Dana Holding Corporation has announced results for the third quarter of 2014, which included higher net income over the same period last year.
Sales for the quarter were $1.64 billion, $32 million lower than the same period in 2013. The effects of weaker currencies, principally in South America, reduced sales by $35 million in the quarter. Sales were favorably impacted by stronger production levels in the North American light- and commercial-vehicle markets, while continued weakness in global off-highway end markets and further softening in South America demand across all end markets lowered sales when compared with last year.
Net income for the quarter improved to $90 million, an increase of 32% over the $68 million recorded in the same period in 2013. Lower intangibles amortization, pension expense and restructuring charges partially offset by higher net interest expense were the primary factors benefiting the comparison in the quarter. Diluted adjusted earnings per share (EPS) were $0.57, compared with $0.47 in the third quarter of 2013, reflecting a lower share count from the continued execution of the company's share repurchase program.
Adjusted EBITDA for the quarter was $198 million, equal to 2013 results, while Adjusted EBITDA as a percent of sales improved 20 basis points to 12.1%. Operational performance, cost recoveries and favorable pension expense more than offset the effects of unfavorable currency – including additional Venezuela bolivar devaluation charges of $3 million – and volume and mix in the quarter.
Dana generated strong free cash flow of $61 million in the quarter, compared with $54 million in 2013. During the quarter, the company utilized $68 million to repurchase common shares in the open market under its expanded share repurchase program. As of June 30, 2014, cash and marketable securities totaled $1.27 billion.
"Dana's third-quarter performance was largely in-line with our expectations, though continued weakness in demand in a few of our end-markets and unfavorable currency movements resulted in sales being slightly lower than last year. We continued to improve our earnings performance in the quarter, driving higher net income and adjusted EBITDA margins compared with last year, as well as generating favorable free cash flow and returning capital to our shareholders under our share repurchase program," says President and Chief Executive Officer Roger Wood. "While we expect currency headwinds and volatility in some of our end markets to continue through the remainder of the year, we are confident in our ability to deliver on the performance of the business as we execute our plan and focus on the successful launch of new customer programs over the next several quarters."
Business Unit Results for the Third Quarter
Light Vehicle Driveline Technologies
Sales were $608 million in the third quarter of 2014, compared with $629 million last year. Increased end-market demand for light trucks in North America and Europe was tempered by unfavorable currency effects, as well as weaker demand principally in South America. Segment EBITDA for the quarter was $70 million, or 11.5% of sales, compared with segment EBITDA of $67 million or 10.7% of sales in the third quarter of 2013. Continued actions to recover both currency and inflation impacts in South America were the primary drivers of the increase.
Commercial Vehicle Driveline Technologies
Sales were $487 million in the third quarter of 2014, compared with $465 million last year. Segment EBITDA for the third quarter of 2014 was $47 million, or 9.7% of sales, compared with last year's segment EBITDA of $52 million. Volume improvements in North America continued to be offset by the impact of significantly lower demand in Brazil. Lower South America demand, certain supply-chain initiatives impacting the near-term efficiency of North American operations, and adjustments to warranty reserves for prior model year product were the principal factors impacting segment EBITDA comparisons in the quarter.
Off-Highway Driveline Technologies
Sales were $283 million in the third quarter of 2014, compared with $318 million last year. Consistent with the first half of this year, weakness in global mining and agricultural equipment demand has persisted. In the current quarter, developing weakness in construction equipment demand also weighed on the sales comparisons. Segment EBITDA for the third quarter of 2014 was $40 million, or 14.1% of sales, a margin improvement of 150 basis points when compared with last year, reflecting the impact of continued cost reduction actions.
Sales were $259 million in the third quarter of 2014, compared with $257 million last year, reflecting continued stronger market demand in both North America and Europe that was partially tempered by unfavorable currency. Segment EBITDA for the third quarter of 2014 was $37 million, or 14.3% of sales, compared with 15.2% of sales last year, largely driven by volume and mix and pricing.
Share Repurchase Program Actions
On July 30, 2014, Dana increased its existing share repurchase program by $400 million for a total of $1.4 billion since the program was initially announced in October 2012.
In the third quarter of 2014, Dana repurchased 3 million shares of its common stock, returning $68 million to shareholders. Since the inception of the program in 2012, Dana has returned $1.01 billion in share repurchases and redemptions.
Company Refines Guidance, Raises EPS and Affirms Margin and Free Cash Flow Targets
Dana has raised its guidance for diluted adjusted EPS while refining its full-year sales and adjusted EBITDA targets to reflect continued weakness in a few key end markets and unfavorable currency movements. Adjusted EBITDA margin and cash-flow targets remain unchanged:
- Sales of approximately $6.65 billion;
- Adjusted EBITDA of approximately $745 million;
- Adjusted EBITDA as a percent of sales of approximately 11.2%;
- Diluted adjusted EPS of approximately $1.93 to $1.96 (excluding the impact of share repurchases afterSept. 30, 2014);
- Capital spending of approximately $230 million; and
- Free cash flow of $285 to $295 million.
Dana Continues to Introduce Industry-Leading Technologies
In September, Dana rolled out several new industry-leading technologies to the marketplace that help improve performance, increase fuel economy, and reduce cost of ownership. This includes a new family of single-reduction drive axles that will be engineered on a flexible platform supporting production in North America andWestern Europe, as well as emerging markets. The customizable line of axles leverages Dana's industry-leading Spicer AdvanTEK technology to reduce weight, improve efficiency, and enhance durability.
The company also announced its Long brand of exhaust gas heat recovery (EGHR) technology, which is 50% lighter than competing devices and helps vehicle manufacturers improve fuel economy by up to 3% while reducing emissions.
Finally, the first internal axle system of its kind for powered commercial vehicles − the Spicer optimized tire pressure system – will help to automatically maintain proper inflation for drive and steer axles, significantly increasing vehicle fuel efficiency while reducing maintenance and cost.
Transmission Technology Named Finalist for Automotive News PACE Awards
Earlier this month, Dana announced that its Victor Reinz multi-layer steel (MLS) transmission separator plate technology was selected as a finalist for the 2015 Automotive News PACE Awards. The innovative plates improve sealing, efficiency, and durability for advanced multi-speed, dual-clutch, and continuously variable transmissions.
These plates replace traditional single-layer valve body plates that use paper gaskets and are capable of withstanding three times the sealing pressure of traditional plates. By leveraging its industry-leading expertise in MLS cylinder-head gasket technology, Dana was able to develop a new, more durable product that optimizes channel paths and smaller valve bodies through the reduction of fasteners that can interfere with desired flow paths.
The PACE awards recognize superior innovation, technological advancement, and business performance among automotive suppliers, and serves as a benchmark award program for automotive innovation.