Q2 2025 Dana Inc Earnings Call

Good morning and welcome to Dana incorporated's, second quarter 2025 Financial webcast and conference call. My name is Regina 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. For those participants who would like to access the call from the webcast, please reference the URL on our website and sign in as a guest, there will be a question and answer period after the speaker's remarks and will take questions from the telephone only to ensure that everyone has an opportunity to participate in today's Q&A. We ask that callers limit themselves to 1 question at a time. If you'd like to ask an additional question, please return to the Queue. At this time, I would like to begin the presentation, by turning the call, over to Dana's senior director of investor relations and corporate Communications Craig Barber. Please go ahead Mr. Barber

Thank you. Good morning. Welcome to Dana Incorporated. Its earnings call for the second quarter of 2025 today's presentation includes forward-looking statements about our expectation for David's future performance. Actual results. Could differ from what we discussed today, for more details about the factors that could affect our future results. Please refer to our Safe, Harbor statement following our public filings and our reports at the SEC.

I also 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 be broadcast without a written consent.

With me this morning is Bruce McDonald, Dana chairman and chief executive officer and Timothy Krauss, senior vice president and Chief Financial Officer. I will now turn the call to Bruce. Thank you, Craig. And thank you all for joining. Um, Craig Tim and myself for second quarter earnings call. Um, you know, there is a lot of noise in our numbers, as we've got to reclassify US Highway as a discontinued operation and so in, in our earnings deck and in our, in our comments, we'll sort of talk intermittently between new, Dana, Dana from continuing operations and the full day in at which, obviously, is the basis of our previous guidance and things like that.

I guess I'd sort of characterize the second quarter as another quarter of D of the Dana team. Delivering on our commitments with a solid, Q2, beat double-digit margins, and accelerating free cash flow. Um, in terms of some of the highlights here on slide 4, um, as everyone knows, we did announce in the quarter, our our, our agreement to sell, the off-highway business to Allison for just over 2.7 billion with net cash proceeds, expect to be about 2.4 billion, um, that, that closing is expected to occur here, late in the fourth quarter.

I think substantially all of the regulatory filings have been submitted and

and um, the teams are working hard, both ours and Allison's on, on affecting a smooth transition of the business over to Allison in terms of our, um,

use of proceeds. We previously announced that we were going to take the the proceeds from from the sales off Highway business and return about 1 billion dollars to our shareholders as well as reduce our, our overall debt by a couple billion dollars. Um, I'm pleased to announce this morning that as a result of strong free cash flow and our higher guide here. For the year, we're raising the amount of capital return to our shareholders to 600 million from what was 550 previously. Um,

Is outstanding and and we're forecasting, that we'll end the year with a sheer count of around 110 million, which would be about 25% year-over-year reduction. Um in the quarter we we did buy back uh just over 10% of our shares. Um returning, 257 million to our shareholders. And as we look here into the third quarter, we anticipate buying back another 100 to 150 million shares.

In terms of our cost reduction. Um, initiative this is where um we we sort of committed to a goal of 300 million run rate by by 200 by 2026. Uh, we're upping that to 310 as a result of some of the uh projects um, coming in better than Tim and I had expected in the quarter, we delivered 60 million dollars of cost nearly 60 million dollars of cost reduction and 110 million to date. And so I think we can kind of tie up a ribbon around cost reduction. I think we're highly highly highly confident in the 300 million and um, you know, we don't really have a long way to go to get to that run rate here by the fourth quarter.

In terms of tariffs and the Tariff landscape. I mean, a lot a lot, uh, moving around lately here but I I'd say the bottom, the Takeaway on tariffs is we're in great shape. In terms of tariff mitigation, uh, and tariff recoveries. Uh, right now we're we we have some headwind here in the second quarter of about 80 basis points,

Um, that's, that's worse than we expect. It's going to be the impact for the full year because we have some timing related catch-ups that we didn't get, um, customer agreements in place. Um, by the end of the quarter overall, we expect over an 80% recovery for the year. Um, more importantly, is the work that the teams are doing with our customers to mitigate

the impact of the tariffs. This is critical for our industry because we we don't want to just pass these costs along. We need to, we need to make them go away so that we don't impact any vehicle demand in terms of our balance of the year outlook.

Um, I think when we are on a call at the end of the first quarter, in other words, considerable uncertainty around the impact of tariffs. And, in terms of volumes, I guess what we've seen is very strong schedules holding up in the light vehicle side of our business, uh, we have seen some softening in North America CV which has been partially offset by a bit of better volumes coming out of South America and Europe.

In terms of our profit guide and here I'm referring only to um new Dana. Um, we're up in our profits guidance for the Year by 35 million. And if you look at the whole company, it's up 15 million because off high was down down 20 and uh, on a free cash flow basis. We're up in our our, our Target to buy fifty million dollars to about 275 at the midpoint of our guidance. So, overall, I'm really strong.

Quarter, I couldn't be more pleased with the um, results of the team.

In terms of what, uh, new Dana looks like going forward. I mean, that here's here's kind of an overall snapshot reflecting 2024 numbers, but you know, we're, we're, we'll be much more of a light vehicle company would be much more of a North American Centric company. Um, we we we do have a nice split between commercial and light vehicle. Um, within commercial we have a very strong aftermarket business, um, and you know, we don't talk a lot about it, but our thermal and our ceiling side of our business that we integrated into like vehicle, uh, continues to be a source of profit Improvement. Um, going forward.

in terms of the full year guidance,

just a few minutes on this page, and we, because

the first time we sort of showing our numbers with and without the discontinued operations,

So our guidance and as we, as we talked at the Inn, in the end of the first quarter, we we, we had indicated our, our sales were trending towards the higher end.

Of, um, our previous range. So, we're we're saying right now on an old on a total day of basis. Our sales would have been about 9.9 billion. You can see on the discontinued, operation Side Sales down 1, 125 there we have seen softness in terms of the um, tariffs um, particularly European product, that's imported into United States. That's bearing.

A tariff we we've seen those volumes drop off. However,

on the continuing operations side, um, we see sales being up 250 million in terms of the guidance for, um,

Way. Um, our revised guidance that I touched on my previous slide up 35.

For new Dana down, 20 million for US Highway for a net positive 15 and then stranded costs are just a pocket switch between discontinued operations. Those are costs that we currently allocate to off Highway that remain with um

New Dana, just a point to note that number is higher than the sort of 40 million, 30 to 5 to 40 million that we've previously guided to. Um, the reason is in within that 60 million are very real costs allocated to US Highway that will go away upon the sale. Those are 20 to 25 million and that's how you get back down to the range that we've talked about before and then, in terms of cash flow and I, I, I've seen a few notes where there's, maybe a little bit of confusion about what's cash flow split between disc Ops and containing Ops, you know, under gaap, where required to report total cash, flow inclusive of both pieces. And so that's what we're, we're guiding here today. Well, you will see when we publish our Q is, is cash flow split, um, by operating investing. And, um,

Uh, in earnings split between the 2, um, and and that's that'll get you to the 2, you know, to the 2, to the ears actions.

With that Tim. I'm going to turn it over to you to go through the financials in more detail. Thanks Bruce. Uh, let's begin with how we will be presenting our results in the prior periods with the signing of the agreement to sell our off Highway business that business will now be considered as discontinued operations. We will be reporting continuing operations in our financial statements, continuing operations, contain our light vehicle and Commercial Vehicle Systems reporting segments.

The majority difference between these new reporting segments and the prior reporting segments is, is they now incorporate certain retained operations that were not included in the off-highway sale as well as stranded corporate costs and prior intercompany sales to off Highway that are now treated as third-party sales according to the accounting rules.

The net effect of the higher sales and increased stranded cost is to temporarily lower, the profit margin of continuing operations until until the sale closes and transitions service payments. Begin

Third payment uh party sales agreements and Stranded cost. Reductions. That should be begin early next year.

And finally cash flow is the 1.

For continuing operations sales were 1.94 billion 112 million lower than last year, driven by lower in market demand.

Adjusted debe was 145 million for a profit margin of 7.5%, 210 basis points, higher than last year as the benefits of our cost-saving and productivity improvements. More than offset the lower sales and impacts from tariffs.

Earnings before tax attributable.

Um, attributes of a continuing operations was a loss of 24 million. A 30 million dollar improvement from 2024. Please turn with me now to slide 9 for the drivers of sales and profit change in line with the new accounting uh and Reporting method. We've revised our walk presentation to include the impact of discontinued operations for the current and prior periods. The 691 million in sales, and 136 million in, uh, profit removed from 2024 represents the off, sideway Highway sales perimeter and accounting treatment for discontinued operations.

Moving to the right for this year's second quarter. Uh the change in discontinued operations, lowered sales by 7 million and overall volume and mixed lower sales by 173 million driven by lower demand in both light vehicle and commercial vehicle and markets.

Performance drove sales, Higher by 29 million due to pricing actions in commercial vehicle and or aftermarket business while tariff, recoveries total 26 million for the quarter changes in adjusted ebit, uh, from continuing operations was 6 million for the quarter.

The flow through of sales from volume mix lowered, adjusted, EBA by 52 million. This was a decremental margin of about 30% 30%.

By but recall that breaking out performance uh now which includes efficiency gains in manufacturing separately.

Performance increased profit by 30 million due to pricing and efficiency improvements in commercial and light vehicle businesses.

For the current year.

The Tariff impact in the quarter was just $15 million since our tariff recovery mechanisms, have a lag. And the landscape continues to to evolve. We expect to see a continuing headwind due to the timing but we expected to cover recovered. The majority of the impacts this year.

Next, I will turn the slide 10 for the details of our second quarter. Free cash flow as I discussed on slide 8, the accounting for cash flow includes both continued and discontinued operations as shown on slide 10.

Adjusted free cash flow for the second quarter of 2025 was a use of 5 million which was 109 million lower than the second quarter of last year.

Higher adjusted ibida. In continuing operations was, partially offset by lower earnings in the off-highway segment and higher 1-time costs related to our cost savings and other improvements.

Taxes were 22 million. This year related, mainly related to Joint vent. The sale of our joint venture interests as well as jurisdictional mix of income.

Working capital was a use of 115 million during the second quarter as as requirements normalized after an unusually strong first quarter this year.

Finally, Capital spending, net of proceeds, of sales of fixed assets and contributions from our customers was seventy million dollars better than last year.

Please turn with me now to slide 11 for a summary of our updated guidance for 2025.

As Bruce outlined earlier, our 2025 full year. Guidance, agent ranges have been updated for the impacts of discontinued operation.

On page 11. We are summarizing the continued operations guidance, as well as showing an illustrious view of the prior guidance method for comparison.

We are expecting sales for from continuing operations to be approximately 7.4 billion at the midpoint of the range. This is about 250 million higher than our previous expectation. As you can see in the column on the right.

Higher sales are primarily due to expected tariff. Recoveries, as well as tail, Tailwind from from currency rates.

Adjusted Evita from continuing operations, is expected to be about 575 million at the midpoint of the range.

This is approx.

35 million dollars higher than previously anticipated.

After adjusting for accounting, impacts of the discontinued operations.

Full year, adjusted free cash flow is anticipated to at 275 million at the midpoint of the range for the Year. This is approximately million dollars higher than previously expected driven by higher profit and working capital efficiencies.

Please turn with me now to slide 12 for the drivers of sales and profit change for our full-year guidance.

As with the quarterly walk, we showed earlier our full year. Guidance walk, adjusts 2024 for discontinued operations and walks forward. Our guidance for continuing operations, beginning on the left discontinued operations reduced 2024 sales by approximately 2.5 billion dollars. So, we begin with 2024 at 7.7 billion dollars in sales for continuing operations.

Adjusted Evita from discontinued operations was 498 million. Reducing 2024 adjusted, evida to 387 million resulting in about a 5% margin on sales.

Discontinued operations this year is expected to further reduce sales by 10 million or excuse me. A hundred million dollars due to the lower sales between discontinued and continuing operation, but adds approximately 15 million dollars to adjusted ibida due to lower unallocated costs.

Volume of mix are expected to lower sales by 425 million.

Driven by lower demand, across both light vehicle and Commercial Vehicle markets.

Adjusted, EBA from volume X expected to be lower by about 90 million, a decremental margin of about 20%.

For performance is anticipated to increase sales by approximately eighty million, with 90 million in IBA. Dimex mostly through pricing and efficiency improvements.

Cost savings will add 225 million in profit, as I mentioned earlier.

The tariffing impact for the full year is expected to add about 150 million dollars to sales and lower profit by about 300. Excuse me 35 million. The majority of this Prophet headwind will be recovered next year.

Foreign currency translation, still is still expected to decrease sales by 45 million driven by a mix of currencies with no margin impact.

Finally, commodity cost recovery should be about $10 million higher in sales, and an equal amount headwind to profit.

Operations, when compared to last year's performance, and cost-saving actions, will help us overcome the headwinds we are experiencing in the business.

Next, I will turn to slide 13 for the details of free cash, flow guidance.

We anticipate full-year 2025 adjusted free cash flow to now be about $275 million at the midpoint of the guidance range, $50 million higher than our previous guidance.

We expect about 105 million of Higher free cash flow from increased adjusted. Evita when compared to 2024

1-time costs will be about $70 million, $25 million higher than last year, as we invest in our cost-saving program and other restructuring actions.

Working capital will.

About $30 million, with a source of cash about $100 million better than last year, as we continue to lower the requirements in the back half of the year for working capital.

And capital spending is expected to be about $325 million this year, which will be $45 million better than last year. Lastly, please turn with me to slide 14 for a look at our balance sheet and capital allocation priorities.

On this left side of the page, you will see that we have ample liquidity of about 1.35 billion at the end of the second quarter.

During the second quarter, we returned over $250 million to shareholders through share repurchases, in addition to our regular dividend.

As we look to the end of the year, we expect to close the off Highway sale, in the fourth quarter and expect our net debt leverage to be about 7 times. Uh, expected IBA,

We will we expect to continue to execute on our 1 billion, Capital return, authorization and repurchase. A total of 600 million of our stock this year.

Which could result in having about 110 million shares outstanding at the end of the year at the current share price.

As we look forward, our Capital allocation priorities are are first to drive organic growth, as we will continue to be selective with where we spend Capital to drive proper growth within the light vehicle and Commercial Vehicle segments.

We will aggressively lower debt as we look to achieve our 1-time, net leverage Target over the business cycle. And as we have demonstrated this quarter, we will return cash to shareholders while increasing the overall value of the company.

Thank you for listening and I will now turn the call back over to Bruce.

For his final comments. Thank you. Thank you, Tim. Um,

in terms of, uh,

2026 again.

A a fair bit of, um, comments. I I've seen from from the street, uh, around. How do we get to 10% for next year? So, I just wanted to sort of focus on, on the way that we're looking at it. So, start off with our cost reduction, Savings Plan, um, we we expect that to be 310 million run rate for 2026. Um, so that's, that's a good news story for us and gives us a strong Tailwind as as we start, um, the next fiscal year. Um, just starting off in terms of a walk. Um, you know, if you use Tim's guidance at the midpoint, we're at about 7.8% for for new Dana as, as we're going to report our numbers here in 2025, first item is the, the, the annualization of the cost savings. So this just basically is reflecting the fact that in q1 and 2, a, particularly we we weren't tracking to a 310 million dollar annual cost rate savings. That number. You can kind of think about is

In the bag and just annualizing that would take our 7.8 up to 8.8. Um if I just look at the flow through of our our backlog, uh we expect that to add about 60 basis points in terms of stranded costs. Um you know, to get this extra 50 basis points, we have to eliminate the variable costs that go away on day 1 which is a gimme and then we're assuming we're going to offset 50% of the stranded costs here. I I would tell you that, I'd be highly disappointed if that's where we end up. I would expect a combination of tsas and continued focus on those stranded costs that we, we should be able to do much better than that. Then then, lastly,

Operational performance. Um, we're factoring 40 basis points to get there and I guess what? I would just point out on that 1 is that's about half of the operational performance benefit that we've delivered in 2025. So I I I I really don't look at the 2020. Uh, 6 Target here of

When you when you take that margin and apply it to our sales for next year, you factor in lower cash taxes and interest that we've talked about for some time as a as that we will benefit from Once the off-highway business is gone. Um we see free cash flow being in the 4% of sales range, which if you do, the math is higher than this year.

um, in terms of our

Uh, share uh, authorization, the capital return of a billion. Um, you know, we will continue as cash flow improves as we focus on sale of non-core assets. Um, in expanding the timing of that to deliver more quickly to our shareholders in addition to our existing dividend. Then lastly, you know, we, we, we probably haven't done ourselves a, a disservice here in terms of, um,

Our Topline story. I I do think Dana has an underappreciated growth story here. We we have a solid backlog that we'll be reporting next year and we continue to be uh have been very productive with it discussions with both our light vehicle and Commercial Vehicle, customers on gaining share and winning new business. And with that, um,

I'll open it up to Q&A.

At this time, if you'd like to ask a question, press star, then the number 1 on your telephone keypad to ensure everyone has an opportunity to participate in today's Q&A, we ask that callers limit themselves to 1 question at a time and rejoin the queue for any additional questions. Our first question will come from the line of Joseph's back with UBS. Please go ahead.

Hey team. This is Rob Saltzman on for Joe today, just on the 2026 Outlook. You mentioned you'd expect 60 basis points of margin from that. Creative new business backlog. Can you just provide some color on what's driving that those new business wins and kind of where the winds are coming from in cordain? That's my first question, thanks.

Yeah. So I mean, if you just look at our look back, right? We had a we had incremental backlog, when we, uh, we reported in in February, so in in large part that's coming in, it's a, it's a mix of both on the commercial vehicle side as well as on the

Light vehicle side, um, we have some, some significant programs. So, we have a, a program with jlr, that's launching next year. We've got, uh, volume uplift and, uh, and additional amounts, um, on a number of big Ford programs and including the Superduty. Um, and then we, we we have a number of smaller programs, uh, across a number of customers. Uh,

Across the world, that'll be um, be being updated and and driving that backlog. Um, with additional content, uh, for those vehicles.

Thanks and just my last follow-up here. Just move on the on the cost reduction side. So you know, you increase the goal to 310 million, you know, 10 million higher versus prior but and you kind of continue to increase that, you know, Target over the course of this year. But you know how much room would you say? You have to run here on finding incremental cost savings kind of pull out of the business from the current levels? Yeah, I I think uh, I I think the the big drivers. So most of our cost-saving programs here for the 3 10 is really above the plans. Most of what we have left is, is really going to be around, you know, operating, uh, improvements. Um, largely in the plant, those would would naturally flow through what we're calling performance. And we do that today. Um, look, we'll, we'll continue to look at the cost structure as we we move into 2026, and I'm sure there'll be some opportunities, especially, as we, we push forward and find ways to, to, to, uh, increase efficiencies. Um, but, you know, in, in terms of the, uh, the, the, the big driver on the on,

Cost reductions. I I think the the the the largest and the lowest hanging fruits been done. I I think our our real Focus next year, on those types of things will be around taking the stranded costs out. Um, you know, a lot of those are are are, are are semi variable, or fixed? So that's where we're going to be concentrating. I mean, the, the, the, the accounting has us at 60. That's really more like, 35, or 40. When you adjust, for some of the, the nuances on on how we have to account for them, with the, with the discontinued Ops rules. But, uh, we, we do believe that we can, uh, we can get the at least half if not more than that 40 million out before the end of end of next year. So, um, we, we think we're in really good shape to to deliver the, the 10% tend 10 and a half percent margins for next year. Yeah, I I I maybe just to add

if, if you look at the cost reduction, where we got the 300 million, and if I think about new data, our to our total costs are in the

African investment, um, and things like that. Um,

I would tell you that in in that remaining bucket, um, in terms of what we can do longer term and where we can make some Investments, there's still enormous opportunity. Um, I would also tell you on the 6 billion where we didn't go hunting which is I would say the plant costs again an enormous opportunity for us. So, so it's not stuff that we, we will bang into like a huge number in 2026. But I think over the next 3 to 4 years, it there's a significant opportunity for us to expand our margins.

Thanks so much, team. I appreciate it.

Yep.

Our next question comes from the line of Tom Ryan with RBC, please go ahead.

Hey guys, thanks for taking my question. You are not allowed to nitpick here as you guys pointed out. Um, but I guess if I had to ask, um, you know, the the off Highway guidance, um, obviously coming down on its on tariffs, uh, but I guess this would be different maybe than, from, what? Um, Alison would have known, I guess. Is there any risk for? Um, anything we should know about in terms of how that guidance cut could potentially impact, uh, the old closing timing and then I have a follow-up. Thanks.

Yeah. And no. No, it won't. It won't impact deal close timing. There's there's there's no covenants other than uh, the the, the typical, you know, running the business in the ordinary course. The the 1 thing, I will say, although, although the Topline guidance is coming down and and there's, there's obviously some degradation around, um, the the base or the the dollar ebit. Number the, the off-highway team has has done what they always do, which is maintaining their or improving their margins. Despite the lower uh, Topline Revenue. So they've done an incredible job of flexing, their cost structure to uh, to support and maintain their quality of earnings. So that's really the power that's in the, in the business. And uh, and uh, and it should not or it will not have any impact on on timing close. Yeah, I I, I would just maybe add to that. If if, if you think about

Where we were at the end of the first quarter, um, you know, prior to signing this deal. We we all had some concerns around volumes from tariffs and and we, we knew we had some issues, um, in front of us, particularly on off-highway on a small percentage of their business, which is product that they manufacture in Europe, that they import into the US. Um, you know that that's, you know, facing a fairly significant price increase and, and we are seeing the volume, so nothing that we're seeing in terms of business performance is any different than I would say. The time, uh, we close

Sorry. Sorry.

and then, um, for my

For my follow-up. If it's, uh,

The the cost outs. Um Q2 looks like it was a 32 million across LV and CV. I think um 22 for LV. 10 for CV out of the 59 total, what was the remainder of the cost steps? Was that just kind of overhead? It's it's in corporate it's it'll be incorporated. Yeah I mean it gets reality so but but yeah I mean what you're seeing is the is the the cost outs on the corporate side that then get reallocated back into the business.

Correct.

Okay. And and then, I had thought that maybe, uh, CV would have seen more because of the EV, uh, side, you know, with the cost stats, I thought well, so, a lot of that, a lot of that does sit from a, from a, from a, uh, from a engineering side in in corporate. So that's probably where you're, we're seeing the disconnect. Oh,

Got it. Thank you.

Our next question comes from the line of Edison U with Deutsche Bank. Please go ahead.

Hi, thank you. This is Winnie owns for Edison. Um, I was wondering if you can uh comment a bit on what you're seeing and on and marketing itself for for like vehicles. Uh especially from senior top customers and then also on the commercial vehicles and what kind of maybe marketing conditions are you getting into?

The second half.

Just given the, the concentration we have on a number of large, um, heavy truck programs, uh, on uh, on Commercial Vehicle. We are seeing softness in North America, uh, largely around, uh, sort of some of the Tariff, uncertainty, or or start we we've seen that, uh, impact, uh, sales both in the first half of the year. And we expect that to, to that softness to continue into the second, um, offsetting that is, is some some, some moderate strength in South America, uh, particularly Brazil, and then in in Europe. Um, those are are a bit smaller businesses for us but but certainly, um, are, uh, helpful in terms of mitigating. Some of the some of the weakness we're seeing or softness we're seeing in North America and CV Market.

Yeah. And I I think I think softness might be too kind of work. I mean if you look at the class they Market, um, you know, we've talked a few of our customers. I mean, right now, um, you know, order ordering like book to build is is dropping fast. Um, orders are like run in half of last year, so it's it's just not looking good and and that's, that's a combination of obviously, um, the impact of tariffs. But, but more importantly, is the uncertainty associated with the business climate here and people are just deferring purchases. Um,

When they can. So so we we factored in um, in terms of our Outlook pretty pessimistic view on North America. Um, but it's, it's, it's we don't and we're not and it's sort of our 2026 guidance. We're not, we're not factoring in any cyclical, upturn, in in, in the, in the commercial vehicle market in terms of getting to our numbers.

Okay, great. That's that's very helpful to, to know, and then just on the on the quarter itself. If I just look at the the bridge on site now, um, you know, the ticker month, the decrement was on the volume, mix bucket seems to be about, um, you know, 30% of them. I know in your preparing while you talked about uh, splitting the performance bucket up. But if I just look at the the full year Bridge, um, the implied document was about 20%. So I'm just curious on the, the difference here and what you, um, expect for the full year, what's occurred in in the second half and then how do we think about that? And go for a basis since performance is sort of a, a strip up bucket. Thank you.

Yeah. No, the so. So we we had a, a, a fairly unfavorable mix in in the, in the, in the second quarter. Um, particularly, you know, we we lost, you know, we had some, some relatively high margin sales from a CV process, especially in the EV side of the business that continues to to impact the business. A lot of that around sort of, you know, some of the issues in terms of being able to export,

Out of, um, out of China. Uh, so that that's impacting the business of just being able to get magnets and those sorts of things and rare earth material so and and those are high high higher margin business than than the rest. Um, and then, even on the light vehicle side, we had a, a, a, a, a pretty strange mix of, of, of some of the sales differences. That, that drove a, a decrement of the other. That's a lot a lot, um, different than what we would normally see when you look in the back, half of the Year, we're we're seeing a, a, a much better or, or more, favorable mix. We're not seeing quite as much of the, the downturn, from a, from a, um, a CV perspective, uh, in the EV part of the market. And then, our, our sales mix around, um, light vehicle is, is more normalized. So, it's, it's unfortunately just a, just a, a mixed issue within the quarter for us, um, you know, given given just the the sales side. Yeah, as we as we get into Q3 and Q4 the, the volume mixed bar changes color here on us. So we we've been fighting

a year-over-year negative on on the volume, mix side of things as we get into Q3 Q4, especially as we just focus on new data. Um, we that that turns from a, a headwind to a tailwind. And so, so again, some of the comments around first half second, half comps.

Um a lot of I think it's addressed by the fact that we we don't have the volume headwinds in the second half of the year that we had in the first half.

Got it. Thank you so much. I'll pass it on.

Thank you.

Our next question comes from the line of Dan Levy with Barclays. Please go ahead.

Hi, good morning. Thanks for taking the questions.

Maybe you could just help us understand the the, the rough Bridge there. I understand. Part of it is going to be improved debit. Uh part of it is going to be um lower interest expense but maybe help us understand what the adjusted number. This year would be for just remain CO as opposed to including uh off Highway uh you know, and what that bridge is next year and then maybe some color on. So with these adjustments are that are cash items but are being excluded from the adjusted capacity. Thanks.

Yeah. So in terms of being able to, to, to give you a 25 Pro for a number, it's really tough given that, you know, the all the debt sits, you know, outside of the, the off high rate perimeter. And then you have sort of the tax impact we we've called out about 200 million between those 2 lines as you, you bridge from this year to next, that that's going to come out as a result of the transaction. So, but, like, trying to to, to do a complete ProForm as you know, a bit a bit difficult, uh, you as you, you hit it, right? The, you know, we'll we'll get, we'll get help from from an ebit dot perspective. Also, like the 1 time cost, right? The 70 million dollars in 1 time cost should come down significantly, just given that. There's um, there's a bunch of uh, of of costs sitting in their related to the restructuring uh, program and the cost out programming of this way. The other is, we'll, we'll continue to see, uh, more efficiency coming through working capital. So that should be an additional uh, uh, head Tailwind, excuse me for

For us, uh, on on getting to the the 4%, free cash flow.

Uh, okay, thank you. Um, and then the second question is on the outlook into next year, and I recognize the end markets are going to move around. But one of the things we've obviously been hearing from the OEMs is with EV and emission standards easing considerably, there's an opportunity for them to have a much richer mix. In fact, Ford was talking about this on their earnings call. Um, is this the type of thing that is, you know, sort of not currently considered in the schedules and the outlook? But once we see these standards easing and mix starts to enrich, that is something that could help you. There are certain variants of Ford trucks that could be a richer mix for you. So, just how much could mix get better, and how might easing emission standards, even outside of just less EVs, play into that?

Yeah, I mean obviously I I don't want to get into get ahead of the of our customers as to what their their build mix might be. But certainly anything from a from a uh ah ah. Um, from a market perspective that drives higher heavy truck and pickup purchases is good for data. I mean just think about the the the the the main program is run Superduty Ranger Bronco and uh and Wrangler, right th those are 4, you know, obviously

Very, uh, popular brands, uh, uh, vehicle. And if if the customer builds more of them that's, uh, in in instead of building an EV or or a, a a passenger car or a crossover that that's better for Dana clearly as as our lower gas prices and those Vehicles, right? So um

Yeah, and and, you know, in in our creative new business line, we we do have volume uplift on Superduty is is in there. Um, you know, Ford's analysis, they're going to start to manufacture additional volume next year and another plant. And and that's flowing through in the back half of next year. Yeah, we would consider that to be backlog because that's that's incremental volume from an added plant. So that would that would end up in our when you think about, you know, Bruce's comments about backlog. In the incremental contribution margin that comes from it.

Great. Thank you.

Our next question comes from the line of James picarella with BNP pariba. Please go ahead

Hi, good morning everybody.

Um, buybacks will account for the full $600 million. Uh, in this year's targeted share, the returns for the remaining $400 million commitments. Should we consider any special dividend, or has the company...?

Fully committed to to share repurchases. And just to just to clarify because last week's Bridge Loan just essentially helped the company fund BuyBacks until the off Highway proceeds are received, thanks.

Away at the earlier of of basically a year or the closing of the transaction. So that's exactly why why we put it in just to make sure that there's there's sufficient liquidity and we have the flexibility to to go ahead and and uh and and do what we need to do between now and and closing. Um,

On your, uh, your uh, your, your first question I I think look, it remains to be seen. We will remain flexible in terms of of what we do. But like, if at the current level, that the stocks trading at, if we don't think that there, there's a recognition in the market for the value, uh, the intrinsic value within within the, the, the stock then, you know, our, our choices made easier for us and we're trading sub6. Um, I, I do believe that, uh, that the company is undervalued on an intrinsic basis. Yeah. I I I, I, I just they didn't even stay a bit stronger than that. I mean, I I think that our board, um, you know, we continually believe our Shares are extremely undervalued right now. If you, you know, uh, our confidence level in the margins that we're talking about here for next year is,

Extremely high, uh, higher than I, I guess you could say, consensus is. And therefore, if you do the math, using our margins for next year, um, and you look at the, uh, share count that we expect to have at the end of the year and the debt level, um, we see it being significantly undervalued. We will be looking.

To um, as we generate more cash flow, buy back more faster.

Got it. That's helpful and my follow-up.

Are the 60 million in stranded costs mainly reflected in the higher corporate, the higher corporate expense now and the 310 million in cost savings through. Next year include the recovery of stranded costs. Is that correct? Yeah, so so correct. We're we're we're showing we'll go to the second part. Yeah. So so on the on your first question, we are showing the stranded cost just separated into um into corporate. We typically have very, you know, less than ten million dollars in corporate costs. You'll see those be significantly higher. That's, that's where those are, are, are being, you know, sort of parked in terms of the, the, the walks when you when you think through it, uh, in terms of your 310, the 310 is with, without the recovery, you know? We we we assume we'll the 40 million would come off of that. But to to, to our point, we we we believe will will be able to get um you know at least half if not more of that 40 million out of the business next year. And then when we go into 27,

We'll have largely mitigated the entire uh, the entire stranded cost item. So, yeah, because our our, The View on stranded costs for us is it's 40. The accounting rules have have us at 60 only because, um, if, if a, if a cost that's allocated, is not actually going with the business, even if it's going to go away, you you can't put it in in discontinuity.

Has to go back and be shown in.

So that's the the disconnect in terms of the accounting versus the the reality of what it's going to look like when we get to New Dana for 2026.

Yeah, we expect to eliminate the stranded costs, and then in their entirety. Are they all going to be out for next year? No, but they will all be out in 2027, absolute certainty.

Our next question comes from the line of Brian Brinkman with JP Morgan. Please go ahead.

I thanks for taking my question. Could you discuss a bit further? What is giving rise to the expected uh, Improvement in working capital for the full year versus the prior view? I assume this is behind the plan to return 600 million of of cash to shareholders uh, before the close as opposed to to 550. Um, including it's sometimes there's an investment needed uh in working capital to support higher sales which you are forecasting. I know you generate a lot of your uh full year cash in the fourth quarter. So is it kind of like timing related stuff? How you see sales and production kind of trending toward the end of the year or just curious what's given rise to that Improvement? And then how should we think about that maybe spilling over into 2026?

Yeah, so I, you, you, you, you have it, right? I mean, you know, if you look at the CV and, from a cash flow perspective, from an off-highway perspective, both those businesses have, you know, much longer supply lines. Um,

We're getting to our 4%. Free cash flow is additional improvement in working capital efficiency within the business that we're going to retain.

Okay, great. Thanks. And then you've helped a lot already on the whole temporary stranded cost part of the guidance on slide 6. The overhead component. I think that's easy to understand but I guess I'm just still a little confused on uh about the variable cost component. I mean usually when I think of variable cost it's like associated with production volume. You know it it wouldn't ordinarily sit above the the segment to the allocated can maybe just help explain the the nature of those costs a little bit further. What gives rise to them and and and then your confidence that uh, it goes away. Yeah. So I I like

Right. So if you

Just just think about the, the cost to audit the the company, right? So we're we're auditing. A 10 billion dollar business today. Next year, we'll be auditing, uh, you know, a a business that's 7 to 8 billion dollars, right? So our our while that cost is fixed, right? You, you know, it doesn't change. It's it's it's effectively variable in the sense that it's not going to cost the same to, to audit the the the 7 and a half billion dollar company as it is the 10th, so that will end up those costs can come out. Those are the type of costs that I would call variable, uh, another would be, we have a global insurance program. So we have insurance related to the entire business that when it shrinks by a third that that will go away. Those are fixed costs today. They get, they don't get allocated to discontinued Ops, they, they, they end up staying in, in continuing opiates because the

They're they're they're allocated and they're not physically going with the business but they naturally will go away a as we shrink the business because we'll just buy less insurance because we have less stuff to ensure. Or we'll we'll have us a lower audit fee because the company will be smaller and the cost to audit, it will be lower. That that's the kind of things to think about but a big bucket in there is also it right? Yeah. That that was, that's the other 1. I it is the other 1 where you know we've got licenses that we buy globally, essentially for say Microsoft, right? Or or or other types of of of uh of It software. That is not technically going with the business. But when we sell it, we'll need less licenses to, to affect our, our Microsoft, you know, office. So those costs will naturally go away. So that's the easiest. Those are the easy ones to think about. So when we say, they're very simple, what we mean is

Uh, upon the sale, they will go away, right? There's no risk.

That explains it. Thank you.

Got it.

Our next question comes from the line of Emmanuel. Rosner. With wolf research. Please go ahead.

Thank you. Good morning. Um, wanted to ask you about the uh the growth trajectory message uh with the robust 3 year, new sales backlog. So of course if you can just help us a a little bit with some of the Assumption in the uh creative new business contribution to margin next year. I think, last time you published backlog was probably about 300 million dollars for the next series.

Still ballpark with your assuming in that, uh, margin walk. Um, and then just more generally curious, um, you know, how much the new business contributed this past year and what are sort of like the drivers or sources of acceleration over the next few years.

Yeah. So, I mean, I I mean, we haven't published updated guidance. But uh, but you know, the 300 million that was in, in our last guy

there, there's going to be a

cakes, given some of the changes, but uh, but that's still a pretty reasonable number to have out there. Um, in terms of our new business growth, that's that's come on. We we continue to have um, a a, a, a, a, a number of different programs. Both on the light vehicle and, and on the, the commercial vehicle side coming online. Now, some of those are at a bit lower volume. So some of the, the the actual flow throughs of its a bit lower. Uh, but we, We are continuing to, to, to launch programs, uh, both on the ice and the EV side. Uh, a bit of our growth this year was, was on the EV side. So, that's a bit tempered. Um, but again, it it, it is a board. We've got light vehicle programs, um, outside the US that continue to launch, uh, that are that are ice related, um, as well as, uh, new variants within our programs here. Uh, we're we're getting ready to launch um, you know, in the next version of uh, of the Wrangler. Uh, so that has it added content. So there there's a number of different uh drivers for us uh from a, from a back.

Perspective. This year.

And and then your your brother comments are on the uh, the 3 year, uh, new sales, backlog. Um, it is, it's fair to say that the, um,

Um, I mean the previous disclosure is still directionally correct. So when I call now on the 3-year basis, are there any big new pieces of programs that you want?

A piece in there, that, that is off, Highway that that obviously won't be in there. But the, the backlog broth highway is typically pretty small, just because of the nature of the way the programs work but yes, directionally there. Those numbers are still are are still reasonable. I I I think the the mix of that probably going to change. Um a bit you know there is there I think there was 70 or 75% EV I think that that mix change but but that's reflective of what we're seeing from.

From the end markets with our customers.

Okay, thank you. Uh, one quick start, uh, clarification on tariffs. Um, so the, um, um, the net headwinds at the end of the year, is that, is that a timing and, and you would recover the, the remainder into next year? Or is that a piece that you believe in the end you'll have to absorb? No, no, no. We, we, we, we.

If there's there's there's timing. Um, I mean look

Percent. We'll get the majority in that, but there's still additional recovery from the lag that will come in next year. Yeah,

great. Thank you.

Thanks.

Our final question will come from the line of Colin Langan with Wells Fargo. Please go ahead.

Oh, great, thanks for taking my questions. Um, just wanted to follow up on the implied second half guide. It implies that sales are down about 1%, but you have like $100 million implied, second half, adjusted EBIT improvement. You know, how should we think about those main buckets? Because if I look at the year-over-year basis,

It looks like you had a 100 million of of uh cost saves in the first half, so it looks like that gets on a year-by-year only a little better. Performance is also pretty strong on your sides in the first half. I guess, tariffs a little bit of a help. But what are the main drivers to get that 100 million? Yeah, I mean it it's it's it's, it's it's better contributions contribution margin on on, on the the, the, the, the the sales. So we got better mix coming in. We, we will have acceleration

Savings coming through. So we expect 225 for the year. I think you said we're 100. So we're about 25 million better. Uh, and the back half of the year, so that which makes sense. We're going to get to the 310, uh, and then tariffs should be better in the back half than they are in, in the, in the first half. And then we continue to see, uh, performance in the business, uh, driving, uh, margin expansion as we, uh, as we come through, the end of the year. Yeah, we have, we have a couple of foot printing. Um,

Inefficiencies I'll say in the in the first half of the Year 2030 million dollars in the first half, that kind of go away in the second half as the plants normalize here. I mean a lot of that whereas ramping like what kind of at that exit rate at the end of the second quarter but but um, q1 and, you know, as we've gone into Q2 there's there's pretty big headwind that goes away.

In the back, half of the year.

Yeah. What largely around a couple of plants that we we we've we've closed and, and are in the process of of of ramping up um, elsewhere and and those, those ramp UPS have have hindered our ability to deliver. What would have been even better performance from from the first half of the year.

Got it. And if I look at sales, first half to second half, it implies that the midpoint is down 1. If I look at, you know, SMT, you know, Europe and North America, which I think is about 75% of your sales, they're down 9, and Commercial Truck in North America Class 8, I think it's down over 20 from first half to second half.

What what is driving that 1%? Is there other like I guess there's some recoveries in there. Some, maybe some FX in there. That yeah, there's, there's there's recovery, there's some FX, there's going to be some, you know, obviously tariffs are add sales. So so that's part of it. And then, you know, just the mix, you know, in terms of what we're supplying and to whom, you know, can have a difference between, you know what, the the General market from says, and P is showing, and what we we think we're going to end up being able to deliver.

Yeah, you really got to look at our 4, 5 main programs calling as opposed to the S&P number.

Okay I mean I see Super Duties up or any other ones that you'd flag as being? Oh that's a that's a huge percentage of our sales.

Yeah, it was super duty.

For the back half of the year on Wrangler versus last year are going to be very, very favorable to us. Um, even if they don't run particular like super strong if they just run normalized like they've been running which by the way we we really like because it makes us I mean it makes our operating performance that much better. Um those are going to be good comps for us.

Even we're we're going to have the, we're going to have to close it down, call me. You can follow up with Tim and Craig and you can give you a bit more Comfort there in terms of the the sales Outlook. But I want to sort of just wrap up here the call. Um, again, thanks everybody for for participating today. I I know there's a lot of noise in these numbers.

For me, the key takeaway as our, it's a solid Q2 beat against every number that's out there. Uh, we're raising our guidance new Dana, is doing better than overall Dana as as, as we explained with the Tariff related volume issues in off Highway. We're adjusting our free cash flow, guidance up and pumping it in to share buyback because we believe we're significantly undervalued. Um, in terms of cost reduction, we're it's it's running. Well, we're up in our Target to 310. Um, I'm highly confident. We're going to get there in terms of 2026, um, you know, the 10 to 10 and a half percent is a, is a commitment from the team. Um, I I don't think there's any doubt in my mind that we can get there next year in, you know, using a golf analogy. I, I view that as being a tap in,

Lastly, um, if you, if you sort of look at where we think our shares should be trading, the value that we're creating here. Um, using a double-digit margin next year, 4%, free, cash flow. Uh, share count is down 25% of substantially dele balance sheet. Um, we, we think we're, we're, we're, we're well undervalued and the teams committed to generating more cash, so that we can buy back shares more quickly with that. I'll thank everybody and thank to our employees, for delivering a terrific quarter.

This concludes today's call, thank you for joining. You may now disconnect