Dana Holding Corporation (DAN)

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Dana Holding (DAN)

Q4 2012 Earnings Call

February 21, 2013 10:00 am ET

Executives

Craig Barber

Roger J. Wood - Chief Executive Officer, President, Director, Member of Strategy Board and Member of Series A Nominating Committee

William G. Quigley - Chief Financial Officer and Executive Vice President

Mark E. Wallace - Executive Vice President, President of On - Highway Technologies and Member of Strategy Board

Analysts

Patrick Nolan - Deutsche Bank AG, Research Division

Timothy J. Denoyer - Wolfe Trahan & Co.

Brian Arthur Johnson - Barclays Capital, Research Division

Joseph Spak - RBC Capital Markets, LLC, Research Division

John Lovallo - BofA Merrill Lynch, Research Division

H. Peter Nesvold - Jefferies & Company, Inc., Research Division

Patrick Archambault - Goldman Sachs Group Inc., Research Division

Brett D. Hoselton - KeyBanc Capital Markets Inc., Research Division

Presentation

Operator

Good morning, and welcome to Dana Holding Corporation's Fourth Quarter and Full Year 2012 Webcast and Conference Call. My name is Brent and I will be your conference facilitator. Please be advised that our meeting today, both the speakers' remarks and Q&A session, will be recorded for replay purposes. [Operator Instructions]

At this time, I would like to begin the presentation by turning the call over to Dana's Director of Investor Relations, Craig Barber. Please go ahead, Mr. Barber.

Craig Barber

Thank you, Brent. On behalf of the entire Dana management team, I would like to thank you for joining us this morning either by phone or on the webcast. With me today are Roger Wood, President and Chief Executive Officer; and Bill Quigley, Executive Vice President and Chief Financial Officer. Also in the room is Mark Wallace, Executive Vice President and President of Light Vehicle Driveline; Aziz Aghili, President of Off-Highway Technologies.

Before we begin, I would like to review a couple of items. Copies of this morning's earnings release and the accompanying slides have been posted on Dana's investor website for your reference. Today's call is being recorded, and the supporting materials are the property of Dana Holding Corporation. They may not be recorded, copied or rebroadcast without our consent. [Operator Instructions]

Finally, today's presentation includes some forward-looking statements about our expectations for Dana's future performance. Actual results could differ materially from those suggested by our comments here. Additional information about those factors can be found on our Safe Harbor statement. These risk factors are also detailed in our SEC filings, including our annual, quarterly and current reports with the SEC.

With that, I would like to turn the call over to Roger Wood.

Roger J. Wood

Thanks, Craig, and good morning, everyone. We are pleased to report record financial results for Dana Holding Corporation in 2012. Sales for the year were more than $7.2 billion, even in the face of strong currency headwinds and weak second half demand in a few of our markets. Net income for the year was a record $300 million, and for the quarter, was $88 million, marking our seventh consecutive quarter of positive net income.

We did have a tax gain in the quarter that Bill will talk about. But even without this gain, this was still a record earnings year for Dana. And our adjusted EBITDA margin was 10.8% for the quarter, 70 basis points higher than 2011 and in line with the preliminary results that we gave last month at the Detroit Auto Show. This strong margin performance, which also represents a record high for us, is a direct result of the actions we have taken to improve the business and to respond quickly to the changing market dynamics. That is, reducing costs and improving efficiencies in all areas of the business. At the same time, we were able to generate continued strong free cash flow of $325 million, another record for Dana. This ability to generate cash has allowed us to make $150 million voluntary contribution to our pension plans at the beginning of 2012, initiate a common dividend and also launch a common stock repurchase program last year. All of these actions show our confidence in the company and our commitment to delivering value through our shareholders.

Turning to Slide 5, we have a look at our business by market and by region. This diversification allows us to manage volatility and leverage our products and technologies across more applications around the world. Our regional sales mix continues to be balanced with an expected shift in sales from South America to North America and in market mix from heavy vehicle to light vehicle, due primarily to the softness in the commercial vehicle market and the strength in the light vehicle market last year. The overall balance of the regions and the markets remains very healthy, further highlighting the unique advantage that our market and regional diversification gives us in being able to create synergies and leverage our driveline sealing and thermal management technologies.

Before this leverage can happen, however, we need to bring value-creating technologies to market, and we continue to do just that. Slide 6 shows some of our latest technology introductions there on the left.

Last month, we revealed Spicer PowerBoost, which is a new line of integrated hydraulic hybrid powertrain concepts for the off-highway market. This technology captures kinetic energy otherwise wasted throughout the drivetrain and work circuits and then uses this recuperated energy to help power the vehicle. Spicer PowerBoost does not replace existing transmission technologies, but instead it is a powertrain supplement for existing transmission architectures. Spicer PowerBoost can reduce fuel consumption by up to 40% compared with traditional drivetrain concepts, depending on the vocational application and duty cycle. But it also helps improve productivity, and it lowers ownership and operating costs. Spicer PowerBoost is ideal for applications with short and medium life cycles that can recuperate a great deal of breaking and working energy. For instance, vehicles like front-end loaders and material handling machines would be examples of these.

This system truly fits with our vision that we introduced last March at the Analyst Technology Roadshow, which is to be the global technology leader in efficient power conveyance and energy management solutions. PowerBoost is all about energy management and moves us beyond being drivetrain experts and more toward total energy management solutions. This technology will be on display at bauma, the world's largest construction trade show held in Munich in April.

We've also launched Spicer Rui Ma, which is a new class of transmissions and axles made in China for China to provide a quality complement to Dana's flagship Spicer brand of technology-advanced drivetrain solutions. Spicer Rui Ma drivetrain solutions offer an optimized blend of product features, performance, dependability and also cost that's demanded by most purchasers of Chinese-made construction mining and material handling equipment. Developed and produced at Dana's facility in Wuxi, China, Spicer Rui Ma drivetrain solutions offer clear technological advantages over competitive products traditionally offered to the Chinese off-highway market.

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