Dana Inc. has announced financial results for the third quarter of 2017.
"The third quarter was further evidence that our dedicated team members are committed to successfully executing our enterprise strategy. We continue to generate strong organic growth, remaining focused on new business launches while successfully integrating our recent acquisitions," says James Kamsickas, Dana President and Chief Executive Officer. "The combination of strong market demand, new business, and cost discipline has enabled all four of our business units to deliver improved margins over the first 9 months of this year. We continue to deliver industry-leading products and services for our customers, returns for our investors, and value for all our stakeholders."
Third-Quarter Financial Results
Sales for the third quarter of 2017 totaled $1.83 billion, compared with $1.38 billion in the same period of 2016, an increase of 32% for the quarter and 23% year-to-date. The quarterly increase was driven in part by recent acquisitions that contributed $133 million. Currency provided a tailwind to sales of $28 million. Excluding acquisitions and currency effects, stronger market demand and new business generated 21% organic sales growth.
Net income attributable to Dana for the third quarter of 2017 was $69 million, compared with $57 million in the same period last year. Net income benefited from increased adjusted EBITDA of $48 million and reduced restructuring expense of $15 million. Partially offsetting these benefits were increased depreciation and amortization expense, largely attributable to our recent acquisitions and a higher level of capital investment, increased income tax expense, and costs of $13 million associated with debt refinancing actions undertaken this past quarter. Reported diluted earnings per share were $0.46 in the third quarter of 2017, compared with $0.39 in the same period last year.
Adjusted EBITDA of $216 million provided an 11.8% margin in the third quarter of 2017, compared with $168 million or 12.1% margin in the third quarter in 2016. Last year's third quarter benefited from $7 million of gains in the Dana Companies subsidiary that was divested last December. Excluding these gains, this year's third quarter margin performance was 20 basis points better than last year's adjusted margin of 11.6%. Stronger end-market demand and conversion of new business backlog added $37 million in adjusted EBITDA this quarter, while the Brevini and USM acquisitions added an additional $15 million.
Changes in foreign currency rates improved earnings by $3 million. Year-to-date, organic EBITDA growth of $125 million provided a 20% incremental margin.
Diluted adjusted earnings per share in the third quarter of 2017 were $0.59, compared with $0.49 in the same period last year, primarily driven by the year-over-year earnings improvement.
Operating cash flow in this year's third quarter was $181 million, compared with $42 million in the same period of 2016. Inclusive of capital spending of $82 million in the third quarter of 2017, free cash flow was $99 million, $125 million better than the same period last year. Higher earnings and improved working capital efficiency were the primary drivers. Lower cash taxes and net interest were offset by increased transaction costs driven by recent acquisitions and higher capital spending to support new business launches.
"We are pleased to report strong financial results again this quarter, as our operational performance and improved end-market demand have allowed us to raise our 2017 financial guidance," says Jonathan Collins, Executive Vice President and Chief Financial Officer of Dana. "Our efforts this year, along with continued momentum into next year, have Dana on pace to achieve the financial targets, which we set at our investor day about this time last year, earlier than originally expected."
Updated 2017 Full-Year Financial Targets
Dana has raised key financial guidance across all business units.
- Sales of $7.0 to $7.2 billion;
- Adjusted EBITDA of $820 to $850 million;
- Adjusted EBITDA as a percent of sales of 11.7-11.9%;
- Diluted adjusted EPS of $2.30 to $2.50;
- Cash flow from operations of $530 to $570 million;
- Capital spending of $380 to $420 million; and
- Free cash flow of $130 to $170 million.
Dana Named PACE Award Finalist for the Seventh Consecutive Year
Dana announced this month that its new constant-velocity joint for heavy-duty pickup trucks has been named a finalist for the 2018 Automotive News PACE Awards. This technology was recently launched in the Ford Super Duty pickup truck and is receiving outstanding feedback.
The 6,000 Nm Rzeppa-style constant-velocity joint provides a durable solution for use in heavy-duty pickup trucks. The technology is the first use of a CV joint in pickup trucks and is able to improve strength, maximize efficiency, and reduce weight over previous technologies.
Dana has earned five PACE Awards since the program's inception, most recently in 2017 for its Victor Reinz multi-layer steel transmission pump gasket. The company's adaptive air/oil separation system and Spicer OpTiMa tire pressure management system also were named finalists in 2017.
Dana Continues Growth Through Expansion
To further support growth in China, Dana will be repurposing a former Brevini facility in Yancheng, China, to manufacture the company's line of direct-insulation thermal-acoustic protective shielding to meet various thermal and acoustical management needs within exhaust or powertrain systems.
This plant is strategically positioned in close proximity to Dana's regional Asia headquarters and technology center in Shanghai, China, and will enable the company to deliver technologies to its China customers more quickly and cost effectively.
Dana has served the rapidly growing Chinese automobile market for more than 25 years, and this expansion helps to support growth in this important market, lower costs by leveraging Dana's current assets and capabilities, and support vehicle manufacturers with technologies that deliver superior performance and promote sustainability.
The company announced earlier this year it will be building a new facility in Chongqing, China, that will produce advanced driveline products for the Chinese market. It is scheduled to open in late 2018.
In addition to expansion in China, Dana celebrated the grand opening of its new high-tech axle manufacturing facility in Toledo, OH, United States, on Oct. 25, along with a new Australian manufacturing facility that opened earlier this year.
A new manufacturing facility in Győr, Hungary, is scheduled to open in 2018.
