DANA Inc Q1 FY2025 earnings call

• Tariffs created a $6 million headwind in Q1, but absent this, margins would have been comparable to last year. The company is accelerating cost reduction from $175 million to $225 million in 2025. - The integration of the former power technology segment into aftermarket and light vehicle businesses is worth $30 million to $35 million of the $300 million cost reduction target. - Free cash flow in Q1 was an improvement of $67 million year-over-year despite lower revenues. - The Off-Highway divestiture process continues with multiple bidders, though details are limited. - Won the 10th PACE Awards for a hybrid transmission, contributing $25 million in sales this year with potential to grow to $300 million over the next few years with a high EBITDA margin.

Sales for the first quarter were $2.4 billion, a decrease of $383 million compared to the previous year, driven by lower demand across all end markets. Adjusted EBITDA was $188 million, resulting in an 8% profit margin, just 20 basis points lower than the previous year despite lower sales. Net income attributable to Dana was $25 million in Q1 2025, compared to $3 million in the prior year. Volume and mix contributed to a $345 million sales decline, with adjusted EBITDA from this factor down $90 million. Performance, including efficiency gains, increased sales by $27 million and profit by $35 million. Cost savings added $41 million in profit, with the company accelerating cost actions to realize $225 million in 2025 instead of the original $175 million. Tariffs had a $6 million headwind in the quarter, but recoveries are expected throughout the year. Foreign currency translation decreased sales by $53 million, and commodity cost recoveries were $10 million lower than the prior year.

2025 full-year guidance ranges remain unchanged. Sales are expected to be above the midpoint of the range, driven by tariff recoveries and improved currency translation offsetting commercial vehicle headwinds. Adjusted EBITDA is expected at the midpoint of $975 million, a $90 million increase from 2024, implying a 10% profit margin. Full-year adjusted free cash flow is expected at the midpoint of $225 million, $155 million higher than 2024. Adjusted EPS is expected at $1.40 per share at the midpoint, down from previous estimates due to tax defense changes.

• Tariff volatility and changing rules create uncertainty in recovery timing and potential impacts on volume. - Market uncertainty, particularly in commercial vehicle and Off-Highway segments, affects sales expectations. - Complexity of tariff classification and HTS code issues add to the challenge of accurately recovering tariffs and managing supply chain adjustments.

Q: Joseph Spak with UBS asked about changes to guidance assumptions considering market uncertainty and tariff impacts.

A: Bruce McDonald and Timothy Kraus responded that commercial vehicle is lower than expected, offset by light vehicle and Off-Highway factors, with tariff offsets contributing to sales.

Q: Edison Yu with Deutsche Bank inquired about tariff exposure and recovery timing.

A: Timothy Kraus stated recovery is expected in less than a quarter, with detailed documentation provided to customers, and Bruce McDonald noted tariffs are 100% recoverable.

Q: Colin Langan with Wells Fargo asked about light vehicle production assumptions.

A: Bruce McDonald said light vehicle production, particularly light truck, is currently in line with February expectations, with no major changes seen.

Q: James Picariello with BNP Paribas asked about Off-Highway tariff exposure and sale timing.

A: Bruce McDonald said Off-Highway tariff exposure is small and recoverable, with sale timing expected to be later in the second quarter.

Q: Ryan Brinkman with JPMorgan asked about cost savings and segment changes.

A: Bruce McDonald discussed confidence in achieving $225 million cost savings, with a large portion from corporate and engineering, and consolidation of segments closing the door on previous plans.

Q: Dan Levy with Barclays asked about non-core assets and EV program changes.

A: Timothy Kraus discussed selling non-core joint ventures in India, and Bruce McDonald explained changes in EV strategy due to risk sharing.

Q: Emmanuel Rosner with Wolfe Research asked about revenue cadence and tariff reshoring.

A: Bruce McDonald and Timothy Kraus discussed revenue recovery in the back half of the year and early discussions on tariff mitigation but uncertainty in reshoring.

Q: Douglas Karson with Bank of America asked about debt reduction.

A: Timothy Kraus confirmed debt reduction is a focus, with leverage expected to be around one turn through the cycle.