Dana Incorporated (DAN) is a global leader in the design, engineering, and manufacturing of highly engineered drivetrain, sealing, and thermal-management products and technologies for various mobility markets. With over a century of experience, the company has established itself as a trusted partner to original equipment manufacturers (OEMs) worldwide, providing innovative solutions that enhance the efficiency, performance, and sustainability of light vehicles, commercial vehicles, and off-highway equipment.
Business Overview and History: Dana was founded in 1904 in Toledo, Ohio, as the Perfection Spring Company. Over the decades, the company has transformed itself through strategic acquisitions, organic growth, and technological innovations, evolving into a diversified provider of power-conveyance and energy-management solutions. In 2007, the company was incorporated in Delaware and adopted its current name, Dana Incorporated.
The company's early years were marked by steady growth and expansion. In the 1920s, Dana began supplying driveline components to the emerging automotive industry, solidifying its position as a key supplier to major vehicle manufacturers. A significant milestone in Dana's history came in the 1970s when it acquired Victor Reinz, a leading manufacturer of gaskets and sealing solutions. This strategic move strengthened Dana's presence in the commercial vehicle and off-highway equipment markets.
During the 1980s and 1990s, Dana faced challenges as the automotive industry underwent significant restructuring and consolidation. The company responded by implementing cost-saving measures, streamlining operations, and focusing on core competencies. This period of transformation helped Dana emerge as a more agile and efficient organization.
In the 2000s and 2010s, Dana further diversified its business through strategic acquisitions and investments. The purchase of Graziano Trasmissioni Group in 2011 strengthened the company's position in the off-highway and high-performance vehicle markets. Throughout its history, Dana has demonstrated resilience in the face of economic downturns, industry consolidation, and technological disruptions, consistently adapting to evolving market dynamics.
Today, Dana operates through four main business segments: Light Vehicle Drive Systems, Commercial Vehicle Drive and Motion Systems, Off-Highway Drive and Motion Systems, and Power Technologies. These units serve a global customer base that includes virtually every major vehicle manufacturer across the light vehicle, medium-heavy vehicle, and off-highway markets.
One of Dana's key strengths is its ability to leverage synergies and scale across these diverse end markets. The company's global footprint, with operations in 31 countries and approximately 41,100 employees, enables it to optimize resources and maintain agility in meeting the evolving demands of its customer base.
Financial Performance and Liquidity: Dana's financial performance has been marked by a focus on operational efficiency and disciplined capital allocation. For the fiscal year 2023, the company reported annual revenue of $10.55 billion and net income of $38 million. Operating cash flow for the year was $476 million, while free cash flow stood at negative $25 million.
As of December 31, 2023, Dana had a strong balance sheet, with total assets of $7.96 billion and total liabilities of $6.14 billion. The company's net debt position stood at $2.13 billion, with a debt-to-capitalization ratio of 0.64. Dana's liquidity position remains robust, with $529 million in cash and cash equivalents and $1.15 billion in available credit facility capacity as of the end of 2023.
In the most recent quarter (Q3 2024), Dana reported revenue of $2.48 billion, net income of $4 million, operating cash flow of $35 million, and free cash flow of negative $11 million. The company saw a 7% decrease in revenue compared to Q3 2023, driven by lower vehicle production across the company's end markets. However, Dana was able to improve profit margins through cost savings initiatives, resulting in a 30 basis point increase in adjusted EBITDA margin to 9.4% compared to the prior year quarter.
Dana's liquidity position as of September 30, 2024, included $419 million in cash and cash equivalents. The company has a $1.15 billion revolving credit facility, of which $1.13 billion was available after $10 million in outstanding borrowings and $10 million in letters of credit. The debt-to-equity ratio stood at 1.80x, with a current ratio of 1.49x and a quick ratio of 0.86x.
Adapting to Market Shifts: Dana has demonstrated its ability to adapt to changing market dynamics, particularly in the face of the ongoing global shift towards vehicle electrification. The company has strategically invested in developing in-house hybrid and electric vehicle (EV) capabilities, including e-Propulsion and e-Thermal technologies, to capture growth opportunities in this rapidly evolving landscape.
In 2023, Dana's EV-related sales accounted for approximately 12% of its total revenue, reflecting the company's proactive approach to positioning itself as a leader in the electrification of mobility. This diversification across traditional internal combustion engine (ICE), hybrid, and EV technologies has been a key differentiator, allowing Dana to navigate the complexities of the current market environment.
Navigating Headwinds and Maintaining Profitability: Despite the challenging market conditions, Dana has maintained its focus on operational excellence and profitability. In the third quarter of 2024, the company reported sales of $2.48 billion, a decrease of $193 million compared to the prior-year period, due to softening demand across various end markets.
However, Dana's ability to drive cost efficiencies and operational improvements enabled it to expand its adjusted EBITDA margin by 30 basis points to 9.4% in the third quarter. This performance was underpinned by the company's disciplined approach to managing its cost structure, leveraging synergies, and capitalizing on its global manufacturing footprint.
Looking ahead, Dana has updated its full-year 2024 guidance, lowering its sales expectation to approximately $10.3 billion but maintaining its free cash flow guidance at $100 million (midpoint of the range). The company is maintaining its adjusted EBITDA guidance at $875 million (midpoint), which is about $30 million higher than the previous year and implies a profit margin of 8.5%, a 50 basis point increase over the prior year. Dana's GAAP EPS guidance for 2024 is expected to be $0.15 per share, with adjusted EPS at approximately $0.85 per share (midpoint of the range).
The key drivers of the revised 2024 guidance include lower organic sales of about $115 million, as new business and market share gains are more than offset by lower demand in the second half of the year. However, this is partially mitigated by a $140 million increase in adjusted EBITDA on traditional organic sales due to company-wide efficiencies and cost savings. The company also faces a $65 million headwind in adjusted EBITDA from lower EV sales and a $40 million headwind due to lower commodity cost recoveries.
Business Segments and Geographic Performance: Dana operates through four major business segments:
1. Light Vehicle Drive Systems (Light Vehicle) This segment accounted for 41.7% of Dana's total sales in Q3 2024 and 41.1% in the first nine months of the year. The segment EBITDA margin was 7.6% in Q3 2024 and 7.0% year-to-date, driven by net customer pricing and cost recovery actions, as well as operational efficiencies, partially offset by inflationary cost increases and higher spending on electrification initiatives.
2. Commercial Vehicle Drive and Motion Systems (Commercial Vehicle) This segment represented 20.0% of total sales in Q3 2024 and 19.4% in the first nine months. The segment EBITDA margin was 5.3% in Q3 2024 and 4.3% year-to-date, impacted by lower sales volumes and unfavorable product mix, partially offset by net customer pricing and cost recovery actions, lower spending on electrification, and material cost savings.
3. Off-Highway Drive and Motion Systems (Off-Highway) This segment accounted for 25.3% of total sales in Q3 2024 and 27.1% year-to-date. The segment EBITDA margin was 16.4% in the third quarter and 15.5% in the first nine months, benefiting from operational efficiencies, material cost savings, and lower warranty expense, partially offset by the impact of net customer pricing and cost recovery actions and inflationary cost increases.
4. Power Technologies This segment represented 13.0% of total sales in Q3 2024 and 12.4% in the first nine months. The segment EBITDA margin was 8.1% in Q3 2024 and 7.6% year-to-date, impacted by unfavorable product mix, partially offset by material cost savings and net customer pricing actions.
Geographically, Dana has a strong global presence, with 54% of its year-to-date 2024 sales coming from outside the U.S. The company's largest international markets are the euro zone countries, which accounted for 48% of non-U.S. sales. Other key international markets include India (10% of non-U.S. sales), Brazil (9%), and China (8%).
Risks and Challenges: As with any global industrial conglomerate, Dana faces a range of risks and challenges that may impact its future performance. These include macroeconomic uncertainties, volatility in commodity prices, supply chain disruptions, and the ongoing shift towards vehicle electrification, which requires significant investment and adaptation.
Additionally, the company's exposure to regional market fluctuations and regulatory changes across its diverse end markets can pose challenges to its operational and financial performance. Dana's ability to navigate these risks through its diversified business model and operational agility will be crucial to its long-term success.
The automotive supplier industry has seen increasing challenges in 2024 due to softening demand across light vehicle, commercial vehicle, and off-highway end markets. Dana's management noted the company is seeing weaker global demand for electric vehicles as well as reduced internal combustion engine vehicle sales for commercial trucks, off-highway equipment, and certain light truck programs. However, the company believes it is well-positioned to navigate these headwinds through its operational efficiency initiatives and flexible cost structure.
Conclusion: Dana Incorporated has established itself as a resilient and adaptable player in the global mobility industry. With a rich history, a diversified portfolio of innovative technologies, and a focus on operational efficiency, the company has demonstrated its ability to navigate challenging market conditions and capitalize on emerging trends, such as the transition to electric vehicles.
As the mobility landscape continues to evolve, Dana's strategic investments, global footprint, and customer-centric approach position it well to maintain its leadership role and deliver long-term value to its shareholders. The company's ability to maintain its profit margin and free cash flow guidance despite lowering its sales outlook for 2024 underscores its operational discipline and adaptability in the face of market headwinds. By leveraging its diverse business segments, implementing cost-saving measures, and continuing to invest in electrification and other emerging technologies, Dana is poised to navigate the current challenges and emerge stronger in the evolving mobility market.