Dana Holding Corporation has announced results for the first quarter of 2014.
Sales were $1.688 billion, compared with $1.676 billion for the same period in 2013. Favorable end-market demand in most regions provided a benefit of $56 million that was partially offset by unfavorable currency effects, principally in South America.
As of March 31, 2014, Dana changed the exchange rate for remeasuring the financial statements of its Venezuela operations from the official rate of 6.3 bolivars per U.S. dollar to the rate determined by an auction process as published by the Central Bank of Venezuela. This rate was 10.7 bolivars per U.S. dollar at March 31, 2014, and resulted in a charge of $17 million in the first quarter of 2014. This charge is reflected in Dana's net income and adjusted EBITDA. In the first quarter of 2013, the Venezuelan government devalued the official rate from 4.3 to 6.3, resulting in a charge of $6 million. These currency effects impacted Dana's Light Vehicle Driveline business in both periods.
Net income for the quarter was $34 million, compared with $42 million for the same period in 2013, and diluted adjusted earnings per share (EPS) was $0.32, compared with $0.28 in the first quarter of 2013. Gross profit increased $20 million on higher sales of $12 million, reflecting favorable operating conversion on increased production demand. Increased restructuring charges principally in South America, the impact of Venezuela currency effects, and higher interest and tax expenses were offsetting factors.
Adjusted EBITDA for the quarter was $165 million, compared with $158 million a year ago. Adjusted EBITDA margin of 9.8% in the quarter improved 40 basis points when compared with last year. This improvement reflected the benefit of increased production volumes and continued cost discipline despite significant currency headwinds, most notably in Venezuela. As highlighted above, Venezuela currency effects lowered Dana's adjusted EBITDA by about 100 basis points in the first quarter of this year and about 35 basis points in 2013. Excluding the impact of the Venezuela currency devaluation charge, adjusted EBITDA margin performance in the first quarter of 2014 was 10.8%.
Free cash flow was a use of $36 million in the quarter, compared with a use of $44 million a year ago. Seasonal trade working capital requirements, interest payments of $57 million, and capital spending of $36 million were the primary net cash uses in the quarter. Free cash flow in this year's first quarter included $40 million of proceeds from the sale of a note receivable that represented prior period interest. Total cash used in the first three months of 2014 was $117 million, including $64 million for repurchases of common stock and $22 million for debt retirement.
Business Unit Results for the First Quarter
Light Vehicle Driveline Technologies:
Sales were $618 million in the first quarter of 2014, compared with $619 million last year. Increased end-market demand for light trucks in North America was muted by unfavorable currency, principally in South America, and weak demand in India and Thailand. Segment EBITDA for the quarter was $30 million, or 4.9% of sales, and included a $17 million charge for devaluation of the Venezuela bolivar. This result compares with segment EBITDA of $41 million in the first quarter of 2013, which also included a devaluation charge for Venezuela of $6 million.
Commercial Vehicle Driveline Technologies:
Sales were $457 million in the first quarter of 2014, compared with $458 million last year. Improved end-market demand in Europe, South America, and North America was offset by unfavorable currency. Segment EBITDA for the first quarter of 2014 was $44 million, or 9.6 percent of sales, representing a margin improvement of 60 basis points when compared with last year's segment EBITDA of $41 million.
Off-Highway Driveline Technologies:
Sales were $341 million in the first quarter of 2014, compared with $343 million last year. Favorable currency, reflecting the strength of the Euro, was offset by lower demand, principally mining-related equipment, when compared with 2013. Segment EBITDA for the first quarter of 2014 was $42 million, or 12.3% of sales, representing a margin improvement of 30 basis points when compared with last year's segment EBITDA of $41 million.
Power Technologies:
Sales were $272 million in the first quarter of 2014, compared with $256 million last year, reflecting improved market demand in both North America and Europe. Segment EBITDA for the first quarter of 2014 was $44 million, or 16.2 percent of sales, representing a margin improvement of 210 basis points when compared with last year's segment EBITDA of $36 million.
Share Repurchase Program
During the first quarter of 2014, Dana executed $64 million of share repurchases under its share repurchase program. Since the start of the program in late 2012, Dana has returned $893 million to shareholders and has reduced its fully diluted share count by 42 million, or about 20%. At the end of March 2014, $107 million remained under Dana's existing $1 billion share repurchase program.
"Continuing our momentum from 2013, Dana's first-quarter results were in line with our expectations, even with the continued instability in Venezuela and the resulting currency effects reflected in our earnings results. We continued to improve our operating margin performance, with strong results posted across most of our business units," says company President and Chief Executive Officer Roger J. Wood. "As our end markets expand in the future, we are well positioned to profitably grow the top line through booked business and new sales awards while achieving continued margin expansion and strong cash flow generation."
2014 Financial Targets Affirmed
Dana expects its operations to be impacted by continued emerging market volatility, as the rest of 2014 unfolds, with the opportunity for improving demand in the commercial-vehicle and, to a lesser extent, off-highway markets. Accordingly, Dana has affirmed its financial targets for full-year 2014, with expected results at the low end of the range for full-year sales, adjusted EBITDA and diluted adjusted EPS:
- Sales of approximately $6.8 to $6.9 billion;
- Adjusted EBITDA of approximately $760 to $770 million;
- Adjusted EBITDA as a percent of sales of approximately 11.2%;
- Diluted adjusted EPS of approximately $1.82 to $1.86 (excluding the impact of share repurchases afterMarch 31, 2014);
- Capital spending of approximately $210 to $230 million; and
- Free cash flow of $275 to $295 million.
The uncertainties surrounding the current environment in Venezuela present a potential challenge to 2014 financial targets, which assume that automotive production in Venezuela resumes in the second half of this year. In the event that production does not resume as expected or that Dana is unable to obtain raw materials to cost effectively operate the business, the required statutory people cost and other carrying costs would reduce earnings. The company currently estimates that a scenario with nominal or no production during the last nine months of 2014 could reduce full-year earnings by as much as $40 million.
"Although Venezuela currently poses challenge and uncertainty, elsewhere through the remainder of the year, we expect primarily stable end-market demand across most regions, with continued strength in full-frame light trucks and the opportunity for improving commercial-vehicle demand in North America," Wood says. "While worldwide mining and construction-equipment markets remain sluggish, we are well positioned to capitalize upon a demand upswing in these important segments. Our business units continue to work through the near-term currency and economic challenges presented by emerging markets such as South America, India, and Thailand, as well as capitalizing upon stronger demand in other markets. "
Customers Recognize Value in Dana Technologies
Dana continues to provide its customers with market-driven technologies designed to improve vehicle efficiency while positioning the company for profitable growth over the next several years.
At this year's Mid-America Trucking Show in March, Dana announced the initial production of Spicer AdvanTEK40 tandem axles with a select number of popular axle ratios, including the industry's fastest ratio of 2.26:1. This all-new 40,000-pound tandem axle for a variety of Class 8 applications features market-leading design solutions that increase fuel economy, reduce vehicle weight, improve reliability, and decrease total ownership costs.
Dana's Spicer EconoTrek 6x2 tandem axle is also available for 2014 commercial vehicles. Weighing up to 400 lbs. less than a traditional 40,000-pound 6x4 tandem axle arrangement, the Spicer EconoTrek axle offers numerous innovations for reducing maintenance and increasing the fuel economy of heavy-duty linehaul tractors by 2 to 3%.
Further supporting Dana's commitment to long-term growth, the company announced at CONEXPO/CON-AGG in March its R2 hydromechanical variable transmission (HVT) – the latest powersplit system resulting from the joint venture between Dana Holding Corporation and Bosch Rexroth AG – is undergoing bench testing in the final validation stage of development. Engineers expect the R2 HVT to enter field testing across a wide spectrum of market vehicles by the end of the year, with production slated to begin within the next 12 months.
Dana is also expanding the development of its Spicer PowerBoost hydraulic-hybrid system for the off-highway market. In February, the company launched field tests of a telescopic boom handler powered by a 111 hp engine that is also equipped with Dana's pioneering hydraulic-hybrid technology.
New Technologies Announced
Dana recently introduced several new technologies to market, including the Spicer D-Series steer axles that will enable improved vehicle stopping power and reduced maintenance without the added weight that typically results from specifying air disc brakes.
The company also presented additions to the company's family of Spicer E-Series steer axles that deliver best-in-class performance and durability with up to 35 lbs. less weight.
Dana recently introduced upgraded Spicer 37R and Spicer 43R axles and a Spicer Wing Series driveshaft. This system flexibility allows machine designers to configure a series of vehicles in a single power range that offer a variety of basic to advanced features while requiring a minimum of alterations to the design envelope.
Designed with multi-layer steel (MLS) inserts, Dana's new Victocor 500 gasket takes sealing to the next level, helping heavy-duty engines achieve high mileage by meeting extreme durability, high-stress, and pressure requirements for over-the-road hauling.
