Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Dana Inc (DAN, Financial) achieved sales of $2.7 billion in the second quarter, nearly in line with the previous year.
- Adjusted EBITDA for the quarter was $244 million, showing an increase driven by efficiency improvements.
- Free cash flow was a strong $104 million, despite being down $30 million from the previous year due to timing of payments.
- Dana Inc (DAN) achieved a 73% conversion rate on traditional organic sales in the first half of the year.
- The company raised its full-year free cash flow outlook to approximately $100 million, a 33% increase over prior guidance.
Negative Points
- Demand for EV products was slower than expected, impacting sales and profit margins.
- Net income attributable to Dana Inc (DAN) was $16 million for the second quarter, $14 million lower than the previous year due to restructuring actions.
- The company is seeing weakening demand in both EV and traditional ICE products, particularly in off-highway markets.
- Commodity cost recovery was $16 million lower than last year, impacting profit margins.
- The divestiture of the non-core hydraulics business resulted in a $29 million loss and a $7 million tax valuation allowance in Europe.
Q & A Highlights
Q: When I look at the lower sales guidance of $200 million at the midpoint, almost all of it $175 million is from EVs. What are you seeing on EVs? And the recent S&P forecasts had some pretty big cuts in the second half of the year to some of your larger customers. Was that already baked into your outlook?
A: (Timothy Kraus, CFO) We had already been expecting some of that slowdown in the back half of the year and had already built that into our original forecast. There is also some mix change in there as well. On the EV side, we are seeing lower volumes across much of it, particularly in the CV space. We think some of that will start to return, but it’s more customer-specific rather than program-specific.
Q: If I look at the implied first half to second half, based on the midpoint of your new guidance, it implies higher margins on lower sales. What gets margins higher in the second half, even if sales aren't up?
A: (Timothy Kraus, CFO) We are down about $250 million half to half, and only losing about $10 million of that in EBITDA. A lot of that is around the EV, where we are flexing costs from first half to second half. The balance is additional improvement on the cost structure and efficiencies across the company.
Q: Stellantis and Ford have pretty elevated dealer inventory levels and are using production cuts to deal with this. To what extent are you concerned about this, not just in H2 '24 but also into 2025?
A: (Timothy Kraus, CFO) We had some of this in our guidance already. We also have mix changes between segments and programs. We are very light truck-focused and program-focused on the vehicle side. We think our forecast is in line with what we are hearing from customers, but we will adjust as needed.
Q: You mentioned share gains in commercial vehicle offsetting market declines. Where is this happening?
A: (James Kamsickas, CEO) It’s global. We are continuing to execute on cost, quality, delivery, and our customers are recognizing and supporting us.
Q: Can you give us a sense of the underlying dynamics in the Light Vehicle (LV) margins? How much of this is just inflation unwind, and what is the trajectory?
A: (Timothy Kraus, CFO) The customer running better helps with efficiency, and the drive within the organization on efficiency is reflected. Inflation is still with us but has slowed down. We are working to get these margins back to double-digit profit levels.
Q: Can you give us an update on the EV strategy, given the fluid environment and changing plans by automakers?
A: (James Kamsickas, CEO) Our strategy remains rigid. Our products can go across different markets and applications. We are positioned well, and our strategy doesn’t need to change because our products are flexible across business units.
Q: Can you help us understand what’s driving the traditional organic sales growth in the second half, given some tougher end markets?
A: (Timothy Kraus, CFO) Our second half last year was significantly impacted by the UAW strike, so we will get that volume back. We also had some launches last year that should be at better run rates. Parts of the business outside of North America continue to support ICE sales growth.
Q: Can you confirm that you’d be able to support super duty production in Ontario?
A: (James Kamsickas, CEO) Yes, we can support super duty production in Ontario.
Q: Can you give us an update on the Hydro Quebec TM foreput?
A: (Timothy Kraus, CFO) The process is ongoing, and it will take some time. We expect it to be late this year or early next. The value of the put is around $200 million, which is what we currently have it on the books for.
Q: What is your outlook on the off-highway market, especially agriculture?
A: (Timothy Kraus, CFO) We see agriculture being down, driven by lower farm incomes and news from major customers like John Deere. Our current view of a down Ag market is built into the rest of our forecast.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
