Dana Incorporated has announced financial results for the third quarter of 2016.
Sales totaled $1.38 billion, compared with $1.47 billion in 2015. Dana's Light Vehicle Driveline and Power Technologies business units posted combined currency-adjusted sales growth of $67 million, or 8% higher than a year ago, mostly driven by higher light-vehicle end-market demand in North America, Europe and Asia, as well as new business gains. Foreign-currency translation lowered sales by $29 million. Currency-adjusted sales were lower by 4% in the third quarter of 2016, primarily due to weaker market demand in the Commercial Vehicle and Off-Highway segments.
Net income attributable to Dana for the third quarter of 2016 was $57 million, compared with $119 million in the third quarter of 2015. Third-quarter 2015 results included a $100 million tax benefit from the release of certain U.S. deferred tax valuation allowances and a $24 million after-tax impairment charge. Adjusting for these items, net income for the third quarter of 2016 increased compared with last year, primarily due to lower expenses for interest and income taxes partially offset by a higher restructuring expense.
Adjusted EBITDA for the third quarter of 2016 was $168 million, a $1 million increase over last year. This provided a 12.1% margin, an improvement of 70 basis points over last year. Weaker international currencies reduced adjusted EBITDA by $7 million, and overall lower sales volumes reduced adjusted EBITDA by another $18 million. Cost performance and pricing recovery actions increased adjusted EBITDA by $19 million, which along with gains of $7 million from the sale of certain marketable securities more than offset the decreased earnings associated with currency impact and lower sales volume.
Reported diluted earnings per share were $0.39 in the third quarter of 2016, compared with $0.75 last year, primarily due to lower net income in this year's third quarter. Excluding the effects of certain nonrecurring items such as the above-mentioned 2015 income tax valuation allowance release and impairment charge, restructuring costs, and certain other items, diluted adjusted earnings per share in the third quarter of 2016 were $0.49, compared with $0.41 in the same period last year, with a lower share count also contributing to the increase.
Operating cash flow in the third quarter of 2016 was $42 million, compared with $138 million in the same period last year. Inclusive of capital spending of $68 million in this year's third quarter, free cash flow was a use of $26 million. Capital spend in last year's third quarter was $70 million, providing free cash flow of $68 million in 2015. The free cash flow year-over-year change was due primarily to working capital requirements, which in 2015 benefited in part from the timing of customer receipts.
Business Unit Performance
Light Vehicle Driveline Technologies
Sales were $631 million in the third quarter of 2016, compared with $605 million in 2015. Stronger light-truck production in North America, Europe and Asia, along with incremental new business and pricing recovery actions increased sales by $59 million, including $13 million from a customer program previously included in Commercial Vehicle Driveline. The effects of weaker foreign currencies lowered sales by $33 million in the third quarter.
Segment EBITDA was $73 million, an increase of $10 million or 16% from the third quarter of 2015. This provided a margin of 11.6%, 120 basis points higher than last year and 100 basis points better than this year's second quarter. Higher end-market demand, new customer programs, and cost recoveries – which improved segment earnings by $16 million – were partially offset by $6 million of currency impact.
Commercial Vehicle Driveline Technologies
Sales were $294 million for 2016, compared with $367 million in 2015. Weaker Class 8 truck production in North America and the transfer of a customer program to Light Vehicle Driveline reduced sales by $73 million.
Segment EBITDA was $23 million, $8 million lower than 2015, resulting in a margin of 7.8%. Segment earnings were adversely impacted by $19 million due to lower sales levels and by $1 million as a result of weaker international currencies. Cost savings and other items improved segment EBITDA in 2016 by $12 million.
Off-Highway Driveline Technologies
Sales were $199 million in the third quarter of 2016, $47 million lower compared with 2015, primarily due to reduced global end-market demand.
Segment EBITDA was $28 million, compared with $35 million a year ago, providing a 14.1% margin, 10 basis points lower than last year's third quarter. Improved cost performance tempered the impact of lower volume.
Sales were $260 million, compared with $250 million in 2015. A stronger light-vehicle engine build in North America and Europe provided a benefit of $12 million with currency impact adding $2 million. This was partially offset by lower pricing and material cost recoveries of $4 million.
Segment EBITDA was $42 million, an increase of $2 million from the third quarter of 2015. Stronger light-vehicle production levels and new business were the primary drivers. The 16.2% margin performance in this year's third quarter is a 20 basis point improvement compared with the same period last year.
"We turned in another strong performance this quarter, while dealing with continued weakness in certain end markets and successfully launching one of our largest programs ever. Our focus on reducing cost and driving productivity is evident in our margin performance," says James Kamsickas, Dana President and CEO. "Our Commercial Vehicle and Off-Highway businesses were both able to offset most of the margin impact from anticipated lower demand. We are well positioned to achieve our objectives this year."
2016 Full-Year Financial Targets
Dana has affirmed key financial guidance:
- Sales approximately $5.8 billion;
- Adjusted EBITDA approximately $655 million;
- Adjusted EBITDA as a percent of sales of approximately 11.2%;
- Diluted adjusted EPS of approximately $1.75;
- Cash flow from operations of approximately $440 million;
- Capital spending of approximately $320 million; and
- Free cash flow of approximately $120 million.
Dana to Purchase Strategic Driveline Production Assets of SIFCO S.A. in Brazil
Dana announced earlier this month a definitive agreement to purchase strategic assets of SIFCO S.A., a leading producer of forged and machined components located in Brazil. The acquisition will enable Dana to enhance its vertically integrated supply chain, which will further improve its cost structure and customer satisfaction by leveraging SIFCO's extensive experience and knowledge of sophisticated forged components.
Dana Named Finalists for Automotive News PACE Awards for Sixth Straight Year
Three Dana technologies were named finalists for the 2017 Automotive News PACE Awards. The company is one of just three suppliers with more than one technology to be recognized as a finalist and is the sole supplier with three technologies named as a finalist. This marks the sixth consecutive year that Dana has been named a finalist for the PACE Awards. Only six global automotive suppliers have achieved this distinction.
Company Showcases Technology Improvements at IAA, MINExpo Trade Shows
At this year's IAA Commercial Vehicles trade show in Hannover, Germany, Dana introduced updates to its SpicerCompact Series Plus driveshafts, designed to help original equipment manufacturers meet growing efficiency standards. Currently, the company is producing versions of this driveshaft for medium-duty vehicles, and a series of six models for heavy trucks will be available by the second quarter of 2017.
The company also announced it has initiated pre-production testing of its Spicer global single axle for trucks, tractors, and coaches. Scheduled to hit the market in 2018, the axle offers increased mechanical efficiency and less weight, resulting in improved operating efficiency and a higher payload.
Last month at MINExpo 2016, Dana unveiled its Spicer Smart Suite technology option for the mining industry. The fully integrated system turns passive drivetrain components into active sources of intelligence – transforming raw data into actionable insights to improve safety, boost efficiency, and reduce costs. This technology will be offered as an optional feature on all Spicer axles for load haul dumpers and articulated trucks used in underground mining operations.
Dana also announced two new drivetrain systems designed to improve performance, durability, safety, and cost of ownership for small- and medium-sized load haul dumpers and articulated trucks used in underground mining operations.
New Gear Manufacturing Facility in Europe to Support New Secured Business
The company announced that construction on a new gear manufacturing facility in Győr, Hungary, is slated to begin in the first quarter of 2017. In support of secured new business, the state-of-the-art gear manufacturing facility will serve as a significant enabler to further satisfy the regional needs of Dana's global customers. As the company continues to earn new business in the European marketplace, this facility is strategically positioned in close proximity to its other regional operations to allow Dana to deliver technologies to its European customers more quickly and cost effectively.