Dana Incorporated announces strong financial results for the second quarter of 2018.
"Dana continued our sales growth trajectory with 12% higher revenue compared with last year as we continue to grow organically, benefiting from higher end-market demand and winning new business," says James Kamsickas, Dana President and Chief Executive Officer. "We also remain focused on inorganic growth opportunities highlighted by the recent strategic acquisition of TM4. This transaction is a game changer, as it positions Dana as the only full e-Propulsion design, engineering, and manufacturing systems supplier. TM4's core technologies of electric motors, power inverters, and controls are applicable to all mobility markets that we serve and are a vital part of Dana's broader enterprise strategy going forward."
Second-quarter 2018 Financial Results
Sales for the second quarter of 2018 totaled $2.1 billion, compared with $1.84 billion in the same period of 2017, representing a 12% increase. The increase was mainly due to higher demand across all three end markets, conversion of sales backlog, and favorable foreign currency translation.
Dana reported net income of $124 million for the second quarter of 2018, compared with net income of $71 million in the same period of 2017. In addition to increased operating earnings associated with higher sales, this year's second quarter included one-time tax benefits of $39 million, primarily relating to recognition of federal tax credits, valuation allowance release, and enacted state tax law changes. Partially offsetting these benefits was a $20 million non-cash charge to write-down intangible assets, driven largely by the repurposing of certain resources to electric-vehicle propulsion.
Diluted earnings per share were $0.85, compared with earnings per share of $0.47 in 2017.
Adjusted EBITDA for the second quarter of 2018 was $246 million, a $29 million increase, and 13% higher than the same period last year. This was driven by higher end-market demand and conversion of the sales backlog, partially offset by higher commodity costs and launch-related costs associated with a major vehicle program.
Diluted adjusted earnings per share were $0.74 in the second quarter of 2018, compared with $0.68 in the same period last year, reflecting the higher year-over-year operational earnings improvement.
Operating cash flow in the second quarter of 2018 was $141 million, compared with $169 million in the same period of 2017. Higher working-capital requirements to meet increased demand, along with the timing of interest and cash tax payments, offset the benefit of stronger earnings. In combination with slightly higher capital spend, free cash flow was $61 million in the second quarter of this year, compared with $96 million in 2017.
Company Affirms 2018 Guidance Ranges
Sales for this year are expected to be at the high end of our guidance range, resulting in 12% growth over last year. The year-over-year improvement is due to continued strong end-market demand for key light-truck programs, off-highway equipment, and commercial vehicles, with sales also benefiting from new-business backlog. Foreign currency translation is expected to comprise approximately $50 million of the year-over-year sales comparison.
Adjusted EBITDA in 2018 is expected to improve by approximately $145 million from 2017 for a margin improvement of 60 basis points. This improvement is driven primarily by higher sales levels, ongoing efficiency benefits, and acquisition synergies.
"As we look forward to the second half of this year, we expect strong market demand to continue, tempered by normal seasonality when compared with the first half of the year," says Jonathan Collins, Executive Vice President and Chief Financial Officer of Dana. "Our margin performance is on track to steadily improve this year, solidifying our trajectory to achieve our 2019 targets."
2018 Full-year Financial Targets
- Sales of $7,750 to $8,050 million;
- Adjusted EBITDA of $950 to $1,010 million, an implied adjusted EBITDA margin of approximately 12.2%;
- Diluted adjusted EPS1 of $2.75 to $3.05;
- Operating cash flow of approximately 7.5% of sales;
- Capital spending of approximately 4.0% of sales; and
- Free cash flow of approximately 3.5% of sales.
Dana Accelerates e-Propulsion Capabilities with Strategic Acquisition
Last month, Dana announced the strategic acquisition of TM4, a designer and manufacturer of electric motors, power inverters, and controls. This transaction strengthens the company's e-Propulsion capabilities by providing in-house electro-dynamic components and delivering complete systems capabilities for the global mobility markets. In addition, it establishes a world-class e-Technology center of excellence in Québec, Canada, and enhances its electric-vehicle market presence in China. Most importantly, it establishes Dana as the only supplier with full e-Propulsion design, engineering, and manufacturing capabilities – offering electro-mechanical propulsion solutions to each of its end markets.
