Tomahawk, WI 10/01/2013 (BasicsMedia) – The production of motor vehicles starts with the assembling of auto-parts. Since the year 2010, over 58 million passenger cars were produced worldwide each year, of which 4.9% were from the U.S. Dana holding Corporation (NYSE:DAN) is a worldwide provider of technology for motor vehicle manufacturers in the on-highway and off-highway markets. They manufacture driveline, sealing and thermal-management products and have a presence in 27 countries.

Dana operates in four business divisions:

  • Light Vehicle Driveline Technologies (LVD) — This division produces drive shafts, differentials, front and rear axles, torque couplings, and modular assemblies.
  • Commercial Vehicle Driveline Technologies (Commercial Vehicle) — This division produces steering shafts, axles, drive shafts, tire management systems, and suspensions.
  • Off-Highway Driveline Technologies (Off-Highway) – Serves all off-highway markets, providing transmissions, axles, drive shafts, electronic controls, and tire pressure management.
  • Power Technologies – Includes the production of heat shields, cover modules, gaskets, cooling and heat transfer components, and engine sealing systems.

Dana faces stiff competition from companies like American Axle & Manufacturing Holdings Inc. (American Axle), GKN Plc (GKN), Magna International Inc. (Magna), ZF Friedrichshafen AG (ZF Group), IFA Group, Ford Motor Company (NYSE:F), Toyota, and Federal-Mogul Corporation (NASDAQ:FDML). President Roger J. Wood stated that Dana is using cost control measures, disciplined investment actions, market diversification flexibility in adjusting their cost structures in order to quickly respond to changing market conditions.

The company’s performance for 2Q13, relative to last year, is strong and predicts a positive growth despite a few setbacks as revealed on the financial statements. Some of the issues as revealed in the financial statements are:

2Q beats on the bottom line

Dana posted EPS of $0.54 in 2Q13 vs. $0.56 in 2Q12, while adjusted segment EBITDA was $215 million lowered from $225 million in 2Q12. Lower sales volume, f/x, and roll-offs contributed to $25 million of the decrease which was partly offset by $15 million in profits from performance, lower administration expenses, lower restructuring costs, and the Venezuelan devaluation. Even though the adjusted EBITDA is lower in this quarter compared to last year’s, it has improved to 11.9% as a percentage of sales.

Though the company’s sales were lower compared to last year, net income improved. The sales reduction was mainly caused by planned Light Vehicle program roll-offs and the divestiture of an Off-Highway division, as part of their divest program in the reorganization/restructuring program which lowered sales by $84 million. There were also currency effects in some of its markets which contributed to $38 million in reduction of sales. Stronger 2Q13 production levels in the North and South American light-vehicle and commercial-vehicle markets respectively, partially counterbalanced lower N. American commercial-vehicle production and global off-highway market demand compared to last year. Notably, the commercial vehicle segment contributes almost to 22% of Dana’s revenue, while the North American market contributes 60% of the commercial vehicle revenue.

Precisely, here is a short analysis of some of the items of this year’s second quarter results (June 30, 2013) compared to last year’s second quarter (June 30, 2012) results:


Percentage change



Net income

EBITDA -4.4%
Cash flow 49.5%
Diluted adjusted EPS -3.57%

Summary of key statistics and ratios is as follows:

Ratio June 30, 2013 June 30, 2012
Net profit margin 5.22% 4.33%
Operating margin 8.33% 5.04%
EBITD margin 10.67%
Return on average assets 7.25% 6.01%
Return on average equity 31.82% 25.94%

Expectations on commercial vehicles are down

After a weaker than expected 1Q13 for commercial vehicles, expectations were low going into 2Q13. Although the North American truck building industry is on a slow recovery, there was little sign of the same in the other markets. In 2Q13, the Commercial and Light Vehicle businesses experienced a hefty boost, especially with the light vehicle segment doing so well in all the key markets. Dana is still at a great point for continued forward movement given that:

  • The N. American commercial vehicle market is expected to pick up in 2H;
  • The light vehicle market in Europe is stabilizing; and
  • The off-highway market for construction equipment in Europe has not picked back up.

To ensure efficiency and maintain strong performance and market effectiveness, Dana has refined its targets for the rest of this financial year as follows:

  • Reduce sales to approximately $7.0 billion, from previous $7.1 billion due to poor markets of its LVD products in S. America and India
  • Raise Adjusted EBITDA to approx. $800 million
  • Maintain Adjusted EBITDA as a percentage of sales at approximately 11.4%
  • Reach a diluted adjusted EPS of about $1.90 (this excluded the impact of share buyback after June 30, 2013)-this implies almost quadrupling the current figure shown in the 2Q13 reports of 0.54; which is a good strategy because as the price of shares change, the number of diluted shares can also change.
  • Increase capital spending to $200 million from $180 million
  • Increase free cash flow from current to $285 million from $265 million
  • Dana also plans to expand its network in Russia and other Commonwealth countries where construction activities are accelerating and offer customized solutions to such regions.

Dana remains the cheapest supplier in the market

Dana is for investors seeking exposure in full-size pickup trucks, or, to an ultimate commercial vehicle movement, the stock somewhat remains a relative bargain.

Revenue is expected to remain relatively unimpaired, and the global construction and mining equipment demand, as well as Asia Pacific and European commercial vehicles, are being aided by increased interest in the North American light truck and South American commercial vehicle demand.

Another achievement of the company was surpassing its competitors and attaining an off-highway axle business with a key agricultural manufacturer in Brazil, axles for a vocational truck producer in China and drivelines for a big construction manufacturer in India. The company’s announced that its Power Technologies Group signed an agreement with Victor Reinz India (VRI) and a joint venture with the Jayant Group.

Common share repurchase

Dana’s Board of Directors approved an expansion of their share buyback program up to $1 billion. This act illustrates an approximate increase of $900 million above the $100 million returned to common stock holders so far. The company plans to buy back its shares either in the open stock market or through private negotiations over the coming two years.

Share repurchase pace is likely to pick up, as activity has accelerated consistently to $60 million in 2Q13 $15 million in 4Q12 and from $24 million in 1Q13. Also, program authorization increased to $1 billion. Currently, Dana has already entered into an agreement to accelerate its share buyback program with JPMorgan and National Association after the expansion, whereby Dana will purchase its outstanding shares of common stock amounting to $200 million.

Performance on the stock market

For the past three months the company’s shares have shown a steady improvement, especially after the buyback program was expanded.



Positive risks include a faster advance in Dana’s margins, a faster and larger share redemption rate, a higher industry share for SUVs/pickups, and higher North American light vehicle demand. In addition, though the South-pacific market has been growing exponentially, Dana is expecting to accelerate the process through the joint ventures it has entered into recently with strong market owners of those regions. Negative risks include lower than expected N.A. light vehicle needs, lower percentage of SUVs/pickups being purchased, lower North American commercial vehicle demand, and more severe and/or longer worsening in European off-highway demand.

In conclusion, I would say that the company’s performance and improvement in the stock market is strongly linked to the repurchase, and this is just two months after the announcement of the plan to increase the repurchase program to $1 billion. Conversely, looking at the company’s newly refined targets; it out-weighs the notion that the management expanded its buyback program for the purposes of meeting the targeted EPS only. The possible reason could be to reduce the outstanding shares in the market and wait for the stock market to raise the price of the company’s shares, and then they reissue them at a profit. The company has potential and is performing well and will possibly perform better in future. This will be reached through its investment programs in new, promising markets and its flexibility in meeting new market requirements. Therefore I would strongly recommend that investors should “buy” company preferably now than later.

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