DANA Inc Q2 2026 earnings call

Thank you, Regina. Good morning, welcome everyone to our second quarter earnings call for 2026. Today's presentation includes forward-looking statements about our expectations for Dana's future performance. Actual results could differ from what we discuss today. For more details about the factors that may affect future results, please refer to our disclaimer and Safe Harbor statements found in our public filings and our reports with the SEC. You will find this morning's press release and presentation posted on our Investor website. As stated, today's call is being recorded, 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 our Chief Executive Officer, Byron Foster, and Timothy Kraus, Executive Vice President and Chief Financial Officer. Byron, I will turn the call over to you.

Okay. Thanks, Craig. Good morning, everyone, thanks for joining the call. I would like to start by hitting a few key highlights from the quarter. I am pleased to report strong second quarter financial results driven by a continued focus on executing our plan and strategic initiatives. Sales in the quarter came in at $2 billion with adjusted EBITDA of $207 million, which yields a margin of 10.3%, 270 basis points higher than the same period in 2025. Additionally, the team delivered $19 million of cost savings in the quarter. This brings our year-to-date cost savings number to $54 million and keeps us on track to realize the $65 million we have committed to in 2026, achieving our program target of $325 million. We continue to work on efficiency opportunities to chip away at the $40 million of stranded costs from the off-highway sale.

Next, I'm excited to share that we will be restarting our share repurchase program until the closing of the Eaton Mobility transaction. We additionally continue to evaluate the possibility of additional share repurchases post-closing. If you step back in terms of our share repurchase program, in Q2, we repurchased 1.2 million shares, returning $44 million to our shareholders. Year-to-date, that brings our share repurchases to $169 million. We're planning from this point forward an additional $200 million of repurchases in the balance of the calendar year. Program-to-date, we've repurchased $819 million through Q2, that'll bring us to just over $1 billion with the $200 million incremental for the balance of the year and keeps us on track to complete $2 billion of the authorization by 2029. The Eaton Mobility combination is progressing well.

One key update in regards to the transaction is that the separation will be structured as a split-off. I'll add a bit more color to that structure here in the coming slides. Finally, our Dana 2030 program continues to make significant progress. I'll talk a little bit about some of the customer recognition as well as the new business awards tied to the key growth pillars of the Dana 2030 plan. If we go to page five, as mentioned in my opening slide, our team's continued focus on executing and delivering real value for our customers is resulting in great recognition from our customers. We're honored to be recognized by three of our largest customers for our performance in quality, delivery, competitiveness, and commercial collaboration and data transparency regarding tariff recoveries.

These are a small sample of the positive feedback we continue to receive from our customers. We're proud to continue to work to build their trust and continue to grow in our key markets. Speaking of growth, if we go to page six, I want to provide a brief Dana 2030 update. You'll recall during our Capital Markets Day, we showed a roadmap of how we will grow Dana's top-line to $10 billion by 2030. There are three key pillars that we highlighted as part of that growth strategy, around our traditional products, aftermarket, and Applied Technologies. To highlight the aftermarket piece, our team continues to make great strides in expanding our Victor Reinz branded sealing products with a number of the nation's top retail chains.

With AutoZone, we're working on expanded DC participation. With Advance, we're working on SKU expansion, as well as launching new products with O'Reilly's. The combination of this effort is delivering $40 million of additional sales from these top national retail chains. The team is continuing to work on new opportunities across other key customers in this critical channel. If you go to page seven, another proof point of our aftermarket growth strategy is our new partnership with VIPAR, North America's largest heavy-duty truck parts program group. With VIPAR's 875+ locations and 430+ service locations, this partnership expands Dana's distribution reach and will deliver an incremental $10 million-$15 million of aftermarket sales beginning later this year. Moving on to page eight, the next pillar I want to highlight is Applied Technologies, where our strategy is to leverage Dana's off-the-shelf product and process capabilities for profitable growth.

The defense market is an area where we are getting great traction. Based on demand for the current ISV with GM Defense, we're seeing volume increases in the back half of the year and into next year. Additionally, we're in a rapid prototype phase on a major project with one of our large OEMs, where we're working to secure the production order by year-end. Just based on the programs that we participate in today and the increased demand, we're seeing $30 million of new sales in this pillar of our strategy alone. We continue to see defense as a real opportunity for profitable growth, and we're working with all the key players in the space on new program opportunities.

The Dana 2030 program continues to deliver great results, and we're excited about the top-line opportunities in aftermarket and defense, and we'll continue to provide updates in future calls. If we turn to page nine, turning to the Eaton Mobility transaction, a couple of important updates that we believe strengthen the transaction and directly address shareholder feedback. Dana will restart share repurchases immediately with an agreement in place with Eaton that allows us to continue returning capital to shareholders through the closing of the transaction. The transaction economics remain unchanged. The amount of the distribution to Eaton will be adjusted for lower share count. We expect to repurchase an additional $200 million of shares before the end of 2026, as I mentioned, additionally, we're continuing to evaluate the potential to continue repurchases after closing, which if successful, will avoid the previously announced 24-month pause.

Eaton has elected to separate mobility through a split-off structure. From Dana's perspective, this is a positive development as the structure remains tax-free to shareholders, and current Eaton shareholders will have the choice to participate in the exchange offer. We believe that choice will support a more orderly distribution of shares to investors who are interested in owning Dana and participating in the value creation opportunity of the combined company. We remain highly confident in the strategic and financial merits of the combination. If we move to page 10, I want to take a minute to reiterate the highlights and strategic rationale of the deal. Eaton Mobility brings a set of complementary products, meaningful Commercial Vehicle exposure, a strong aftermarket franchise, and capabilities that fit naturally with Dana's existing powertrain, thermal, sealing, and driveline technologies.

Together, the two companies create a focused, scaled powertrain leader that accelerates our Dana 2030 plan. The combination gives us a broader, complete system offering, increases our exposure to higher value Commercial Vehicle and aftermarket markets, and creates a stronger platform for margin expansion and free cash flow growth. Additionally, we have a clear plan to achieve at least $250 million of run-rate cost synergies within 24 months after close. These savings are supported by specific work streams across corporate functions, engineering, manufacturing, purchasing, business unit optimization, and aftermarket network efficiencies. I'll come back to the synergies point in a couple of slides. We view commercial upside from cross-selling and the combined sales force as incremental opportunity.

Even with the planned buybacks, the combined company is expected to maintain attractive pro forma synergized 2026 net leverage of approximately 1.4x, with a strong free cash flow profile and a clear path to deleveraging over time. Slide 11 is a good visual to illustrate why the industrial logic of the combination is so compelling. Dana and Eaton Mobility bring together highly complementary product portfolios across the powertrain system that literally fit together and connect to each other. Dana's existing strengths in axles, driveshafts, thermal management, and sealing are complemented by Eaton Mobility's Commercial Vehicle transmissions, engine components, emissions-related products, and advanced electrification capabilities. The result is a more complete, high-value powertrain offering. These are product categories we know well, and in many cases, they are areas where Dana has historical familiarity and technical depth.

By combining the portfolios, we can offer customers a broader system-level solution and create more opportunities for engineering collaboration, product integration, and commercial pull-through. This is also why we view the transaction as a continuation of our strategy, not a reversal of the simplification we achieved through the off-highway divestiture. We simplified Dana to focus on the core areas where we have scale, capability, and margin opportunity. Eaton Mobility deepens that core. Turning to page 12, we highlight one of the most attractive elements of the deal, creating a scaled global aftermarket leader. On a combined 2026 basis, aftermarket sales are expected to be approximately $1.7 billion, representing approximately 16% of our total sales, which is roughly 4 percentage points higher than Dana on a standalone basis. This larger aftermarket platform matters because aftermarket revenue is typically higher margin, less cyclical, and more resilient through the cycle.

The combination gives us a broader range of genuine and all makes parts, a larger global distribution network, stronger customer reach, and meaningful cross-sell opportunities across the combined channel base. We believe the combined platform gives us additional runway to expand the offering, optimize the network, and improve customer satisfaction while capturing margin upside. This also ties directly to the Dana 2030 strategy. Growing aftermarket has been a core pillar of that plan, as I highlighted earlier in the deck, and Eaton Mobility accelerates the opportunity by adding scale, breadth, and customer access. Moving to page 13. As I mentioned, this transaction directly enhances and accelerates the Dana 2030 objectives. It strengthens each of the key growth pillars we discussed at Capital Markets Day: Traditional Product Growth, Aftermarket Growth, Applied Technologies Growth, and it accelerates our efforts in manufacturing excellence and structural cost reduction.

Thanks, Byron, and good morning. Turning to slide 17, if you would. We delivered another strong quarter with sales increasing to $2 billion and adjusted EBITDA increasing to $207 million, reflecting continued operational execution and favorable market dynamics. Adjusted EBITDA margin expanded 270 basis points to 10.3%. Net interest expense declined 59% on a year-over-year basis to $17 million, following debt repayment actions completed after the off-highway divestiture. Tax expense was higher on jurisdictional mix and improved earnings. As a result, adjusted net income increased to $21 million from $4 million, while diluted adjusted EPS increased to $0.19 from $0.03. Overall, the quarter reflects continued progress on our strategy with higher sales, stronger margins, improved earnings, and a more efficient capital structure. Please turn with me to slide 18 for the second quarter change in sales and adjusted EBITDA.

Starting with sales, second quarter 2026 sales were $2.01 billion, up from $1.94 billion in the prior period. Volume and mix contributed $6 million, reflecting higher demand in key light vehicle programs and continued conversion of our backlog. Performance added $29 million, primarily from pricing and recovery actions across the business. Cost savings were neutral to sales, while tariff recoveries contributed about $4 million. Foreign currency translation added an additional $24 million, largely driven by the euro and Brazilian real. Recovery of commodities contributed an additional $12 million to the top-line of the company. All together, these items resulted in a $75 million increase in sales year-over-year. Turning now to adjusted EBITDA. Volume mix contributed $10 million of incremental profit, reflecting favorable business mix and strong conversion of higher backlog.

Performance added $29 million, driven by pricing initiatives, operational improvements, and continued manufacturing efficiencies across the organization. Cost savings remained a significant contributor to our profit improvement, adding $19 million as our restructuring and productivity initiatives continue to deliver benefits. To date, our cost-saving initiative has delivered over $310 million towards our improved profit. Tariffs contributed $4 million, while foreign currency added an additional $2 million. Commodity represents a modest $3 million headwind, primarily due to the timing of our recovery mechanism with our customers. Bringing all those factors together, adjusted EBITDA increased to $207 million, representing a 10.3% margin and an improvement of 270 basis points compared with the second quarter of 2025. Overall, the quarter reflects continued execution of our strategy, with pricing actions, operational performance, and cost savings driving strong profit conversion and meaningful margin expansion.

Turn with me to slide 19 for a look at adjusted free cash flow for the second quarter. We generated $68 million of adjusted free cash flow in the second quarter, an improvement of $75 million compared with the prior period, demonstrating the strong conversion of our earnings improvements into cash. The largest driver was the continued improvement in operating performance. Adjusted EBITDA from continuing operations increased to $207 million from $147 million a year ago, reflecting the benefits of our cost reduction initiatives, material cost savings, operational improvements, and favorable pricing and recovery actions. As a reminder, the prior year, 2025, comparison included $109 million of EBITDA from the off-highway business, which is not reflected in our 2026 results following the divestiture. Despite that headwind, the strength of our continuing operation more than offsets the absence of those earnings.

Net interest improved by $30 million year-over-year, reflecting the debt reduction actions we completed following the off-highway sale earlier this year and resulted in a lower interest burden. Working capital and other items provided a $79 million year-over-year benefit, driven primarily by favorable accounts payable timing and lower inventory levels. These improvements were partially offset by a modest increase in capital spending, which reflects investments in new programs and facility-related projects intended to support future growth and efficiency actions. Overall, the quarter highlights our continued progress in strengthening Dana's earnings quality, improving our balance sheet, and converting higher profitability into meaningful cash flow generation. Please turn with me now to slide 20 for an update of our full-year guidance.

Based on our strong first half performance and improving demand in the commercial vehicle market, we are raising our full-year outlook for sales, adjusted EBITDA, and adjusted free cash flow. We now expect approximately $7.75 billion in sales at the midpoint of our range, an increase of $225 million from our prior outlook. This increase is primarily driven by stronger commercial vehicle production and demand, along with continued execution across all of our end-markets. We are also raising our adjusted EBITDA guidance by $25 million and now expect approximately $825 million at the midpoint of the range Reflecting the incremental contribution primarily from higher commercial vehicle volumes. Despite the higher sales outlook, our expected adjusted EBITDA margin remains approximately 10.6%, driven by a mix of higher sales in our lower margin commercial vehicle business.

Our diluted adjusted EPS has been revised lower to approximately $2 per share at the midpoint of the range. The lower adjusted net income is driven by higher depreciation expense due to timing of capital investments and higher net interest as we prepare for upcoming Mobility transaction. We are also expecting lower equity earnings from our JVs, primarily in China, which are not consolidated. We are also increasing our outlook for adjusted free cash flow to approximately $325 million at the midpoint of the range, an increase of $25 million from our prior guidance, driven again by higher earnings. Overall, we remain highly confident in the trajectory of the business. The actions we've taken to improve profitability, strengthen the balance sheet, and position Dana for sustainable growth continue to deliver results. Our updated guidance reflects that continued momentum and confidence as we move through the remainder of 2026.

We work towards closing the Eaton Mobility transaction early next year. Please turn with me now to slide 21 for a driver of the sales and profit change for our full-year guidance. As discussed on the prior side, we've increased our 2026 outlook and now expect approximately $7.7 billion of sales and $825 million of adjusted EBITDA at the midpoint of our guidance ranges. Beginning with sales, we now expect approximately $250 million of year-over-year growth compared with an outlook of roughly flat sales in our prior outlook. The largest change versus our prior outlook is stronger demand in the Commercial Vehicle market, which is reflected in the improved volume and changing mix expectation. We also continue to see a benefit from pricing and recovery actions, favorable foreign currency translation, and commodity pass-through recoveries, as well as some tariff recoveries.

Together, those factors are expected to drive sales to approximately $7.75 billion, an increase of $225 million, versus the outlook we provided in the first quarter. Turning to adjusted EBITDA, we continue to expect significant profit improvement in 2026. Starting from the $610 million in 2025, favorable volume and mix are now expected to contribute approximately $45 million, reflecting the stronger Commercial Vehicle outlook and continued backlog conversion. Performance is expected to contribute approximately $125 million, including the benefits of pricing actions, operational efficiencies, and approximately $40 million of stranded cost elimination. Cost savings remain a significant contributor at $65 million. Offsetting a portion of these benefits is a one-time, approximately $20 million U.S. union contract signing bonus expected in the third quarter, along with approximately $10 million of commodity-related headwind due primarily to recovery timing.

We continue to expect modest benefits from tariff and foreign currency, each contributing approximately $5 million of EBITDA. Bringing all these items together, we now expect adjusted EBITDA of approximately $825 million, which is $25 million higher than our outlook at the end of the first quarter and represents an adjusted EBITDA margin of approximately 10.6%. Overall, the update reflects continued execution against our operational initiatives, incremental strength in the Commercial Vehicle market, and the ongoing benefits of our cost reduction and pricing actions, giving us confidence to increase our outlook for 2026. I will now turn to slide 22 for details of our adjusted free cash flow outlook for 2026. As a reminder, 2025 adjusted free cash flow included the contributions from both continuing and discontinuing operations. Following the sale of our off-highway business, our 2026 outlook reflects only continuing operations.

With the stronger earnings outlook we just discussed, we are increasing our adjusted free cash flow guidance to approximately $325 million, up $25 million from our prior outlook of $300 million. Starting at the top, we now expect approximately $825 million of adjusted EBITDA from continuing operations, reflecting the increase in our profit outlook since the first quarter. One-time costs remain substantially below prior year levels at approximately $30 million, while net interest expense is expected to improve by approximately $80 million year-over-year, reflecting the debt reduction actions completed following the off-highway divestiture. We also continue to expect meaningful benefits from lower cash taxes and working capital. Working capital is now expected to be a source of cash supported by continued operational improvements and disciplined balance sheet management.

We continue to expect about $325 million in net capital spending, which is higher than last year as we support new program launches, automation initiatives, and other operational improvement projects across the business. We now expect to generate approximately $325 million of adjusted free cash flow in 2026, representing a $25 million increase versus the outlook we provided at the end of the first quarter. I'll turn it back over to Byron for the last slide. Byron?

Thanks, Tim. To recap, it's really all about creating value through execution and preparing for our strategic transformation. I want to thank the team for staying focused on executing our base plan. This has allowed us to deliver profitable growth and expanded margins. Our operational execution remains very high, driving higher earnings and cash generation, and as Tim just mentioned, delivered strong free cash flow while strengthening the balance sheet.

We gave you a little bit of a look at Dana 2030, and we remain excited about the strategic growth opportunities as part of that program. Today, highlighting aftermarket and defense, where we continue to make great progress. In terms of the combination with Eaton Mobility, several enhancements that we were excited to announce today. First, the share repurchases being restarted and the split-off structure of the transaction. We remain on track to close the deal in Q1 of 2027 and look forward to positioning Dana as a leading global powertrain systems provider. In closing, I want to take the opportunity to thank our customers for the trust they place in Dana and thank our Dana team around the world for their dedication and hard work and strong results in the second quarter. With that, Regina, we'll turn it back over to you and happy to take questions.