Dana Incorporated — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparative period is Q1 2021. Dana supplies driveline, motion, electrification, sealing and thermal-management technologies to light-vehicle, commercial-vehicle and off-highway markets. All dollar amounts are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Net sales | $2,480 | $2,263; up $217 (about 10%) |
| Gross profit / margin | $197 / 7.9% | $251 / 11.1% |
| EBIT | $66 | $108 |
| Net income attributable to Dana | $17; $0.12 per diluted share | $71; $0.48 per diluted share |
| Operating cash flow | $(121) | $27 |
| Capital expenditures | $116 | $53 |
| Adjusted free cash flow | $(237) | $(26) |
| Cash and cash equivalents | $259 at March 31 | $268 at December 31, 2021 |
| Total liquidity | $1,141, including $864 of revolver availability | — |
Net income was $20 before noncontrolling interests. Interest expense was $31, and the effective tax rate was 49%, versus 29% in Q1 2021. Dana reported approximately $2.685 billion of balance-sheet debt, including short-term debt, current long-term debt and long-term debt; short-term debt rose to $301 from $23 at year-end. Revolver borrowings were $265, with $21 of letters of credit and $864 available. Dana said it was in compliance with financing covenants.
Working capital used $211 of cash, principally reflecting $325 used to finance receivables and $63 used for inventory. Financing activities provided $229, including net short-term borrowing; investing activities used $117. Cash, cash equivalents and restricted cash ended at $280.
Changes versus Q1 2021
- Sales rose on $275 of organic growth, partly offset by $55 of unfavorable currency effects and $3 from acquisitions/divestitures. Pricing and cost-recovery actions added $160 to sales.
- Higher volumes and sales did not translate into higher consolidated earnings: cost of sales increased $271, gross margin fell 320 basis points, and parent-attributable net income declined $54.
- Management cited commodity inflation of $138, non-material inflation of $70, supply-chain disruption and operational inefficiencies; customer recovery pricing lagged supplier cost increases by about 90 days.
- Segment EBITDA was $170 versus $235: Light Vehicle $31 (down from $100), Commercial Vehicle $10 (down from $15), Off-Highway $100 (up from $79), and Power Technologies $29 (down from $41).
- Equity earnings from affiliates fell to $1 from $14, largely because of lower earnings at the Dongfeng Dana affiliate. Q1 2021 also included a $17 Hyliion investment loss and a $7 disposal-group impairment, contributing to the improvement in other income/expense in 2022.
Outlook, commentary and risks
- For 2022, Dana projected sales of $9.85–$10.35 billion and adjusted EBITDA of $770–$870 million. It reduced the adjusted EBITDA range by $130 million from its February outlook, citing continued commodity and other cost inflation, while increasing the sales range by $225 million for improved market demand and additional commodity recoveries.
- Management expected an adjusted EBITDA margin of 8.1%, approximately 80 basis points below 2021, and adjusted free cash flow of about $215 million, or 2% of sales. Planned capital spending was approximately 4% of sales, with no discretionary pension contributions expected. These are non-GAAP outlook measures; the filing does not provide a GAAP net-income reconciliation for the forecast.
- Management expected global supply-chain constraints, customer order changes, labor, energy and transportation costs, and commodity inflation to pressure results. Market outlook varied by end market and region; Dana cited expected 2022 production growth in several markets but a decline in Asia-Pacific commercial trucks.
- Russia’s invasion of Ukraine and resulting sanctions could raise costs, disrupt supply chains or reduce sales. Dana reported approximately $75 of 2021 revenue from Russia and Ukraine combined and a limited Russian presence consisting of a leased sales office with two employees.
- Other exposures include foreign-exchange movements (which reduced Q1 sales by $55), commodity-price volatility, and restrictions or practical limits on repatriating some foreign cash. Dana stated that available liquidity and expected operating cash flow should be sufficient for anticipated requirements over the next 12 months.
- Commitments and contingencies include product-liability and environmental accruals, a guarantee of certain divested-business leases, and ordinary-course legal proceedings. Management did not expect pending matters to have a material adverse effect. The filing also disclosed an $8 cost-of-sales adjustment for intercompany inventory-transfer errors, including an amount relating to prior periods; Dana concluded the correction was not material.
Important facts for investors to verify
- Whether commodity and other inflation moderates and customer recoveries catch up with input costs, particularly given the stated lag in pricing recovery.
- Whether working-capital demands, elevated inventory and receivable funding, and capital spending permit the forecast adjusted free cash flow of about $215 million.
- How the sharp decline in Light Vehicle segment EBITDA and weaker Commercial Vehicle and Power Technologies results develop relative to Off-Highway strength.
- Revolver usage, debt levels and covenant compliance; also consider that reported liquidity includes revolver availability and that some foreign cash may not be readily repatriable.
- Progress and any further effects from the disclosed inventory-elimination error, supply-chain disruptions, Russia/Ukraine risks, and other legal or product-related contingencies.