Dana Inc (DAN) 2012 Q1 法說會逐字稿

Good morning and welcome to Dana Holding Corporation's first-quarter 2012 webcast and conference call. My name is Kristi, and I will be your conference facilitator. Please be advised that our meeting today, both the speaker's remarks and Q&A session, will be recorded for replay purposes. All lines have been placed on mute to prevent any background noise. (technical difficulty)

Thank you Chrisy, good morning ladies and gentlemen and welcome to all of you that are joining either by phone or webcast on behalf of Dana management team I would like to thank you for spending time with us this morning. With me this morning is 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 On-Highway Driveline Technologies. Before we begin, I would like to review a couple of items. Copies of this morning's earnings release and the slides that we will be using 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 written consent. Today's call will also include a Q&A session in order to allow as many questions as possible within our time frame, please keep your questions brief. 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 the factors that could affect future results are summarized in 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 presentation over to Roger Wood.

Thank you, Lillian, and good morning, everyone. I'm pleased to report our strong financial results for the quarter, it being our fourth consecutive quarter of positive net income of $70 million. Our EBITDA growth again outpaced our sales by a significant amount. But before we get into the quarterly highlights, I want to acknowledge other important win for the Dana team just this week.

On Monday we were honored with a PACE Innovation Partnership Award for our collaboration with Ford Motor Company, for introducing our new active warm-up technology to the marketplace. This technology, which can improve a vehicle's fuel economy by up to 4%, was also a finalist for a PACE Award.

This recognition of our work with Ford affirms to us that we are creating market driven, innovative technologies, and truly partnering with our customers to deliver these breakthrough innovations to the marketplace. It's an honor to share this award with Ford. We've worked closely with them since the days of the Model T, and we're pleased to be collaborating on innovations nearly a century later.

Now back to our quarterly results. Our first-quarter revenue was up nearly 12% over the last year before the currency impact. Even with the currency impact, we finished the quarter at nearly $2 billion, which is 9.8% over last year.

Each of our business units has felt the impact of currency translation, and we expect this trend to continue. Dana's strong operating performance in the first quarter resulted in EBITDA improvement to $212 million, representing a 17% increase versus last year. Our EBITDA margin of 10.7% is up more than 68 basis points compared to last year.

Our improved margin performance reflects several factors, including the initial results of our new lean operating model, the realization of our new technology product launches, and the continuing phasing of our value pricing initiatives. Our net income netted out at $70 million for the first quarter, and our adjusted diluted earnings per share was up nearly 30% to $0.44 versus $0.34 last year. So with our first-quarter sales up 9.8% and EBITDA up 17%, 2012 is off to a very strong start.

We initiated a quarterly dividend on common stock this quarter, and we made a large, voluntary pension fund contribution. Even with these uses of cash, we closed the quarter with a strong balance sheet and ample liquidity for investment opportunities.

We continue to invest in technology while delivering on our commitment of business performance. We've been able to continue our increase in our engineering investment this quarter, up nearly 15% over the quarter -- first quarter of last year, while increasing our margins.

Turning to the next slide, here is a look at our regional sales mix, a key part of our balanced portfolio strategy. Our diversification in markets and regions allows us to reduce volatility and to continue to provide opportunities to leverage our products and technologies.

Regional sales mix continues to be well-balanced, though this quarter you can see a skew of sales from South America to North America. This is due to the temporary market dynamic in Brazil combined with strength in the North American market. I'd like to briefly address this Brazil market issue up front, since it's highly relevant to our heavy vehicle sector, and to a lesser extent, our light vehicle market.

We believe the first-quarter slowdown in commercial vehicle sales volume is not indicative of an underlying market weakness in Brazil, but rather is the result of short-term factors, like the implementation of new regulations. Fundamental market demand continues to be strong, and we believe these temporary issues are resolving and volume is beginning to recover. However, we've made adjustments to our full-year production outlook to reflect the slower ramp up there, and Bill will cover that in a little more detail later.

As I've said many times before, our market and regional diversification gives us a unique advantage in being able to create synergies and leverage our driveline, sealing, and thermal management technologies.

As you can see on slide 6, Light Vehicle Driveline sales of $727 million were up nearly 8% over last year. This sales growth is encouraging in light of the fact that our key segments, SUVs and light trucks, faced economic headwinds of increasing fuel prices during the quarter.

The first-quarter profitability performance of Light Vehicle Driveline was in line with our expectations, reflecting the timing of material price recoveries and isolated contractual customer price reductions. We expect this business to deliver steady margin improvements for the balance of the year, even as we wind down from discontinued legacy programs.

We're expanding our axle and driveshaft production that supports the increased volumes of highly successful Jeep Wrangler. By the way, we've been a supplier on this vehicle for more than 70 years, and we're honored to have many of Jeep's customers to be loyal to the Dana brand for so long.

Also this quarter, we are continuing to ramp up production of the Ford T6 program, with production in Argentina starting now, building on the ongoing production in Thailand and South Africa. This gives us gull global production on this important platform this year, aligning with Ford's expectations that their key suppliers will have the ability to supply product where they do business throughout the world.

Production volume in Thailand is improving as the region continues its recovery from the flooding. As I mentioned earlier, we're also expecting to see some improvement in the South American light vehicle market for the balance of the year.

We're in the process of launching several new programs at our plant in Birmingham, England. Included in these launches is new product technology that will drive some of the growth that we'll see later this year, such as our next generation AdvanTEK technology. These axles will debut on two sport-utility vehicle models, and we'll also be introducing AdvanTEK Gen II as an all-wheel-drive front axle for two sedans.

I want to highlight that light vehicle operations celebrated a couple of safety milestones during the quarter, with two large plants attaining more than 1 million consecutive man hours without a lost time injury. Safety is a top priority at Dana, and so this achievement is worth noting.

Turning to slide 7. Our Commercial Vehicle Driveline group posted a solid 16% sales increase year over year, and a very strong EBITDA improvement of 42% in the same time period. Continued strong volume in North America and better-than-expected sales in Europe more than offset the impact of lower volume in Brazil. First-quarter segment EBITDA margin at 11.1% is up 200 basis points over last year, and represents a significant improvement over the fourth quarter of 2011.

Clearly, our strategy to improve the profitability of this business unit is working. In addition, we made good progress in recovering material price increases. We expect our Commercial Vehicle Driveline business to deliver steady volume and to continue good margin performance for the balance of the year.

Last month we launched a new product feature at the Mid-America Truck Show -- the Spicer SelecTTract Pro 40 tandem axle, which optimizes the use of wide-base tires and provides maximum flexibility. We also launched a Value Calculator that allows customers to calculate the savings associated with the efficient, flexible Dana technologies, like the Diamond Series driveshafts and the Pro 40 tandem axles. The Value Calculator was very well received, and we were able to catch the attention of fleet owners as they used the program to evaluate the cost of ownership opportunities for their own fleets.

New business wins in this segment included awards by Iveco for driveshafts in Europe, and our central tire inflation system will be featured in two more new military programs as well.

So let's turn to our off-highway driveline business, now, on slide 8. We had a great quarter in off-highway, with sales of $418 million, up 12%, and EBITDA was up 20% year over year. We experienced solid sales volume in both construction and AG sectors this quarter, which will moderate to expected levels in the second half of the year. Segment EBITDA of $49 million represents a margin of 11.7%, quickly returning this business to the profitability that we committed to in the last earnings call.

On the horizon, we see the benefits from our prior-quarter investments. You'll remember that last quarter we pulled ahead spending for production launches of our TZL series transmissions in Wuxi, China, at the request of our customers there. We also launched our new distribution center in Gyor, Hungary. which tees up even better performance for our off-highway aftermarket business. And initial production is now underway for portal axles in India, for John Deere to serve both the India market and also for their export market.

One part of our off-highway business that I haven't spent much time in the past talking about is our industrial driveshaft business. It's a small but very good niche business, with sales up 35% this quarter. We've reinvigorated this business by putting a dedicated management team in place and are relaunching the GWB brand this year, which has strong brand equity with our customers in that segment.

Off-highway won a number of new contract awards in the quarter, including an industrial driveshaft win for new steel rolling mill in China.

So now let's go to slide 9 and talk about Power Technologies. Their sales of $268 million were flat year over year, as the euro translation cut into our top-line growth for the quarter. Another bright spot, though -- the segment EBITDA delivered margin performance of nearly 15%, up by 250 basis points over the fourth quarter and returning to the levels we had committed to in previous earnings calls.

We expect PTG margins to remain in the midteens throughout the year. PTG had a great quarter when it comes to technology-driven business wins. There were more than 40 new business wins during the quarter from 19 different customers in all regions of the world and across a number of product lines in sealing and thermal management.

Included in the new business this quarter is an order to develop thermoplastic CAM covers and oil pans for a major North American truck manufacturer. We developed this technology for light trucks and are now leveraging it for the heavy- and medium-duty vehicle market.

We remain focused on growing our business in Asia, and this quarter we secured new business for engine oil coolers there. Some new technology wins for the quarter include new transmission seals for an automotive OEM in Europe, and also watercooled charge air coolers, and engine coolers in North America for another OEM.

So I talked about our strategy for growth last month, and before I turn the call over to Bill, I'd like to revisit that today. The two key concepts critical to our growth are innovate and leverage. I mentioned earlier that our engineering spending has been steadily increasing. When we invest in innovation, we are targeting technological solutions that are based on market value drivers.

Through our strategy development we identified 7 key market value drivers. And fuel economy, emissions control, durability, and cost of ownership are just a few of those 7. These market drivers are here for the long-term, so every investment we make is targeted to them. That's how we'll get paid to meet the financial benchmarks that will deliver the superior returns that we have set for this business.

These market value drivers create opportunities for us to help meet customers' needs to solve a problem, like complying with new regulations or to create a new market for them. Technologies that address these value drivers are technologies that customers are willing to pay for because they deliver value to them.

As we add new technologies to our portfolio, we have the ability to cross-sell across our customer base, across our regions, and across our markets. We also develop synergies in the technology applications and provide for system solutions. We've got some great examples already of products that cross market segments, such as the active warm-up products from PTG and the Diamond Series driveshaft currently launching in commercial vehicles, and also, our central tire inflation system crossing over from commercial vehicles into the off-highway segment.

We're also building on the synergies, areas where we can integrate what we know into a system solution. Let we mention our AdvanTEK axles as an example. First developed for light vehicles, we are leveraging these axles to the heavy vehicle sector with our Pro 40 tandem axles. Taking it a step further, we can integrate the active warm-up technology from our PTG group to further improve fuel efficiency performance.

We're doing all of this while maintaining our new lean operating model. We adopted this model last fall and have been aggressively implementing it since then. As part of this new lean operating model, we'll continue to implement our Dana operating system in all of our plants around the world, and now, in all of our engineering and administrative support functions.

This lean approach will allow us to use our investment dollars where it counts -- close to the customer and in the technologies that their customers are going to want.

In closing, let me turn to our tenacious focus on return on investment. With much of the hard work of restructuring behind us, we're now in a position to focus on profitable growth. Return on investment is a great way to get the organization focused on the levers that drive profitable growth, and it is the metric that we'll use to implement our growth strategy.

We have a defined growth strategy. We have a foundation of technology solutions for strong and profitable growth, with a focus on rejuvenating innovation in the fabric of everything that we do. We have an excellent financial fundamentals, a very strong balance sheet, a track record of generating cash, and solid earnings per share growth.

The first quarter results demonstrate our ability to deliver, even in an environment of slower South America demand that may have previously presented difficult challenges to overcome. I am personally privileged to have such a strong leadership team and employees to work with, and am immensely excited about the potential that this Company has.

Thank you. And now I'd like to turn over the call to Bill for a more detailed report on the financials.

Great. Thanks, Roger, and good morning, ladies and gentlemen. Slide 13 provides a summary of Dana's 2012 first-quarter financial performance, with a comparison to the same period a year ago.

As highlighted on this slide, Dana posted a strong quarter, earning $70 million in net income and delivering a diluted adjusted earnings-per-share of $0.44, a 30% improvement on the first quarter of last year. Sales were about $2 billion for the quarter, reflecting an increase of nearly 10% compared to the prior year. As Roger mentioned, while our sales were impacted by lower commercial vehicle volumes in South America, as well as unfavorable currency, strength in other regions and across our business segments offset these headwinds.

Adjusted EBITDA for the quarter was $212 million, improving $31 million or 17% over the prior year. EBITDA margin rose to 10.7% the first quarter, representing a 60 basis point improvement over the first quarter of 2011, as well as over a 100 basis point improvement sequentially from the fourth quarter of 2011.

Capital spending in the quarter was $34 million, about even to a year ago, and free cash flow, before the $150 million voluntary US pension cash contribution we made in January of this year, was a use of $37 million, slightly higher than a year ago. Overall, we are very pleased with these results, and on the next several slides, we will provide some additional color around our first-quarter results.

Slide 14 provides a comparison of our consolidated sales for 2012 and 2011, as well as the change by business segment and the key year-over-year drivers of the change. Sales in the quarter were nearly $2 billion, an increase of $177 million or about 10% compared to year ago. On a sequential basis, sales increased about 3% compared to the fourth quarter of 2011.

From a regional perspective, strength in the North American market and relative stability in Europe offset the decline we experienced in South America in the first quarter, due principally to the impact of emissions regulations in Brazil. Each of our business units experienced year-over-year top-line growth, as outlined in the lower left of this slide, with Commercial Vehicle posting the most significant increase of 16%, followed by Off-Highway and Light Vehicle Driveline. Power Technologies was effectively flat on a year-over-year comparison.

On the lower right of this slide we have highlighted the key year-over-year drivers of the change in our consolidated sales. Volume and mix contributed about $198 million of the increase, and included an increase of about $21 million of sales attributable to our SIFCO and AIL investments made in the first quarter of a year ago.

Currency reduced sales by about $39 million on a year-over-year basis, largely reflecting a stronger US dollar compared to other currencies, principally the euro. As we look forward, we expect currency to remain a headwind to our prior full-year 2012 sales outlook.

Included in Other is the impact of material recoveries, pricing, and other items, which on a year-over-year basis increased sales by about $18 million.

Slide 15 provides a similar comparison for adjusted EBITDA for 2012 and 2011. Adjusted EBITDA of $212 million for the quarter was an improvement of $31 million or 17% compared to the prior year. On a margin basis, adjusted EBITDA increased to 10.7%, up from 10.1% from first quarter of 2011, principally attributable to the impact of volume, as well as our material recovery initiatives and other cost initiatives.

On a business segment basis, both Commercial Vehicle and off-highway posted significant performance improvements. Power Technologies was neutral to the prior year on same-level sales, and Light Vehicle Driveline experienced a year-over-year decline of about $3 million, in line with our internal expectations.

I'll review in a little more detail the performance of each of our business segments in the coming slide. At the bottom right of this slide, we have highlighted the key drivers of change in adjusted EBITDA on a year-over-year basis. You can see here the impact of volume and mix was favorable in the quarter by about $36 million on a sales increase of $198 million, resulting in a contribution margin of about 18%. Currency, including both transaction and translation, lowered adjusted EBITDA by about $9 million in the quarter, while other factors, including our material recovery initiatives, combined were a positive $4 million.

Our business segment results are highlighted on slide 16. In our Light Vehicle Driveline segment, sales were up 8%, while segment EBITDA declined about 5% for the quarter compared to the prior year, yielding a margin of 8.7%. While margin was down sequentially and year over year, it is in line with our overall guidance we gave at the end of last year and is due mostly to timing of material recovery, customer pricing, and some change in mix. We expect margins to improve back to normal levels throughout the remainder of this year.

Commercial Vehicle driveline has continued to perform well, sales increasing 16% and segment EBITDA increasing 42% compared to year ago. The resulting 11.1% margin is a marked improvement over last year, and is a direct result of strong volumes in North America, coupled with the implementation of our North American profit improvement plan. This strong performance in the quarter, along with higher volumes, favorable mix in Europe, more than offset the lower volumes in Brazil during the first quarter.

Off-highway driveline technologies recovered nicely from the softness we experienced in the fourth quarter of last year. Sales increased 12% and segment EBITDA increased 20%, for a margin of 11.7%. This compares favorably to an 11% margin in the first quarter of a year ago, and an 8.2% margin in the fourth quarter of last year. We see off-highway on track for more normalized performance during the course of 2012.

Power Technologies continues to perform well, with a 14.9% EBITDA margin in the quarter, reflecting our past expectations. This returns this business to the midteens margins, which we expected for 2012.

Slide 17 highlights our free cash flow performance for the quarter. Free cash flow in the first quarter, before our $150 million voluntary US pension contribution, was a use of $37 million, compared to a use of $35 million in the same quarter a year ago. Overall, on a comparative basis, our free cash flow use of $187 million in the quarter reflects the impact of improved adjusted EBITDA, offset by increased interest payments of about $20 million, cash taxes of $12 million, and the special $150 million US pension plan cash contribution.

During the quarter, working capital was a use of cash due to increased production levels, and we expect working capital to be a moderate use for the full year. Capital spending was $34 million and in line with last year.

Payments for interest and taxes were $52 million in the quarter, an increase of $32 million from a year ago. The increase in interest was principally attributable to the semiannual payments on our unsecured notes, which were financed in early 2011. On the tax front, cash payments were about $22 million, or $12 million higher than the prior year, reflecting increased profitability in a number of our foreign jurisdictions. We do expect full year 2012 income taxes to be over $100 million on a cash basis.

Restructuring of $8 million is about half of what was spent in the same period a year ago and reflects the ongoing settlement of previously announced actions. Finally, Other includes the impact of changes in all other assets and accruals. The use of $23 million in the quarter does include $15 million in normal pension contributions made to our plans.

Turning to slide 18. Our strong balance sheet continues to support our go-forward business strategy. At the end of the first quarter, total cash on hand, including marketable securities of about $58 million, was $831 million, and our net debt stood at $104 million.

To the right of this slide, we highlighted changes to our overall liquidity from year-end 2011 through the first quarter of 2012. As Roger stated, our liquidity remains strong at $1.3 billion, even after our $150 million pension contribution, as well as a shareholder returns of $15 million.

At quarter end we had no borrowings outstanding under our US and Europe revolving asset-backed credit facilities, and availability under these agreements stood at about $497 million. We continue to be focused on maintaining a strong liquidity profile to support our current operations; as well as fund our overall capital, growth, and shareholder return initiatives.

Slide 19 highlights our global vehicle production estimates for full-year 2012. For the most part, our 2012 estimates are in our line with what we shared with you in February, with only a few notable changes.

In North America we do expect an increase in light vehicle production overall in the range of 14 million to 14.5 million units, with most of the increase concentrated in the passenger car segment. We estimate full-year light truck production to remain stable compared to our prior forecast. We've held our North American medium and heavy truck production estimates stable to our prior forecast, with Class 8 truck production in the range of 280,000 to 290,000 units for full-year 2012.

While Europe continues to face an uncertain economic outlook, we expect European production to remain stable compared to our prior estimates. In the near term, the Europe heavy truck market has helped us offset the temporary softening of the Brazilian heavy truck market.

In South America and heavy truck market has seen a significant decline in the first quarter, obviously due to the regulation change in Brazil and a slower than expected recovery. We do now believe the full-year impact from this particular change will be a reduction of about 25,000 units, and accordingly, we have lowered our previous estimates.

We've left Asia-Pacific production unchanged as increases in production in India, Japan, and Thailand this year are expected to offset slower markets in the region, including China.

Finally, off-highway market is in line with our prior view. The agricultural equipment market is projected to be flat to modestly up from 2011, and we are still expecting the construction equipment market to have modest growth this year.

Slide 20 highlights our updated full-year guidance with a comparison to our previous guidance, which we shared with all of you in February of this year. As I mentioned during the review of our first-quarter results, we expect currency to be a headwind for the full year compared to our previous guidance. While our base markets remain largely in line with our previous estimates, we are lowering our 2012 full-year sales target due to currency revisions, from up 5% to up 3% versus 2011. However, we are maintaining our full-year adjusted EBITDA guidance range of $845 million to $865 million, which represents an $80 million to $100 million improvement in EBITDA over 2011.

Based on our performance and market expectations, we now are cautiously optimistic that our full-year performance will be at the high end of this range. We are also holding our expected adjusted EBITDA margin range unchanged at 10.5% to 11.0%, but obviously, with respect to our expectations, ending up at the higher end of that range as well.

On the capital spending front, our full-year estimate remains unchanged and is expected to be between $225 million and $250 million for the full year. Finally, we continue to expect full-year free cash flow to be greater than $200 million, adjusting for the $150 million voluntary US pension cash contribution in January of this year.

In summary, Dana continues to deliver strong results, and our team is committed to delivering profitable growth and ever increasing shareholder returns over the long term. As Roger indicated and stated in his layout for the Company, we have a defined growth strategy in place, based on driving innovation and technology valued by our customers, which we believe will further differentiate Dana from our peers in the marketplace.

With that, we appreciate your support, and I now would like to return the call back over to the operator for any questions. Thank you.

(Operator Instructions). Brian Johnson, Barclays.

Good morning, I had a couple questions, just drilling down into the segments. The first is in CV. Can you give us any sense of the magnitude of the pricing and cost reduction versus volume drivers within that segment?

Yes, Brian, this is Bill Quigley. Obviously, there's been a lot of attention and a lot of work done on the Commercial Vehicle business within Dana. As you know, obviously, from a material recovery perspective, we are working very hard in that segment, while not providing real value, if you will, around what those numbers are -- make no doubt about it, the team has continued that recovery initiative.

We obviously have seen an increase in volumes during the quarter, and really, coming from our North American market as well as some favorable mix in Europe. But again, those recovery initiatives are ongoing, and we expect as we move forward on Commercial Vehicle that we're moving more from a, I would say, fix-it position to a more continuous improvement position going forward.

Okay. And so does that mean we can sort of expect this to continue even if, say, production for PACCAR were to moderate going forward in the next couple quarters?

Yes, I think that probably is an overall reasonable assumption to make, Brian.

And over within Power Technologies, was there any backlog, or is there -- is the backlog going to come in through the year? Because the business seemed to have been growing faster than European and North American production for some of last year, even with the -- and even with the currency headwinds, are you just not growing faster than the market? So we should think of this more as a kind of production growth, or are there new signings that come on later in the year?

Yes, Brian, it's Bill again. I think to your point on Power Technologies year-over-year were slightly up, more flat actually -- $1 million up. We've seen some softening in Europe, in particular around the aftermarket business. But I think with respect to your base question, we do not attribute this to new program wins moving forward.

Obviously, the team is focused on new business wins and in fact are procuring those wins. So again, I don't think it's a -- it's something that we would see as a static environment for the rest of the year.

And on the Light Vehicle Driveline, I'm trying to separate -- when you say material recovery, do you mean raw material recovery? Or do you mean a material recovery in the profit margin? And if so, with commodities sort of flattish, just how mechanically should we be thinking about those commodity recoveries?

Yes, Brian, it's Mark Wallace. Good morning. We talked a little bit back in Q1 that we had pressure in the castings and the bar stock that was moving through the end of last year into Q1. Those were considered, for us, non-contractual commodity recoveries, so we've gone out to retrieve that, and we expect that to flow in in Q2 and Q3 as well as a recovery mechanism.

Okay, so even though -- I remember you saying that even though scrap and basic steel was flattish, you were seeing it in those specific -- what you need for the driveline materials? Okay, thanks.

Yes.

Peter Nesvold, Jefferies.

So the margin headwinds in Power Technologies did lift in one quarter, as you had said last time. Light Vehicle Driveline -- any sense for how soon the material recovery flows through, and the mix starts to get a little bit better? Could it be as quickly as one quarter?

No. Actually, it'll be steady over the balance of this year, but sequentially, we'll continue to make improvements in Q2 through Q4.

Okay. Other cash flow -- so you talked a little bit about that, the variation year over year of $27 million. $15 million is some normal contributions. Should we expect this kind of $27 million type year-over-year headwinds to continue as the year progresses, or was there anything else within that number that might've been one time-ish this quarter?

No, I think up here -- it's Bill Quigley. But for that $15 million pension contribution, and it's the normal contribution to our plans, I think that's just going to ambient level of movements in our assets and accruals, so I don't think it's -- you can take that number necessarily and move it forward at a 4 times.

Recall, though, from a cash contribution perspective, we made the $150 million special contribution to the US plan in January. We have obviously disclosed that. Normal contributions outside of that planned contribution are about $73 million for the full year 2012. So we'll see, obviously, that line, which will largely be additional pension cash contributions moving forward.

Okay. Last quick one, and I'll hand it off. So at the Investor Day, it seemed like there was some cushion, maybe, in the Class 8 number, given the strength that we have been seeing late into the end of 2011. Since then we saw PACCAR custom production, we've seen the Class 8 orders moderate a little bit, although kind of still hanging around 20,000. Do you still think of this cushion in how you're looking at the number, or do you think that the forecast is more rightsized now?

Yes, Peter, it's Mark Wallace. Again, I think our approach to this year for North America, we felt like there'd be some softening this year, so I think our 280,000 to 290,000 for production this year -- it should be in line with what we're seeing now from the market space.

Okay, great. Thank you.

Patrick Archambault, Goldman Sachs.

Hi, this is actually Aditya Oberoi for Pat. First question on behalf of housekeeping side, it looks like your FX contribution margins were negative 23% for the quarter. Is it a good estimate going forward?

Yes, this is Bill Quigley. I think that captures both translation as well as transaction. So to your point, it was about a 23% impact, if you will, in the quarter on a year-over-year basis.

Probably a touch high, because obviously, transaction losses outside of a translation occur based on flows between jurisdictions. I think probably more of a 20%, recognizing we'll probably have some transaction losses and/or gains during the course of the year. But probably a touch high for the first quarter, recognizing it includes both translation and transaction.

Got it; that's helpful. The second question is on Brazilian market. I know at the Mid-America Trucking Show, you guys were saying that you look at -- you're seeing second quarter also panning out similar to the first quarter, where the demand is down 10%, 10%-ish. How are you thinking about it now? And any color on the rest -- for the second half of the year, also, would be helpful.

Yes, good morning. It's Mark Wallace. Again, on Brazil, as we reflected back in Q1, we continue to see soft production in Q2. However, it'll be up sequentially over Q1. Full year, we have Brazil down 10%. It's reflected a little bit different when we look at South America; we do have some improvements in some of the other countries in production, so full year down about 5% to 6% for South America on a year-over-year basis. But again, about 10% down year over year in Brazil.

That's very helpful. Thank you guys.

John Lovallo, Merrill Lynch.

When we are thinking about the seasonality in the business, is it still fair to assume that 2Q and 3Q will be seasonally strong, or has that impact -- or that seasonality -- diminished with vehicle launches being spread out through the year?

Yes, John, Mark Wallace again. I think overall we should see continuing improvements in Q2 and Q3 in revenue. Again, a bit tempered with Europe, and the third quarter typically is softer due to the vacation periods that occur.

Hey John, this is Bill. I think that that just to further Mark's comment, obviously we would expect the second quarter to be an uplift from a sales perspective from the first, and to Mark's point, you get that tail kind of going back off to the third to the fourth. So nothing unusual, I think, in the seasonality this year vis-a-vis last year.

Great, thanks --

I'm sorry, this is Roger. I think your point is well taken; I think the seasonality adjustments that we're seeing may be a bit muted. They're still there a little bit, but probably not as dramatic as in past years.

Very helpful, thank you. If I could sneak one more in here -- you guys have certainly done a lot of collaboration with Ford in the past. And one of the things that Ford has been talking about is cutting somewhere around 750 pounds from a vehicle. I was just wondering if you saw any opportunity for Dana in that regard.

Well, John, this is Roger. We obviously collaborate very closely with Ford and have for many, many, many years. And as I illustrated in my remarks, we got the Innovation-Collaboration award from the PACE event the other night, which we're very, very proud of.

We work with Ford very closely on all of their applications for all of their objectives. Weight savings is a huge objective that they have, but they also have performance objectives on some of the other components, and we're working with them across the board. We have opportunities in products from a weight savings perspective, and we also have opportunities in products from a performance, fuel economy, and emissions perspective as well. So we have a great relationship with Ford and very much value that.

great. Thank you very much, guys.

Emmanuel Rosner, CLSA.

It looks like your equity income from the joint ventures was flat year over year. And that's despite the fact that in the meantime, you've added about 46% of the DDAC ownership. Can you please comment on what you're seeing at DDAC in terms of the demand environment, also what the margins look like, and maybe how we could see that evolve over the rest of the year?

Emmanuel, it's Mark Wallace again. Overall, China has seen a significant decline in revenue, and especially in January/February timeframe in the heavy- and medium-duty truck market. We saw a nice rebound in March, and we're expecting volumes to continue elevated over the start of this year, but we're -- now we're looking at a 5% year-over-year decline in the heavy-duty, medium-duty truck market in China. But we still are working with our partner at Dongfeng to continue to improve our internal margins through additional cost reductions, as well as looking at the other portions of the business, which includes the bus and coach business, which we are out driving for additional revenue improvement there as well.

Okay, great. Regarding your tax rate, it looks like it was a little bit above the one you assumed for the effective tax rate for the year. Are you still comfortable with the 29% for the year?

Yes, we are, actually. This is Bill Quigley. You're right, a touch above that 29%, about 35% or so, really around intraperiod allocations on the accounting standards. We are comfortable with the 29% effective rate on a full-year basis.

So any idea which quarter will be well below 25% as a -- will it be 29% as a result?

You do see muting as you move forward with respect to the movements of profits during the course of the year, but obviously, the fourth quarter you also get -- when you square up, if you will, given our tax positions in the US. So on a full-year basis, it will be about 29%. We're still pretty comfortable with that.

Perfect. And I guess, finally, I didn't see any mention in the slides for your outstanding guidance for 12% margins in 2013. Are you still comfortable with achieving them?

The margin in 2013 expectation? Yes. We are comfortable with achieving that. We feel like we're on a good track to get there.

Great. Thank you.

Patrick Nolan, Deutsche Bank.

I just had a couple questions. Looking at the walks you provided on 14 and 15, in the Other line, the $18 million positive -- I'm a little surprised at such a low drop-through, considering what the positives in revenue would have been, considering the pricing increases in commercial vehicles, some of the catch-up recoveries for raw materials. Is there some other large negative in Other that's offsetting those positives?

I think on the top, the $18 million, that is basically kind of a pure number, obviously, from a recovery perspective, be it material recovery and/or pricing. So obviously, as we continue to renegotiate contracts, and have been quite successful in doing that, over the course of the year there are still probably some impacts to come, but this is the pure, if you will, pricing/material cost recovery.

Was there any offset to that on the cost side that dragged -- I figured those things would have a very high drop-through.

You see the -- I think you see the offset if you take a look at the change in adjusted EBITDA. You see the $4 million versus the $18 million?

Right.

Obviously, you've got some commodity current increases, which will then, as we move forward, look to recover. There's a lag, obviously, with respect to our recovery mechanisms and approaches with customers, and then concurrently to Roger's point, we have some additional investments from an engineering perspective to move the Company really into 2013 and forward.

So you're seeing that -- on any particular quarter, you're going to see kind of a flow; from a material perspective, you may have a commodity pressure that you ultimately recover in the forward periods, as well as in your recovering material costs from prior periods in the current period.

So it is a mix. But you can see the $18 million was kind of the recovery top, and then the net bottom-line improvement was about $4 million, between commodity cost increases as well as some of the investment we've made in the business.

Got it. On the off-highway business, you had made mention in the fourth-quarter call that you saw some need to have to get some pricing adjustments in the agriculture side of the business. Have you already seen the benefit of that, or is that still to come in Q2 and Q3?

Well, I think some of the work that's been done toward the end of last year, we've seen some of the benefit of that, but there is more benefit that will come later in the year, Patrick.

Is the way to think about that that that kind of moderates some of them volume headwinds you'll see in the back half?

From a margin perspective, correct.

yes, that's -- that's exactly right.

And just one last quick one, if I could sneak it in. Do you have the Dongfeng joint venture income in the quarter?

Yes, it's -- oh, do we -- yes, obviously, it's recorded in the quarter. I think that number was about $2 million equity income.

Got it. Good results. Thanks, guys.

Joseph Spak, RBC Capital Markets.

Just a quick question on some of your outlooks for the market. I know you raised the North American light vehicle assumption, but I noticed you kept the truck component of that flat. Does that imply that we -- on the light vehicles, that we should see better growth over the course of the year in Power Technologies, which has more of the passenger car exposure versus Light Vehicle Driveline?

This is Bill Quigley. I think to your point, obviously, PT has got more presence, if you will, in that light vehicle or passenger car market. Because we had taken it up -- but it's not a significant penetration in a particular platform. We'll see some uplift, but I don't think it's of a material amount.

Okay. And then in Light Vehicle Driveline, the margin -- you had been pointing to continued issues in Thailand. First, can you confirm that that's completely behind us now? And then also, was there any impact in the quarter that brought those margins down a little bit?

Joseph, is Mark Wallace. Again, I think Thailand, pretty much in Q2, as we mentioned before, back earlier this year, that we expected that we'd be back at a normal run rate since what we're seeing at this stage, so overall there is really no significant impact in Q1.

There was no impact in Q1, okay. And then finally, just housekeeping. The CapEx, I know you kept that guidance. First quarter was pretty low, so that run rate gets you well below what you're going to for the year.

Is the -- is it fair to assume that the remainder of the CapEx is split evenly between the next three quarters, or is there some quarter where we should see greater investment?

Yes, no, no. Traditionally and historically, the first quarter is a little bit low, and -- this is Roger, sorry -- and it'll be lumpy throughout the year, and it's going to correspond to the new product. We mentioned in the script part of the call that we have won a number of new business awards, and the capital spending is going to be lumpy, depending on where those products are launching. So it's not going to be evenly split.

Okay, thanks.

Brett Hoselton, KeyBanc.

When you talk about Light Vehicle Driveline margins rebounding back to prior levels, I'm kind of thinking high 9% range or something along those lines -- kind of an increase of 100 basis points or something, which is what you did in 2011. Is that kind of what you have in mind?

This is Bill, Brett. How are you doing?

Hi, Bill.

I think it -- I think that is obviously a reasonable assumption to be making as we progress through the year, based on what we performed last year. Obviously the first quarter was a dip, but again, Mark's team focused on that steady improvement during the rest of 2012.

And then with the nice improvement in the commercial vehicle margins, the Light Vehicle Driveline business is now kind of, let's say, at the low end of the totem pole in terms of margins. My question is, you've done a very nice job of going through your different segments and addressing the margins here, and what I'm wondering is, as we think of Light Vehicle Driveline margins hovering around that high 9% range or so, is there the -- do you have plans or thoughts that you might be able to push those margins up into that 11% range or so, roughly equivalent to some of the other segments? Or do you think that in general the Light Vehicle Driveline margins are going to be lower than the other segments by 100 or 200 basis points?

Well, I think Mark Wallace's team has done a very nice job in both the commercial segment and the light vehicle segment, in managing it, but they are two different segments in the marketplace. We are approaching both of these segments in the same way -- focus on the market value drivers that the end customer is going to be able to see and be able to value.

It's a fairly substantial part of our business right now that allows us the ability to introduce technologies into the segment and carry them over into the other segments. So I think the simple answer to your question, Brett, is that we're not looking at that segment right now any differently from a focus standpoint than the other segments, but it's a bigger business and a bigger base to work off of as we go forward. So we have the same metric expectations of every single one of our businesses in Dana, and that's no exception. So as we go forward, I would expect the product introductions in that segment to perform similar to the product introductions in the other segments.

And then as I think about the 12% margin target that you just referred to a little while ago here, how should I think about that margin target? Is that -- is your expectation that you're hoping to achieve 12% margins through the entire year in 2013? Or is it that we hope to hit a margin of 12% at some point in time in 2013 -- kind of ramping up, maybe exiting 2013 at that 12% level?

Yes, I think -- this is Bill. I don't know with respect to that objective for 2013 moving forward that was obviously a margin objective that was set was set what two years ago or so or late last year or earlier last year and I think as we move forward we're looking at that, that was a full year but obviously as we progress through 2012 into 2013 it certainly isn't a ceiling for us, some would suggest it's a floor but again we are progressing the margins of the business year over year, 2013 will be no different than the work that we are trying to do in 2012. So I would not say that it is necessarily an exit rate with respect to 2013 we position it internally as a full year objective.

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Yes I think, this is Roger, we have been primarily focusing over the last year on the actions necessary to make sure that we have the concrete actions to meet that objective that we have out there. We feel comfortable in that now and we are convinced that a lot of the activities put in place with us to deliver what we have delivered in the first quarter puts us on a great track to get there for the full year. As Bill had mentioned earlier this year it looks like it is on track and he's suggested that we would be at the upper end of what we have previously mentioned to you guys. The upper end of that range that is out there puts us right on the track to be where we need to be in 2013.

Excellent. Thank you very much.

Kristi, we have time for one more question.

Tim Denoyer, Wolfe Trahan.

A couple of little ones I just wanted to confirm. On Brazil, specifically, you mentioned that the 2Q has been fairly soft in the truck market, but if we look at the March numbers, it looks like on an annual rate it was up -- back up to almost 90% of last year's rate. Am I misreading that, or are you not going to see a pretty decent improvement in Brazil revenue in 2Q versus 1Q? And can you comment on the margin impact that that might have as Brazil comes back?

Yes, just -- it's Mark Wallace, Tim. Again, you're correct. We are seeing the volume lift in Q2, and year over year it looks to be in line with last year, roughly. And we'll see that production continuing into Q3 up, and then it may soften in Q4 -- again, giving a year-over-year reduction of about 10%, roughly. And again, I think we've said it before, margins are in line where we are -- in general, where we're at with the CV margins.

Okay. So -- but overall, I think with the -- that business coming back up, you would see a little bit of margin benefit in 2Q versus 1Q? Is that fair?

Yes, Tim, maybe just to address it a little bit more. Number one, we definitely expect that Brazil will improve the revenue side, but we also will see softening in Europe as well, because we've had a higher Q1 than we were expecting, and we'll see those revenues soften in the Q2 and Q3 as well. So yes, we do have lift in South America, or in Brazil specifically, but you'll see softening in the opposite direction in Europe. So overall, they may mitigate each other.

Okay, great. And then one last one at on the CV business in terms of the -- some of the new products that were introduced. I know that the driveshaft was introduced in the first quarter, and I believe the new Pro 40 axles are coming in the third quarter. Can you confirm that and give us any sense on what sort of percentage of -- I believe that's just in North America at this point -- any rough share of North America that you're expecting that to represent?

Tim, actually, as we mentioned back at Mid-America, we launched the Diamond Series driveshaft -- really gets going in production in -- it's starting now, but really starts in Q3, Q4. The Pro-40 will launch at the end of this year. So it's not a significant impact this year, but really it begins to be the driver, as we look into 2013 and 2014, to continue driving our commercial vehicle margins up. So it's not significant, again, in this year.

Tim, this is Roger. Just to build on Mark's comments, we're really excited about these products, because they absolutely deliver what these fleet owners and their customers are expecting in terms of the technology for them. So we're launching it this year. The exposure we got at the Mid-America Truck Show on these technologies was terrific, and we're excited about the future opportunities, but this year in 2012, it really is a launching year for these new products that we'll see the benefit of, in a more significant way, in future years.

Great. Thanks very much. Great quarter, thanks.

And with that, I'd like to conclude this morning's call. Thank you to everybody for joining us.