return on invested capital [9][80] Question: What is the outlook for organic sales in the second half? - Management indicated that organic sales are expected to be flat, primarily driven by lower recoveries on gross inflation [77]