Dana Incorporated announces strong financial results for the second quarter of 2019.
"Dana delivered another strong performance this quarter, keeping us on track to achieve a third consecutive year of double-digit sales and profit growth," says James Kamsickas, Dana President and Chief Executive Officer. "Due to stable end markets, our strong sales backlog, and accretive acquisitions, we increased sales by 12% over last year and achieved improved margin performance. Our intense focus on customer satisfaction and cost discipline, combined with steady organic and inorganic growth is positioning us to finish the year strong."
Second Quarter 2019 Financial Results
Sales for the second quarter of 2019 totaled $2.3 billion, compared with $2.1 billion in the same period of 2018, representing a $252 million improvement. The increase was attributable to conversion of sales backlog, additional sales from recent acquisitions, higher end-market demand, and commodity recoveries, which were partially offset by unfavorable currency translation.
Dana reported a net loss of $68 million for the second quarter of 2019, compared with net income of $124 million in the same period of 2018. The difference was primarily due to $258 million in one-time pension settlement charges related to the transfer of future pension liabilities from a U.S. pension plan to third-party insurers in the second quarter of 2019. Partially offsetting this one-time charge was a net tax benefit of $87 million in this year's second quarter driven by the pension termination and foreign tax credits. The second quarter of 2018 also included a $39 million tax benefit related to tax credits and valuation allowance releases. Excluding these one-time income tax and pension charges, second-quarter net income was $103 million in 2019, compared with $85 million in 2018, reflecting the increased operating earnings this year associated with higher sales.
Reported diluted earnings per share were a loss of $0.47, compared with earnings per share of $0.85 in the second quarter of 2018.
Adjusted EBITDA for the second quarter of 2019 was $286 million, compared with $246 million for the same period last year. Profit in the second quarter of 2019 benefited from both organic and inorganic growth, partially offset by higher commodity costs and the impact of unfavorable currency translation related to the strengthening of the U.S. dollar.
Diluted adjusted earnings per share were $0.87 in the second quarter of 2019, compared with $0.74 in the same period last year.
Operating cash flow in the second quarter of 2019 was $73 million, compared with $141 million in the same period of 2018. The second quarter of 2019 included a voluntary pension contribution of $62 million related to the transfer of the pension plan liabilities.
Adjusted free cash flow was $43 million, compared with $61 million in the second quarter of 2018. Higher earnings and lower year-over-year working capital requirements were more than offset by increased one-time costs due to acquisitions, elevated cash taxes related to foreign entity restructuring, and the timing of investment to support new program launches.
Company Affirms 2019 Full-year Financial Targets
The company affirmed previously announced guidance ranges of:
- Sales of $8.950 to $9.350 billion;
- Adjusted EBITDA of $1.085 billion to $1.165 billion, an implied adjusted EBITDA margin of approximately 12.3% at the midpoint of the range;
- Diluted adjusted EPS of $2.95 to $3.45;
- Operating cash flow of approximately 7.0%; and
- Adjusted free cash flow of approximately 3.0%.
"Organic growth and cost synergies related to our acquisition of the Fairfield and Graziano businesses more than offset higher commodity costs and currency headwinds this quarter," says Jonathan Collins, Executive Vice President and Chief Financial Officer of Dana. "We also took steps to further strengthen our balance sheet by eliminating $165 million of unfunded pension obligations. As we move into the second half of the year, we have maintained our full-year outlook ranges despite a stronger U.S. dollar."
Dana Secures Remaining Stake in Electrodynamic Components Manufacturer, Strengthens Partnership with Hydro Québec
As a continuation of its long-term electrification strategy, Dana has purchased the remaining equity in electrodynamic products manufacturer Prestolite E-Propulsion Systems (PEPS). Dana had acquired the initial stake as part of its 2018 acquisition of the TM4 joint venture between Dana and Hydro Québec, North America's leading provider of clean energy.
This investment, which includes an engineering and commercial center in Beijing and manufacturing facility in Weifang, China, enables Dana to expand in-house motor and inverter manufacturing capabilities in the world's largest electric-mobility market for all types of vehicles. This operation includes high-volume, flexible, and automated production lines, as well as testing capabilities for conducting full validation and certification of electric and hybrid drivetrains.
In addition, Hydro Québec is broadening its partnership with Dana by co-investing in Dana's latest electrification acquisitions. Hydro Québec has purchased 45% of SME, which Dana acquired in January, and has increased its interest in PEPS to 45 percentage for a total investment of approximately $65 million, including $53 million in cash paid at closing and a $12 million note due in 2024. Dana continues to maintain a controlling financial interest in TM4 and SME for financial reporting purposes and will now consolidate the former PEPS operations.
Based in Arzignano, Italy, SME designs, engineers, and manufactures low-voltage AC induction and synchronous reluctance motors, inverters, and controls for a wide range of off-highway electric-vehicle applications, including material handling, agriculture, construction, and automated-guided vehicles.
The expanding partnership with Hydro Québec demonstrates Dana's commitment to continue investing and growing in the electric-mobility sector.