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DANA INC (DAN)·Q4 2017 Earnings Summary

Executive Summary

  • Q4 2017 delivered strong operational growth: net sales rose 27% year-over-year to $1.84B; adjusted EBITDA increased $31M to $197M, while nonrecurring tax reform effects drove a GAAP net loss and diluted EPS of -$0.74 .
  • Diluted adjusted EPS was $0.62, up from $0.59 in Q4 2016, with positive contributions from organic growth, acquisitions (Brevini, USM), and FX tailwinds; launch costs (Jeep Wrangler) and incentive comp muted conversion .
  • Management affirmed 2018 guidance: sales $7.5–$7.7B, adjusted EBITDA $910–$960M (~12.3% margin), diluted adjusted EPS $2.60–$2.90, and FCF ~3.5% of sales; a $100M share repurchase authorization complements dividend policy .
  • Stock reaction catalysts: clarity that Q4 EPS loss was driven by noncash U.S. tax reform remeasurement ($186M); execution on major launches (Wrangler, Ranger) and synergy ramp from Brevini underpin margin expansion trajectory into 2018–2019 .

What Went Well and What Went Wrong

What Went Well

  • Robust top-line and profit growth: Q4 sales +$390M YoY (27%); adjusted EBITDA +$31M YoY to $197M, with organic growth (+$204M sales, +$20M profit), acquisitions (+$144M sales, +$13M EBITDA), and FX (+$42M sales, +$6M EBITDA) as key drivers .
  • Strategic positioning and electrification: launched “Spicer Electrified” brand; >10,000 patents with >150 related to electrification; integration of USM and Brevini added ~$500M sales and opened new markets/customers .
  • Backlog and cash generation: 3-year sales backlog increased to $800M; Q4 operating cash flow $193M; FY17 FCF $161M, +$99M YoY, aided by EBITDA growth and working capital efficiency .

What Went Wrong

  • EPS and net income impacted by nonrecurring items: Q4 net loss attributable to parent -$104M and diluted EPS -$0.74, driven mainly by a $186M noncash charge from U.S. tax reform remeasurement; Brazil suspension business disposition charge of $27M also weighed on results .
  • Launch cost headwinds: Jeep Wrangler launch costs were ~$15M in Q4, above the ~$10M expected, and premium-time conversion pressure reduced incremental margins in light vehicle .
  • Power Technologies margin pressure: Q4 saw pressure from nonrecurring comparative gains in 2016 (Dana Companies divestiture) and mix/performance challenges; PT segment EBITDA down slightly YoY despite strong sales .

Financial Results

Quarterly Comparisons (Oldest → Newest)

MetricQ2 2017Q3 2017Q4 2017
Net Sales ($USD Millions)$1,840 $1,831 $1,837
Adjusted EBITDA ($USD Millions)$217 $216 $197
Diluted Adjusted EPS ($USD)$0.68 $0.59 $0.62
Diluted GAAP EPS ($USD)$0.47 $0.46 -$0.74
Net Income Attributable to Parent ($USD Millions)$71 $69 -$104
Operating Cash Flow ($USD Millions)——$193
Free Cash Flow ($USD Millions)——$51
Capital Spending ($USD Millions)——$142

Notes:

  • Q4 EPS loss was primarily due to the noncash $186M tax reform remeasurement of deferred tax assets; excluding one-time items, Q4 net income was $82M .
  • Q3/Q2 adjusted EBITDA margins were 11.8% each; Q4 margin was not explicitly provided .

Segment Breakdown – Q4 2017

SegmentSales ($USD Millions)Segment EBITDA ($USD Millions)
Light Vehicle$803 $86
Commercial Vehicle$355 $25
Off-Highway$414 $55
Power Technologies$265 $36
Total$1,837 $202
Adjusted EBITDA (Total)—$197

KPIs and Non-GAAP Reconciliations

  • Diluted adjusted EPS (Q4): $0.62; adjusted net income $92M; adjusted diluted shares 147.6M .
  • FY17 adjusted EBITDA: $835M (11.6% of sales), +30 bps YoY; diluted adjusted EPS $2.52 .
  • Q4 operating cash flow: $193M; Q4 FCF: $51M; FY17 operating cash flow: $554M; FY17 FCF: $161M .
  • Backlog: $800M for 2018–2020, +$50M vs prior three-year backlog .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Sales ($USD Billions)FY2018—$7.5–$7.7 Affirmed (increase referenced)
Adjusted EBITDA ($USD Millions)FY2018—$910–$960 (~12.3% margin) Affirmed (increase referenced)
Diluted Adjusted EPS ($USD)FY2018—$2.60–$2.90 Affirmed
Operating Cash Flow (% of Sales)FY2018—~7.5% Affirmed
Capital Spending (% of Sales)FY2018—~4.0% Affirmed
Free Cash Flow (% of Sales)FY2018—~3.5% Affirmed
Sales ($USD Billions)FY2019Prior 2019 guide (lower)~$7.9; +$700M vs prior 2019 guide Raised
Adjusted EBITDA/MarginsFY2019Prior 2019 margin target lower>$1B; 12.8% margin; +90M vs prior target Raised
Diluted Adjusted EPS ($USD)FY2019Prior EPS guide lower~$3.00 (+$0.25 vs 2018) Raised
Free Cash Flow (% of Sales)FY2019~5% target~5% reaffirmed Maintained

Share Repurchase Program: Authorized up to $100M over two years; execution subject to market conditions and opportunities .

Earnings Call Themes & Trends

TopicQ2 2017 (Previous Mentions)Q3 2017 (Previous Mentions)Q4 2017 (Current Period)Trend
Electrification & TechnologyHighlighted Spicer Electrified strategy; electric drive units; battery/power electronics cooling; China bus e-axle projects; Sandvik electrified mining drivetrain Continued EV and thermal wins; China/Asia capacity; awards for innovation; backlog conversion Launched “Spicer Electrified”; >150 electrification patents; e-axle/bus timelines: material sales still a few years out Accelerating
Supply chain & Launch (Wrangler, Super Duty)Capex peak to support major launches; seasonality; conversion expected to improve post-launch Wrangler startup costs materially impacting LVD conversion; Q4 margin compression expected; ~+$10M impact in Q3 Wrangler launch costs ~$15M in Q4; premium-time conversion pressure; tapering expected after Job 1 Near-term headwind easing
Macro & End-Markets (CV, Off-Highway)CV Class 8 raised to 220–240k; Off-Highway recovery early innings; Europe/Asia mining strength CV strength in NA/EU; Off-Highway construction/mining improving; cautious visibility beyond months 2018 guide assumes conservative CV build in H2; off-highway strength continues; organic growth ~$400M Improving but cautious
Regional Dynamics (Brazil)Brazil recovery slow; SIFCO adds local capability; CV margins pressured by Brazil Brazil remains headwind; exports help; CV path to double-digit margins needs Brazil improvement Disposition of Brazil suspension parts business charge ($27M) in Q4; ongoing margin sensitivity Gradual improvement expected
Tax & RegulationN/AN/AU.S. Tax Cuts and Jobs Act noncash DTA remeasurement charge $186M; SAB 118 provisional accounting One-time impact recorded
Backlog & Synergies$750M backlog; Brevini/USM synergies tracked; capex to deliver backlog Backlog increased; synergy plan ahead of schedule; cross-selling momentum Backlog $800M; 2018 backlog conversion ~$300M; synergies to add ~$20M EBITDA in 2018 Positive/expanding

Management Commentary

  • CEO on 2017 success and shareholder returns: “Every year since 2015, we increased adjusted EBITDA… shareholders have realized total returns of more than 130 percent… strong foundation for our future success.”
  • CFO on Q4 drivers: “Organic growth added $204M… acquisitions contributed $144M… FX tailwind $42M… EBITDA comparison negatively impacted by an $8M gain recorded in 2016 in our Dana company subsidiary that was divested.”
  • CEO on launch execution: “Things are going very well for us… very high-complexity product… launching across 15 plants” (Wrangler) .
  • CFO on 2018 cadence/margin: “Higher margin quarters this year… start to exceed 12.3% and move us close to 12.8% in 2019.” .

Q&A Highlights

  • Launch costs and conversion: Wrangler launch ~$15M in Q4; expected to taper in Q1; premium-time conversion also pressured margins .
  • Revenue guidance conservatism: CV build assumptions cautious for H2; $100M market demand benefit driven by CV Americas and Off-Highway globally; light truck NA mix assumptions conservative .
  • Segment incrementals: Light Vehicle ~20% incrementals; CV lower; Off-Highway higher; blended ~20% .
  • Electrification P&L timing: Material sales from e-axles in bus/medium-duty still “a few years” out .
  • Capital allocation: Focus on organic growth and integrating acquisitions; opportunistic on M&A; repurchase authorization in place .

Estimates Context

  • Wall Street consensus via S&P Global was unavailable during this session due to data access limits; as a result, explicit revenue and EPS consensus figures for Q4 2017 could not be retrieved and comparisons to estimates are not provided [SPGI access error].
  • Management indicated results were in line with internal guidance and prior preliminary disclosures, suggesting limited divergence versus expectations .

Key Takeaways for Investors

  • Near-term EPS optics were distorted by noncash tax reform remeasurement ($186M); underlying Q4 adjusted EPS of $0.62 and EBITDA growth reflect healthy operations and backlog conversion .
  • 2018 setup is constructive: ~6% sales growth, ~70 bps margin expansion to ~12.3% adjusted EBITDA margin, and FCF rising to ~3.5% of sales; synergy realization and normalized launch cost profile are key margin drivers .
  • Light Vehicle segment benefits from major programs (Wrangler, Ranger, Super Duty); monitor launch execution and incremental conversion as costs taper through H1 2018 .
  • Off-Highway recovery and CV strength in NA/EU provide cyclical tailwinds, but Brazil remains a margin sensitivity; watch for signs of sustained improvement and mix effects .
  • Electrification is a medium-term growth vector; evidence of robust pipeline and IP, but material revenue contribution is several years out—track bus/MD truck e-axle deployments and battery cooling wins (China) .
  • Capital allocation discipline (repurchases, dividend increase) plus backlog expansion ($800M) and synergy capture underpin confidence in exceeding prior 2019 targets (sales ~$7.9B; margins 12.8%; EPS ~$3; FCF ~5%) .