DANA Inc Q1 2026 earnings call

Thank you, and good morning. Welcome to Dana Incorporated's earnings call for the first quarter of 2026. Today's presentation includes forward-looking statements about our expectation for Dana's future performance. Actual results could differ from what we discuss here today. For more details about the factors that may affect future results, please refer to our safe harbor statement found in our public filings and our reports with the SEC. I encourage you to visit our investor website, where you'll find this morning's press release and presentation. As stated, today's call is being recorded, and the supporting materials are the property of Dana Incorporated. They may not be recorded, copied, or rebroadcast without our written consent.

With us this morning is R. Bruce McDonald, Dana Chairman and Chief Executive Officer; Byron Foster, Senior Vice President and President of our Light Vehicle Drive Systems, and our incoming CEO; and Timothy Kraus, Senior Vice President and Chief Financial Officer. Bruce, I'll now turn the call over to you to give us-

Okay. Thank you, Craig, and good morning, everyone, and thanks for your interest in Dana. Just maybe before we get into the slide deck, I'd just like to kind of reflect on the fact this is my last call as CEO, and I'm transitioning into the Chairman's role here now. If you look at the first quarter results, you know, Tim, Byron, and the entire Dana team I think have delivered another terrific quarter with the first time since I've been back, we're showing revenue growth and extremely strong year-over-year improvement on margins.

I'd also reflect on the fact that these are the first of our, of 30 conference calls we're gonna have where we talk about our Dana 2030 plan, and I think we're off to a terrific start and with the, you know, that's the $10 billion revenue bogey that we put out there and with our margins getting into the 14%-15% range. You'll see in our deck, we've talked about winning the Ram Dakota program, and with that award, we now have just over 60% of our growth through 2030 secured. I think that's a great start. I'll turn it over to Byron, and he'll take you through the highlights of the quarter.

Okay. Thanks, Bruce. Thanks, everyone, for joining the call this morning. As Bruce said, the team's off to a strong start to the year, and I'm excited to share a few highlights that I'll take you through on page four. Starting with the financial results, EBITDA margin came in at 9.2%, which, as Bruce alluded to, is a great year-over-year improvement of 400 basis points. Really seeing the margin expansion come through on a year-over-year basis. In terms of share repurchases, we repurchased 4.4 million shares in the quarter, returning $125 million to our shareholders, and that keeps us on track to our target of $300 million for the year here.

If you look at the program to date since we launched back in Q2 of last year, that takes us up to $775 million of value returned to our shareholders and keeps us on track to our target of $2 billion through 2030. In terms of cost reductions, you'll see as Tim takes us through the walk that the team delivered $35 million of cost reductions in the quarter, which is right on track to our target of $65 million for 2026 and a program total of $325 million. The team remains highly focused on making sure that we remain a lean and efficient operation here.

If you look at new business growth, Bruce mentioned it in his opening comments, we were able to deliver a significant new business award in the quarter, which I'll take you through here in a couple pages. Delivering against our commitment of profitable growth for the company. This is right in line with what we laid out relative to our Dana 2030 strategy around profitable growth and margin expansion for the company. Which if you go to page five in the deck, I want to take the opportunity again to thank all those that were able to spend time with us at our Capital Markets Day about a month ago.

As a quick reminder, our plan is about profitable growth in our traditional business, our aftermarket business, as well as applied technologies, and it's about margin expansion through manufacturing excellence and structural cost reductions. You can see the financial targets that we've laid out and we remain committed to. Top line of $10 billion, which is 33% above our guide here or the midpoint of our 2026 guide. Margins in the mid-double-digit, 14%-15% range, which is a 400 basis point improvement over the midpoint of this year's guide, and then 6% free cash flow margins. As we go through our journey of the Dana 2030 strategy, you will continue to hear various proof points from us as we're in front of you to give you an update on the progress of the business.

This quarter, we'd like to give you an update on the first pillar around traditional growth of our traditional product lines, if you will. If you go to page six, you can see the new award that we're proud to announce that we'll be participating on the Ram Dakota program with Stellantis, where our content will be front and rear axles. It's really a testament to the continued performance of the team relative to world-class quality and delivery performance, as well as competitiveness. It's also a great story because it leverages installed capacity that we have in place supporting the Toledo Assembly Complex and really leverages our core products on the ICE front.

You can see that it's $250 million of annual sales and that it will launch in early 2028. If you flip to page seven, just to give you a visual now of where the backlog stands. When we were last in front of you, our three-year net new sales backlog was $750 million. This takes it up to $950 million then, and that's because as the program ramps, some of that $250 million that I referenced on the previous page will fall in the 2029 time horizon. Really proud that the team continues to deliver on incremental growth in our backlog and secured a significant new award with one of our key customers. On page eight, just in summary again, what new Dana is all about.

It's really about focusing on our core light vehicle and commercial vehicle markets, remaining a lean, efficient organization and ensuring that the work we've done to take cost out, that that cost remains out and that we remain efficient. You're going to see that starting here in 2026, and you'll see that those margins increase over our five-year planning horizon. It's about delivering strong shareholder returns through profitable growth, margin expansion, and maintaining a best-in-sector balance sheet. Great start to the year, great quarter, and with that, I'll turn it over to Tim to take us through the numbers in more detail.

Thank you, Byron. As we begin the discussion of the first quarter with the change in sales and adjusted EBITDA, you can join me on page 10 of the deck. Starting with sales, first quarter 2026 sales were $1.868 billion, up from $1.781 billion last year. As expected, lower end market demand drove a $33 million headwind from volume mix. Despite that backdrop, we continue to execute well across the organization, as Byron mentioned. Performance actions added $2 million due to pricing and recoveries. Tariffs contributed $48 million, primarily due to the recovery timing. Currency added $64 million, largely driven by the euro strength, while commodities provided an additional $6 million top-line benefit in the quarter.

Altogether, those items brought us to the $1.86 billion of sales for the first quarter of 2026. Turning to adjusted EBITDA, we started at $93 million in the first quarter of last year, a 5.2% margin, delivered a significant step-up to slightly softer demand. Volume mix contributed $27 million in incremental profit, reflecting favorable mix and improved profitability on new programs. Performance actions added $15 million, driven by stronger operating efficiency and continued tight cost controls across all aspects of the business. Cost savings were a major driver, contributing $35 million as our cost actions continue to deliver exactly as planned and remain on pace for our full year and full program target of $325 million.

Tariffs were a modest $2 million headwind to EBITDA this quarter, while currency contributed $5 million. Commodities were a $2 million headwind on a year-over-year basis. Bring it all together, adjusted EBITDA was $171 million, representing a 9.2% margin, a 400 basis point improvement over 2025's first quarter. This was a very strong quarter from a margin and execution standpoint, demonstrating the durability of our business post-divestiture and our ability to drive meaningful, profitable improvement even in a softer demand environment. I will turn to slide 11 for a look at adjusted free cash flow for the quarter. First, you will note that 2025 comparisons include both continuing and discontinued operations to be consistent with the structure of our off-highway transaction.

In 2026, it'll just be continuing operations contributing to adjusted free cash flow. On that note, adjusted free cash flow from continuing operations improved by $78 million, driven by strong operations following the completion of the sale of our off-highway business. One-time costs declined by $20 million on a year-over-year basis, reflecting completion of several of our cost reduction programs and lower restructuring spend as we move past the intensive phase of our transformational initiatives. Net interest expense increased by $6 million, driven primarily by the timing of interest payments related to the debt repayment activity after the closing of the off-highway sale. Taxes were $6 million year-over-year headwind, reflecting timing of tax payments. Working capital was a use of $224 million, largely due to higher accounts receivable and the timing impact related to certain VAT recoveries and customer paid tooling.

Net capital spending was modestly lower by $3 million. Putting all these items together, adjusted free cash flow for the first quarter was a use of $195 million, with higher operating profitability and lower one-time costs, partially offset by the loss of EBITDA from discontinued operations and normal first quarter working capital dynamics. Please turn with you now to slide 12 for an update on our full year guidance for continuing operations. Our guidance ranges remain unchanged from our February call, we now expect to be at the upper end of our ranges for sales and see a commensurate adjusted EBITDA increase. Our 2026 outlook reflects continued operational execution, accretive new business, and the ongoing benefit of our cost reduction initiatives.

Starting with sales, we expect 2026 revenue to be approximately $7.5 billion at the midpoint of our range. Increased backlog and the benefit of higher margin new business are expected to largely offset a modestly softer market environment and changes in product mix. Beneficial sales mix, potential second half commercial vehicle improvement, higher tariff recoveries, and currency translation will likely push us higher in our range for sales. Adjusted EBITDA is expected to be around $800 million, an increase of roughly $200 million compared with 2025. This improvement is driven by the full year run rate of our cost-saving programs, continued operating efficiency improvements, and the incremental margin from new business that carries higher profitability.

At the midpoint of the range, this represents an adjusted EBITDA margin of roughly 10%-11%, an expansion of approximately 250 basis points on a year-over-year basis. Diluted adjusted EPS guidance for 2026 is expected to be about $2.50 at the midpoint. For this calculation, we're using a share count of 109 million and are not including future share repurchases in this calculation. Adjustments for EPS are similar to those in nature that we make for adjusted EBITDA. Adjusted free cash flow is expected to be around $300 million in line with our 2025 performance. Free cash flow stability reflects disciplined working capital management, improved earnings, and a normalization of capital spending as major investments over the past several years begin to taper.

Our 2026 outlook demonstrates continued profit improvement driven by new business, operational efficiencies, and the structural benefits of our cost actions over the past year or so. Please turn with me now to slide 13 for the drivers of the sales and profit change for our full year guidance. Beginning with sales, volume mix remains unchanged, and we expect to reduce revenue by approximately $95 million as lower demand in traditional markets, as well as ongoing softness in electrical light vehicle programs impacts our battery cooling business. We are seeing the beginnings of higher demand for North American Class 8 trucks that may benefit sales later in the year. Performance is expected to be modestly lower, reducing sales by about $30 million, reflecting more normalized pricing environment as we lap last year's commercial actions.

Tariffs are expected to improve sales by roughly $50 million, largely due to the timing of recoveries. Foreign currency translation adds approximately $60 million, driven primarily by the strengthening of the euro compared to the U.S. dollar. Commodities are projected to add about $15 million in sales due to continued effectiveness of our recovery mechanisms with our customers, which recover about 75% of the average commodity pricing changes. As we experienced in the first quarter, foreign currencies have remained strong against the U.S. dollar so far this year. If that trend continues, we will likely see a benefit to sales from currency translation above what is shown here. Altogether, these drivers result in 2026 sales of approximately $7.5 billion in line with prior year levels.

Turning to adjusted EBITDA, starting from the $610 million in 2025, representing an 8.1% margin, volume and mix is expected to add approximately $20 million in EBITDA. Favorable mix within our businesses will drive higher profit on slightly lower sales. Performance is expected to increase EBITDA by roughly $100 million, largely from pricing improvements and continued operation efficiency. Please note, we still expect to eliminate about $40 million of post-divestiture or stranded costs, which is included within this $100 million number. Cost savings, in addition to the stranded cost reduction, remain a meaningful contributor, adding $65 million in profit in the year. Tariffs are expected to be a $10 million tailwind due to timing on recoveries.

Commodity cost is expected to represent a $15 million headwind driven by timing differences in recoveries and expected material cost changes. All combined, adjusted EBITDA for 2026 is expected to be approximately $800 million at the midpoint of our range or approximately 10.6% margin, represent an improvement of roughly 250 basis points over 2025. Next, I will turn to slide 14 for details of adjusted free cash flow outlook for 2026. Our adjusted free cash flow also remains unchanged. As I discussed during the first quarter review, full year 2025 included cash flow from discontinued operations that will not continue in 2026.

Even without the contribution from discontinued operations, we expect full year 2026 adjusted free cash flow to be about $300 million at the midpoint of the guidance range. One-time cost will be about $30 million lower than last year or about $40 million due to fewer strategic actions. Net interest will be about $70 million in 2026, about $95 million lower than last year due to our aggressive debt reduction actions completed in January. Taxes will be about $100 million, about $75 million lower than 2025 due to lower taxable income and the jurisdictional distribution of profits. Working capital will be a source of $25 million in 2026, a $40 million improvement over last year.