Dana Inc (DAN) 2013 Q1 法說會逐字稿

Good morning, and welcome to Dana Holding Corporation's first-quarter 2013 webcast and conference call. My name is Brent, and I will be your conference facilitator. Please be advised that our meeting today both the speakers remarks and Q&A session will be recorded for replay purposes. There will be a question-and-answer period after the speakers' remarks, and we will take questions from the telephone only.

(Operator Instructions)

To ensure that everyone has an opportunity to participate in today's Q&A, we ask that callers limit themselves to one question at a time. If you would 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 Director of Investor Relations, Craig Barber. Please go ahead, Mr. Barber.

Thank you, Brent, and welcome to all of you joining us today. With me this morning is Roger Wood, President and Chief Executive Officer; and Bill Quigley, Executive Vice President and Chief Financial Officer. Also with us in the room is Mark Wallace, Executive Vice President and President of light-vehicle Driveline Technologies. As always, copies of this morning's earnings release and our presentation have been posted on Dana's investor website for your reference. Today's call is being recorded, and the supporting materials are 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, please keep your questions brief.

Today's presentation includes some forward-looking statements about our expectations for Dana's future performance. Actual results could differ from those suggested by our comments here. Additional information about the factors that could affect our 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'd like to turn the call over to Roger Wood.

Thank you, Craig, and good morning, everyone. This morning's press release highlighted our first-quarter sales, which were about $1.7 billion, in line with our expectations of sequential performance improvement from the fourth quarter of 2012. On a year-over-year basis, however, sales were down by about $159 million, due to the lower volumes in the North American commercial vehicle market, as well as European and Asian off-highway markets. In addition, light-vehicle program roll offs and a divestiture a year ago further reduced sales by about $101 million.

In line with reduced sales, net income for the quarter was $42 million and diluted adjusted earnings per share was $0.28. Adjusted EBITDA for the quarter was $158 million. The reduction from the first quarter last year was driven mostly by lower sales volume, which accounted for about $44 million of the decrease. Also the currency devaluation that we experienced in Venezuela during February further reduced adjusted EBITDA in our light-vehicle driveline segment by $11 million, representing fully half of the margin decline for the quarter. Overall adjusted EBITDA as a percent of sales for the quarter was 9.4%. With the recovery actions that we've implemented, we expect to offset this impact as we progress through the rest of the year. Much like we did last year when the light-vehicle segment experienced a first-quarter drop and recovered by the end of the year.

During the first quarter, we also continued our share repurchase program. Since the Board of Directors authorized the program in October of last year, we have repurchased nearly 3.6 million shares of common stock, resulting in $58 million being returned to the shareholders. We also declared a dividend for common and preferred stock, demonstrating our steadfast commitment to returning value to our shareholders. In keeping with the Company's culture of innovation and technology, we continued to introduce and commercialize new technologies, even in the face of continued market volatility. I will talk more in detail about these in a few minutes, but first, let's cover the market conditions.

Turning to the next slide, I'd like to review our major end-market trends for the first quarter and the remainder of the year. We see positive signs in production in North America for full frame trucks in 2013, benefiting our light-vehicle driveline segment. While we expect stagnant passenger car growth in Europe to continue weighing on the power technology segment, new program ramp ups in Europe and Asia should provide a benefit for the light-vehicle segment. We do see demand in Brazil continuing to rebound, even amidst continued uncertainty in that region's economy.

In the commercial vehicle market, we've seen a slower start to North American end-market production, yet we expect improvement during the remainder of the year. Our full-year guidance is based on 260,000 to 270,000 class-8 unit production in North America. We are starting to see signs of a slight uptick in sales, and we're watching closely the releases from our customers. In the off-highway vehicle market, construction equipment continues to be soft in both Europe and Asia, but we see signs of improvement in the second half. Underground mining has weakened on lower commodity prices, while agriculture equipment production remains stable.

While markets weren't great in the first quarter, we do see improvements in the second quarter and throughout the rest of the year. Through cost flexibility, delivery, and continued focus on innovation and technology, we expect to capitalize on stronger market volumes, resulting in improved sales and margins through the remainder of the year.

So turning to slide 6, we show a number of new technologies that we've recently introduced to the market. The first is Dana's new Spicer electric vehicle gearbox, which provides drivers with increased acceleration, enabling them to reach highway speeds more quickly. It also provides improved traction and premium noise vibration and harshness performance. If you joined us at the Mid-America Trucking Show last month, you saw our lightweight Spicer Pro-40 tandem axle and the Spicer Diamond Series driveshaft prominently displayed on our customers' new vehicles. This past quarter, we introduced an additional set of commercial vehicle technologies that round out Dana's ability to serve the class-8 line-haul segment with the most efficient and reliable technologies available.

The Spicer AdvanTEK 40 tandem axle, which is the first axle for line-haul fleets to feature Dana's efficient AdvanTEK gearing technology, is the newest addition to the Spicer family of six-by-four tandem axles. This technology is a staple in premium light-vehicle applications, which is another example of us leveraging a light-vehicle technology into the commercial vehicle market. This axle has the fastest ratios in the industry, which not only increases fuel economy better than any comparable product, but it also reduces vehicle weight and minimizes the total cost of ownership. When paired with our new upgraded inter-axle and main drive shafts, this powerful system is capable of offering even greater fuel efficiency and reliability for our customers.

Dana also introduced the Spicer EconoTrek tandem axle. By reducing weight by up to 450 pounds, when compared with a traditional six-by-four axle, this lightweight but robust configuration delivers between a 2% and 3% improvement in fuel efficiency. Together with the Pro-40 that we announced last year, the AdvanTEK 40 and the EconoTrek represent Dana's complete set of axle solutions for the class-8 line-haul segment, with each axle delivering on unique customer value drivers.

In the off-highway market, we've just introduced the Spicer TE30 powershift transmission, announced at the Bauma Trade Show in Munich last week. Designed for container handlers and heavy-duty forklift trucks, this transmission offers greater fuel economy and lower cost of ownership. Designed to address tier-four engine regulations, the Spicer TE30 transmission is able to fit into existing machine designs, while providing the same efficient, reliable performance that our customers have come to expect from our products.

Turning to slide 7, I'd like to show you a few of our technologies that are currently launching into new vehicles. The first is our next-generation Spicer axles with AdvanTEK gears, the industry leader in efficiency. The new Range Rover Sport, which launched last month at the New York auto show is the latest vehicle to adopt this design for both its front and rear axles. In addition to efficiency gains, this axle is also lighter than previous designs. And in the case of the front axle for the Range Rover Sport, we were able to replace a cast-iron housing with an aluminum housing. In January, we began production of a key battery cooling subsystem for the Fiat 500-E electric vehicle. The Dana manufacturer chiller and battery cooler cold plates worked together to provide enhanced battery life in the vehicle.

Finally, Dana has become one of the first companies to produce metallic bipolar plates for fuel-cell-powered engines. A major functional subsystem of the fuel-cell power plant, bipolar plates are responsible for distributing the fuel, air, and coolant to each of the catalyst-coated membrane cells. These ultra-thin plates incorporate our patented sealing technology and provide best-in-class power density. Fuel-cell manufacturers are naturally hesitant to talk about their upcoming programs publicly, but I can tell you that one of the first applications of these metallic bipolar plates is in a fuel-cell powered race car that plans to compete in the 24 hours of Le Mans in June. That says something about the endurance that these fuel-cell systems are beginning to achieve.

Moving to slide 8, our technologies are also earning industry honors. Just last week, we won the 2013 Automotive News Pace award for our innovative Spicer Diamond Series driveshaft that you've heard a lot about. One of the industry's most prestigious awards, the Pace Award honors superior innovation, technological advancement, and business performance among automotive suppliers. What's significant about this year's recognition from Automotive News is that the judges saw the applicability of this commercial vehicle technology in the light-vehicle segment, aligning with our strategy of taking our technology solutions to our three end markets.

As I mentioned before, we continue to face volatile end markets, yet we will not take our eyes off of our technology strategy that will fuel our long-term future growth initiatives. Our team continues to do well at managing both, delivering operating performance in this unpredictable environment, as well as helping our customers be prepared for the fuel-economy challenges of the future.

And slide 9 shows an array of other industry honors garnered during the quarter, including 2012 Supplier of the Year honors from General Motors, recognizing our driveline operations in Colombia that support GM production in Ecuador. The National Quality Award from the Quality Council of India, which honored our driveline facility in Jodalli. And the Best Corporation Award from BYD, a Chinese automaker for our work with them on oil coolers. These are produced locally for BYD at our facility in Wuxi, China. We are also proud to have received recognition from Toyota for improvements in our thermal acoustical protective shielding. A Star Performer Award from Spartan Motors, a manufacturer of recreational, emergency, defense, and delivery vehicles. This is Spartan's highest honor and was awarded to our driveshaft operations in Sterling, Illinois. And finally, we were named to the Top 10 Most Improved Companies in Warranty Claims and Accrual Reduction by Warranty Week magazine for the second straight year. Others on that list include United Technologies and General Electric. Some very nice achievements by our hard-working people all around the world.

In closing, first-quarter demand levels in a number of our key markets provided a bit of a challenge for us, but overall operating results were in line with what we would have expected at these sales levels. We continue to achieve solid margins in spite of challenging market conditions by focusing on those levers within our control. As we look to the second quarter and beyond, we will continue to respond quickly to ever-changing market conditions with disciplined cost and investment actions and a strong focus on generating positive cash flow and improving adjusted-EBITDA margin. With that, I'll turn it over to Bill for the financials.

Good morning, everyone, and thanks, Roger. Slide 11 summarizes Dana's first-quarter 2013 financial performance, as well as the comparison to 2012. First-quarter sales were $1.68 billion, lower than a year ago by $288 million. As we guided earlier this year, there were a number of factors impacting this comparison. First, and as Roger mentioned, the impact of light-vehicle driveline program roll offs and the leisure products divestiture completed in the second half of 2012, impacting our off-highway business, lower sales by $90 million and $11 million respectively. We anticipated lower production volumes in certain key end markets, notably North America commercial vehicle, and European and Asia off-highway markets. Lower demand in these markets accounted for about $159 million in the current quarter. Finally, currency lowered the quarterly comparison by about $30 million.

Adjusted EBITDA for the quarter was $158 million, compared to $212 million in the first quarter of last year. While volume mix and currency lowered adjusted EBITDA by about $46 million, the February 2013 devaluation of the Venezuela bolivar further lowered adjusted EBITDA by $11 million, which is reflected in the results of our light-vehicle driveline business for the quarter. As Roger stated, we expect to recover this devaluation impact over the remainder of 2013. Adjusted EBITDA margin for the quarter was 9.4%, 130 basis points lower than last year, with the impact of the Venezuelan devaluation accounting for almost 70 basis points.

Net income totaled $42 million compared to $70 million a year ago. While adjusted EBITDA was lower than a year ago, offsetting factors include a lower tax, restructuring, and depreciation expense in the quarter, which provided a benefit to the year-over-year comparisons. Diluted adjusted EPS for the quarter was $0.28 per share, compared to $0.44 in 2012, reflecting lower net income after adjusting for restructuring, certain amortization expenses, and other nonrecurring items. Capital spending for the quarter was $29 million, $5 million lower compared to a year ago. Free cash flow for the quarter was a use of $44 million, $143 million better than a year ago, which reflected the $150 million voluntary contribution we made to our US pension plans in early 2012.

Slide 12 provides a comparison of our consolidated sales, the change by business segment, as well as the other key drivers on a year-over-year basis. On a regional basis, North America sales totaled $722 million in the quarter, lower than last year by $242 million, and represented 43% of sales compared to 49% a year ago, reflecting the impact of light-vehicle program roll offs, lower commercial vehicle demand, and the shifting of some off-highway production to China that we completed last year. Europe sales totaled $503 million in the quarter, or about 30% of total sales, lower than last year by $49 million, reflecting continued softness across most end markets, in particular construction and mining equipment demand impacting our off-highway business.

South America sales totaled $220 million in the quarter, slightly lower than a year ago, and represented about 13% of sales compared to 12% a year ago. While we experienced recovery in commercial vehicle demand in Brazil in the first quarter, this benefit was somewhat offset by currency movements. Asia-Pacific sales totaled $231 million, $7 million higher than a year ago, and represented 14% of total sales, reflecting relocated off-highway production, as well as the ramp-up of production in newly launched light-vehicle programs.

The chart to the bottom left highlights the change in sales by business segment, while the chart to the right highlights the key drivers of our year-over-year sales performance. Currency lowered sales by $30 million, primarily impacting our light-vehicle driveline and commercial vehicle driveline business segments. Program roll offs in light-vehicle driveline accounted for $90 million of the year-over-year change in sales. Volume and mix, including the impact to off-highway driveline, of $11 million for the divestiture completed last year totaled about $170 million, of which $143 million was attributable to lower end-market demand, impacting our commercial vehicle and off-highway businesses.

Slide 13 provides a similar comparison of adjusted EBITDA for the quarter, with the year-over-year change by business unit presented at the bottom left and the key drivers presented to the right. As highlighted, adjusted EBITDA for the first quarter was $158 million, or about 9.4% of sales, compared to $212 million, or 10.7% of sales, principally reflecting lower sales and the Venezuelan currency impact. As we expect to recover the Venezuela currency impact over the remainder of the year, if you adjust for this impact, adjusted-EBITDA margin in the current quarter was 10.1% and did represent a 50-basis-point improvement sequentially from our fourth-quarter results, or a contribution margin of plus 20% on incremental sales of about $70 million.

In the next two slides, we will review the impact of these drivers for each of the businesses in some further detail. This quarter, we have provided some additional color for each business, similar to the consolidated view. And we've highlighted the key drivers for sales in segment EBITDA performance for each one. Light-vehicle driveline sales were lower by $108 million, or about 15%, and per our previous comments, represent about $90 million attributable to planned program roll offs. Segment EBITDA of $41 million was lower than a year ago by $22 million, which also includes the impact of the Venezuela currency devaluation. EBITDA margin for the quarter was 6.6%, including this impact. Yet as previously mentioned, we expect to offset the majority of this over the remainder of 2013, which is reflected in our full-year guidance. If you were to exclude the Venezuela currency impact, segment EBITDA would be about 8.4%, slightly lower than a year ago in the fourth quarter of 2012.

As we look at the key drivers year over year and reflect on the impacts of program roll offs and currency, the business was mostly in line with last year. The major remaining driver being unfavorable mix in South America. As we move through the rest of 2013, the impact of program roll offs on sales comparisons will lessen, with the year-over-year change for the next two quarters being slightly higher than $100 million and diminishing into the fourth quarter.

Commercial vehicle driveline sales of $458 million were lower by $93 million, or 17% compared to a year ago, driven principally by lower demand in North America and Europe of about $85 million, partially offset by a recovery in Brazil and currency of $17 million. Segment EBITDA was $41 million, $20 million lower than last year due to lower sales. For commercial vehicle, the first quarter comparison is certainly challenged due to North America class-8 vehicle production being lower by 20% -- 28% year over year, or about 22,000 units. While South-American medium and heavy-duty vehicle production is up about 24% year on year, this increase represents a little over 9,000 units in comparison to North America. At the bottom, we've also provided our fourth-quarter 2012 sales and segment-EBITDA results. And on a sequential basis, both sales and margins did improve as we continue to work through what we hope to be the bottom of the curve.

Off-highway driveline first-quarter sales of $343 million were lower than last year by $75 million, of which $11 million related to the divestiture of our leisure products business in the third quarter of last year. Lower end-market demand in construction and mining markets, which we guided to this last February, was the main driver of the decline. Off-highway posted segment EBITDA of $41 million in the quarter, or 12% of sales, 30 basis points higher than a year ago, reflecting the favorable impact of pricing materials and other cost reduction initiatives. From fourth-quarter 2012 levels, sales increased about 7%, while segment EBITDA improved 80 basis points, reflecting favorable contribution on both incremental sales, as well as the impact of cost initiatives.

Power technologies sales of $256 million in the current quarter were lower than a year ago by $12 million, with about $3 million attributable to currency and $9 million due to lower volume, largely reflecting continued weakness in Europe. Segment EBITDA of $36 million, or 14.1% of sales, was $4 million lower than a year ago, reflecting the impact of lower volumes and slightly elevated engineering spend for new product development. Compared to the fourth quarter of 2012, power technologies improved segment-EBITDA margins by 120 basis points, reflecting favorable contribution margins on increased sales levels.

Free cash flow for the quarter is highlighted on slide 16. Free cash flow was a use of $44 million in the quarter, compared to a use of $187 million in the first quarter last year. Adjusting for the $150 million voluntary contribution to our US pension plans in the first quarter of 2012, free cash flow use was slightly higher in the quarter. Working capital was a use of $98 million for the year -- or for the quarter, compared to $140 million a year ago. While sales are lower on a year-over-year basis, on a sequential basis, sales in the current quarter increased by $67 million compared to the fourth quarter of 2012, which contributed to this use, as well as other normal seasonal flows. Capital spending was $29 million, $5 million lower than a year ago, while net cash interest payments totaled $28 million in the quarter. The majority representing semiannual interest payments on our senior unsecured notes.

Cash taxes were $19 million, $3 million lower than a year ago, reflecting the timing of estimated payments. Restructuring cash outflows totaled $10 million, $2 million higher than last year and largely in line with our full-year guidance. Net pension contributions for the quarter were $16 million, compared with $165 million in the first quarter last year. Similar to previous quarters, we expect to generate favorable free cash flow over the coming quarters, driven by a more favorable volume environment driving increased earnings, as well as continued discipline in our management of working capital and investment.

Slide 17 highlights our cash debt and liquidity positions at the end of March. Cash and marketable securities totaled slightly more than $1 billion, while outstanding debt was $923 million, providing a net-cash position of $121 million. Debt balances increased slightly from year-end 2012 levels due to the timing of some local borrowing in Brazil versus the maturity of the existing facilities. Total liquidity stood at plus $1.4 billion, including $391 million of availability under our US and European credit facilities.

As Roger mentioned, we continue to return capital to our shareholders, declaring dividends again in the first quarter of 2013 for both outstanding common and preferred shares, as well as executing upon our share repurchase program. In the current quarter, we repurchased about $1.4 million of outstanding common shares at a cost of $24 million, compared to the purchase of about $1.066 million shares and $15 million in utilized in the fourth quarter of 2012. As Roger mentioned in his opening remarks, through April 23, we have repurchased about 3.6 million of shares at a cumulative cost of $58 million.

One last comment before we move on to our full-year financial guidance. We continue to have constructive dialogue at the Board level related to Dana's current capital structure, capital allocation approach, and available alternatives. While we continue to execute our current authorized repurchase program, as well as dividend practice, this is a priority with management and the Board, including but not limited to, evaluation of the possibility of further adjustment to the size and pace of our existing repurchase authorization.

While we've made some adjustments to certain end-market production estimates for the year, our overall full-year 2013 financial targets remain unchanged from our previous guidance, as highlighted on slide 18. We expect sales to be about $7.1 billion for 2013, slightly lower than last year. And as Roger mentioned, we continue to closely monitor the North American commercial vehicle market. We expect adjusted EBITDA to be in the range of $800 million to $820 million, as we've previously discussed, while we continue to action those levers which we manage. And improving volume environment is certainly an important driver of our adjusted-EBITDA performance. We expect diluted adjusted EPS to be in the range of $1.88 to $1.95 for 2013, which excludes the impact of any future exercise of our share repurchase program. Capital spending remains on the range of $180 million to $200 million, and free cash flow in the range of $240 million to $260 million for the year.

Slide 19 highlights the progression and the key drivers of our full-year sales and adjusted-EBITDA margin targets using our first-quarter performance as the base. On the sales front, this chart annualizes our first-quarter sales and highlights the key drivers that provide an expected increase in sales of about $400 million to achieve our 2013 full-year target of $7.1 billion. We expect currency to be a headwind of about $60 million, offset by an expected $410 million in sales-volume increases, of which almost half benefits our commercial vehicle driveline business. We expect pricing and recovery actions to increase sales by about $50 million over the rest of the year as well.

On the adjusted EBITDA margin front, we continue to diligently focus on those key items that would drive margin expansion over the remainder of 2013 to reach our full-year target. These items are outlined at the bottom of this slide. While currency will be a slight headwind, we expect incremental sales volume and our ability to favorably convert on that volume to contribute about 100-basis-point improvement from first-quarter levels. We also expect cost recoveries, which includes the impact of the Venezuelan devaluation, to contribute about a 70-basis-point improvement in margins. Finally, we continue to target and execute manufacturing and overhead cost to material performance initiatives across all of the businesses, which we expect will drive a further 40-basis-point improvement from first-quarter levels.

Highlighted on the right of the slide, we have provided the full-year sales and segment-EBITDA targets for each of our business units, which remain in line with our previous guidance. As highlighted, commercial vehicle driveline performance is dependent upon expected improvement in the production environment during the remainder of the year.

In summary, while certain of the end markets we participate in were not as cooperative in the first quarter as we initially expected, as well as the effect of currency movements, our results are largely in line with our expectations. We are confident in our operating team's ability to leverage and capitalize upon expected production volume increases and to continue to effectively manage cost and investment, as evidenced by the recent and past performance. This concludes our presentation, and now we will turn the call back to the operator for questions. Thank you.

(Operator Instructions) Brian Johnson, Barclays.

Could you just maybe give us a little more granularity on the roll offs in light-vehicle, when they started last year, when they comp out this year, just so we can all better model revenues in that segment?

Sure, Brian. This is Bill. The program roll offs referenced in light-vehicle driveline were around a couple programs with Chrysler and Ford. And the roll-off impact started to occur, as you'll recall, in the second-half of 2012, largely completed, if you will, at the end of the fourth quarter. So what we have obviously is a challenged comparison for light-vehicle in the first quarter, with the $90 million impact. And per my comments, over the next two quarters, we would expect about $100 million cumulative left to go with you, if you will, with respect to that headwind. Fourth quarter should be fairly clean.

Okay. And then I guess secondly, as you look at your cash position, is there any timing for the Board to think about this? You've certainly seen a few people, one in autos, one in machinery, announce so-called accelerated share repurchase. So is that something they -- at one of the tools that could be thinking about?

Brian, it's Bill again. I think all alternatives are available to the Board, and we're certainly having very good dialogue with the Board. Hopefully, as you saw here as well, as we moved through the first quarter and into April, we did accelerate somewhat that share repurchase under the existing authorization, but again, we're having very good dialogue at the Board level. And quite frankly, I think it's a very critical priority for both senior management and the Board to move through and address the capital structure into the coming future.

Yes. I would just, Brian, echo Bill's comments. This is Roger. Share repurchase and capital-allocation approach is a clear priority of the Board and the management team at this point in time. So there is a lot of emphasis on that, and it's a clear priority for us to deal with.

Okay. Just final question, you obviously flagged bolivar. In Brazil, are you fairly well localized in your supply base, since that there isn't import-export of in-process or parts components that we have to worry about in that segment?

Brian, it's Mark Wallace. Just to answer the question, mainly in Brazil, we have mainly a localized supply base, because there is a lot of import duties and restrictions. And also local content is very important, so we're definitely localized in Brazil.

Okay. So when we talk about Latin America and currency, we're really talking about the bolivar?

Brian, it's Bill. The bolivar certainly had -- the devaluation certainly had an unfavorable impact in the quarter. Broadly speaking though, from a translation perspective topline, the real obviously has weakened compared to the US dollar. So it does have an impact, but probably not to the impact that we would see in a broad-based evaluation that we had in Venezuela, given the localization in Brazil.

Right. And also given you, unlike say some auto-parts makers or auto companies, are not bringing in components from Mexico, for example where you're taking a hit on that on your gross margins not just the translation?

Correct.

Ryan Brinkman, JPMorgan.

This Amy Carroll on for Ryan Brinkman. I just had a quick question, a couple. I think you mentioned that in light-vehicle, there was a little bit of unfavorable mix in South America. Could you shed a little bit of light on what that is and also elaborate a little bit? And then also, if you expect that to improve to the back half, or does it really move into 2014? Then the other question I had was related to power technologies. I see that most of your different divisions, the decrementals year over year is about 20%. I know you look at it quarter over quarter, but power technologies was down 33%. Is there something in there that I can appreciate that would impact this segment a little bit more than others?

Yes. Hi Amy, it's Bill Quigley. I'll take the PT side of the business, and I'll let Mark Wallace here speak to the South American piece with respect to light vehicle. As you know, we've got very solid contribution margins in our power technologies group. What you see here is on that volume mix about $9 million year over year down in sales and an associated EBITDA margin impact of about 22%. Certainly we make very good margins in Europe with respect to our Neu-Ulm operations there. Not only OE, but also some after-market business. Certainly so when we have sales move in the wrong direction, you're going to see that associated contribution margin. Mark, on the light-vehicle?

Hello, Amy. It's Mark Wallace. Just to address South America, again, with the devaluation in Venezuela, there's been a significant amount of production pressure in that country. And based upon the type of country it is, most of the costs are pretty much fixed. So there's a larger margin impact when you see a sales decline, especially in a place like Venezuela. The current market conditions there, the inventories are extremely low at the dealerships at this stage, so we do expect recovery to begin in Q2 through the back half of the year as well.

Okay. And then the last question I have was you mentioned some new programs in Europe and Asia. Could you just elaborate on that a little bit? Like what type of programs are they? And also at what margins do the business in Europe and Asia usually come in at?

Yes. Again, Amy, it's Mark Wallace. In Europe, we classify mainland Europe as well as South Africa together. So in the mainland Europe, we have significant launches with Jaguar Land Rover that are continuing throughout this year. And as you know, both those brands have been very strong export for England into the US and into China. So that has been a nice lift for us over, obviously, the current situation in Europe. Also in South Africa, we are continuing to launch the Ford T6, also a new program launch with GM mid-sized pickup is now launching in that area of the world. Then into Thailand, a similar story. We're actually continuing to see nice improvement in the mid-sized pickup trucks that are there for Ford as well. So it's been a nice year-over-year gain in Thailand, Europe, and in South Africa.

The margins that those come in at usually, is it 10%? Is it a little bit weaker, and then it gets better as it gets a little bit more matured?

Yes. As we walk forward, it continues to get better. But they should approximate our basic margins that we have.

Patrick Nolan, Deutsche Bank.

A couple questions. If I'm doing the math right, it looks like through the start of April, you bought back $19 million of stock in the second quarter?

Yes. I think, Pat, if you go to the share repurchase, so we did -- I can get you some probably exact numbers here --

You did $15 million in Q4 and --

Yes, we did $15 million in Q4 with respect to spend. We did another $24 million in Q1, and then obviously rounding about almost up to $30 million, if you will, with respect to -- or $20 million into April. I'm sorry.

Obviously the pace has increased, but when we think about your program, is it like an opportunistic program that there could be a month where you could do $20 million, or you just try to do pretty consistent pace throughout the quarter?

We've executed upon a consistent pace. We obviously -- you've seen some acceleration in that pace, but we're being very consistent with respect to our approach. It's opportunistic, but we want to be steady and consistent, as well, on execution of the current authorization.

Okay. On the recoveries for Venezuela, can you -- are those ongoing discussions with your customers? Have those discussions already take? How confident are you in that $50-million recovery that you think you can get?

Patrick, it's Mark Wallace. I guess a little history in Venezuela and countries similar to Venezuela, it's common that we are able to work with our customers to get the necessary recoveries. And that would involve foreign exchange or other inflationary pressures inside of those countries, so and based on if you looked at last year's result, we had a similar margin level in first quarter. As we rolled forward, our margins continue to improve. Basically, that was due to the recoveries and moving forward as we picked those up in those type of countries as well. So we do have the confidence that we'll be able to get those recoveries.

Patrick, this is Roger. Just to amplify Mark's comments a little bit, this is not an unusual circumstance in discussions with customers about these kinds of events around the world. So it's not like there's something new that's hitting us that we are trying to go after the first time. It's something that we're in dialogue with our customers on quite frequently.

Thanks. And if I could sneak one in, one last one in for Mark. Mark, what are you seeing that's giving you confidence that we are going to get to this 260,000, 270,000 level in North American class-8? I think the order SAAR is still tracking in the 250,000 level. It seems to have been stuck there for the past several months. So just wondering what you see that's going to get us to move higher than that?

This is Roger. Speaking for Pat, the President of our Commercial Vehicle Unit, Patrick. The volumes that we saw in the first quarter, obviously, were a bit softer than we had originally anticipated. And we've been pretty forthright with that. We have seen a slight uptick as we enter into the second quarter, but as we mentioned at the Mid-American Truck Show, and in past conferences, we would look toward an increase out in the May timeframe and early June. And we continue to watch for that. And if that for some reason, for whatever reason doesn't materialize, then our 260,000 to 270,000 would likely be a bit at risk. But we have seen a slight uptick, and that's the reason that on that slide that Bill showed I think it was the last slide in Bill's presentation, we show the commercial vehicle driveline in yellow with the other three business units in green. And the yellow represents our intense focus on looking at these releases. But we're a little bit optimistic, because we have seen a bit of an uptick already.

Patrick Archambault, Goldman Sachs.

Following up on some of the past MATS and conference color, I think you had said that Brazil was coming in -- was starting to really show signs of pick up, but that there was maybe more of a pickup in medium duty, rather than heavy duty. Is that something that you're still seeing now more than a month away from the most recent update? And what are the implications of that from margin perspective? Is that an adverse mix piece? And then I'll just have a quick follow-up on the walks that you guys provided.

Great. Patrick, it's Bill. I think we certainly have seen that increasing volume environment in South America and most notably obviously in Brazil, spread across heavy and medium. So we certainly, from a regional perspective, we've got -- we've had a tailwind in the first quarter. And I think we expect that to continue into the future as the year unfolds. With respect to mix, it's very positive that we're seeing that market recover, but as you know as well, the margins may not be as robust in that area of the world for our commercial vehicle business. You will recall that we have an arrangement with SIFCO whereby we have the steer axle business. And we basically have the front end of that business. So from a capital perspective, during that arrangement or transaction with SIFCO, we effectively purchased the forward view end of the customers, as well as the assembly. And they remain with the hard assets of the business. So it's a very good return business, but it's not going to have the margin, if you will, of a full front-to-back manufacturing environment. So it does -- positive is we're seeing that recovery there and it's flowing with respect to the margin improvement, but vis-a-vis maybe the North American market, it's not going to contribute as much as certainly the North American environment would.

Got you. Okay. Great. And then a quick follow-up on slide 19, I think the sequential -- the walk to your margin target is very helpful. One of the aspects, I guess, either this cost performance, 40 basis points, can you help us understand what the components of that are? I get the Venezuela; I get recoveries and volume. And then just in that same question, what kind of a margin benefit are you getting from the product portfolio pruning that you're doing on the light side, presumably that was getting rid of less-profitable contracts?

If you take a look at the, Patrick, on the cost performance, it's about a 40-basis-point improvement. That's really on all fronts, but certainly material remains front and center for us with respect to efficiencies, be it negotiation and/or utilization of our materials within our manufacturing operations. That also includes the ongoing conversion-cost efficiencies that all of our manufacturer -- or all of our business units are continuing to drive throughout every plant around the world. As well as some SG&A, just some other, basically, overhead costs that we're continuing to drive. So it's basically three or four different categories, if you will, but certainly the continued focus there moving that forward.

Your second question with respect to LV margins on the program roll offs, you'll note in the pruning, these were a couple programs that were in the revenue base, that had a start, had a clear end. And you can see from, hopefully the year-over-year drivers that we provided for each business unit, had about 6% or so margin impact. If you look at the broad portfolio of light-vehicle, that certainly would be at the lower end of the product capability and margin capability that light-vehicle brings to Dana. So pruning to go, probably not so much. I think these were a handful of programs that clearly just had a start and an end, and they're obviously impacting the top line, but not having so much of an impact on the margin line.

Right. Okay. And because they're already rolled of sequentially, they don't impact you that much. Okay. Great. Okay. Thank you very much, guys.

Tim Denoyer, Wolfe Trahan.

Just going back to the slide 19 one more time, on the $50 million in recoveries, is most of that related to Venezuela? Or is that including some other things? Can you give a little more color there?

It's a host of things. It's obviously going to have an impact with respect to our material recovery initiatives, and it could be pricing. Pricing broadly speaking though, reflecting inflationary factors that Mark Wallace spoke to for example, Tim, in the light-vehicle business, which has a pretty significant presence, if you will, in South America. So from that perspective, that would include those elements as well.

Okay. Great. And the raw materials impact seems a little confusing, because it seems like some of it's on the recovery; some of it's on the cost side. Can you give a bigger picture view on what you're seeing on raw materials, with steel prices obviously having come down? Obviously a lot of that passes through, but can you give a general update on the impact from raw materials for the year?

Yes. I think Tim, to your first question, I guess we'll call it bucketing for lack of a better word. With respect to recoveries, we look at that largely around a commodity move. All right, with respect to a recovery. The other elements of cost performance are our continued execution on how do we become more efficient in our material utilization economics with suppliers, supplier rationalization, and consolidation? So we do try to separate those two. Base commodity we look to with respect to various mechanisms we may have in place with customers across all of the end markets with respect to basically be neutral from a recovery perspective. On the commodity front, we've obviously seen some downdraft with respect to commodity prices, so certainly not as much of a headwind, if you will as they have been in the past several years. So I'd say it's somewhat of a stable to maybe a slightly downward environment on commodities.

Okay. Great. And then I know you don't really given too much guidance in terms of how quarterly sales should progress through the year, but obviously typically things step down a little bit in the second half. It sounds like given the -- what you're expecting for the year, with truck markets picking up a bit and new programs ramping up, is it still fair to assume that 2Q is the strongest quarter of the year? Or might we see that more in 3Q or 4Q?

Are you talking about the commercial segment, Tim?

Overall. Yes. Overall, total sales for the Company.

Tim, it's Bill. I think with respect to our -- there's normal seasonality in the business, but obviously with respect to certain of our end markets, we are looking for that increased production, certainly from first-quarter levels. Probably would not be unreasonable to state that the second quarter is an important quarter for us and probably would be a top.

The reason I asked if you were thinking about the commercial only, Tim, is if you recall the past conversations that we've had in the commercial segment, especially in North America, we had that downward slope last year and we were looking for a mirror reaction this year in 2013 in that particular segment.

Yes. Definitely. And that seems to be -- and you are seeing -- you said a little bit of a step up already in classic-8 North America in April, you said?

Yes. We've seen a slight uptick, which is encouraging for us to continue looking for that expectation that we have been consistent with saying that we're looking for out there in May and early June.

Emmanuel Rosner, CLSA.

Just a couple more follow-ups on slide 19 and the work that you're helpfully providing. On cost performance, obviously expecting a little bit of help over the rest of the year, yet it was not really much of a factor in the first quarter in terms of your cost performance. What gives you confidence that things are going to get easier in terms of these sufficiency initiatives as you roll through the year?

Emanuel, this is Bill. Good morning. I think if you look at -- and we've tried to provide additional granularity with respect to or at least drivers of the business-unit performance on a quarter-over-quarter basis, but as you know, as we were conducting affairs during the first half of 2012 versus what ultimately ended up in the second-half with respect to end markets, we were taking a lot of actions during the course of the second-half of 2012 to align our manufacturing cost structure with the volume environment we find ourselves in. I think if you think about materials, as well as conversion costs and our manufacturing operations, that flow-through starts basically in the beginning of the year and continues to ramp up over the course of the next several quarters. That's been, I think, a traditional slope here. And I think our teams continue to execute upon that. So we've got pretty good confidence that we can move through that cost structure, if you will, or cost-efficiency initiatives and actions, much like we have in the last several years.

Okay. And then on the currency recovery, and I apologize for going back to that, but I was like a little bit surprised by your level of confidence that you can get that from the manufacturers. Is that just a traditional way of doing business? Or when you agree to supply the manufacturers for operations in Venezuela, it is agreed upon that if you get hit by the currency, then you will dramatically get that back?

Yes. Emmanuel, it's Mark Wallace. Just in general, on those type of economies, we definitely have agreements in place. I won't say in every economy we have that in place, but it's a given, because of the -- just the volatility of foreign exchange would make it untenable for us to be there and support customers if we're not able to get those adjustments.

And what type of timeline should we expect that? Is that a lump sum you'll get this quarter? Or like how does it work?

Well, again, were talking about probably Venezuela. We have other countries that have foreign exchange that we are recovering, as well. And some of those will be coming through in piece price. And possibly some will come in lump sums, but typically you'll see that spread out throughout the rest of this year. Emmanuel, to your point, they can take the form of different recoveries, if you will, with respect to settlements.

Okay. And then finally, when I met with you recently, sounded like part of the -- your reason for holding on to some of your cash and maybe not returning it more quickly to shareholders, sounded like you wanted to keep your powder dry for potential acquisition. Is that still very much on the agenda? And can you maybe give an update on how things are progressing on that front?

Yes. I would say, Emanuel that -- this is Roger, from an M&A perspective, as we've consistently said before, we continue to have discussions on the outside. But that is not a primary obstacle to anything that we would do or the Board would decide on the share repurchase really. Because we have a sufficient cash generation to take care of what we need to do to run the business. So I would not look at that as an obstacle to these other initiatives that we're working on.

John Lovallo, Bank of America.

The first question would be on PACCAR, I believe they get some pretty cautious commentary on the commercial vehicle business in Europe. So I was wondering A, what your exposure is there? And B, if you think that your volume forecast, if there may be some risks there?

Hi, John. It's Mark Wallace. In Europe, actually, our commercial vehicles, it's a fairly small portion of our overall business. And when you look at it globally, it would be actually our smallest business segment, our smallest business for commercial vehicle if you exclude DDAC. So our exposure is not -- nowhere near as great as it is here, North America, Brazil.

Okay. Is PACCAR a large customer in that business, though?

Not in Europe, through their DAF relationship. Actually, and most of our volume really sits around the true driveline, and not so much the axle business. So obviously, it's a much smaller revenue base than what we would have in North America or Brazil.

Okay. That's very helpful. If I could ask one more on the off-highway business, the softness that we're seeing there, would you attribute that almost exclusively to the general economic environment? Or do you believe that it may be somewhat of a pause between some -- before some of the new emission regulations come in?

I think -- John, this is Bill. I think we would attribute it more to the former than the latter, with respect to the off-highway markets. We saw that heading into the end of last year, obviously. The softness in construction we're seeing it in underground mining as well. I'm not sure it's really around emissions regulations or upcoming regulations. I think it's more of just the infrastructure initiatives and the general soft economies, if not very stagnant economies for which our customers are operating as well.

Yes. This is Roger, John, and I agree with Bill. It's not -- we haven't heard from our customers that they're pausing because of upcoming regulatory framework stuff that they'd be hesitant on. It's more of the general economic conditions in the different regions.

Brett Hoselton, KeyBanc.

Capital deployment, two questions there. First question is, when you think about a steady and consistent pace, are you thinking $24 million like you did in the first quarter or $20 million like you did in April? Those are quite a bit different.

Those are different paces, correct? I think the first thing is consistency. We've continued to be in the market. I think we started, as you know, mid-November last year, we've continued to execute in the market, Brett. Sizing we probably wouldn't speak to currently on this call, but certainly you've seen some of that acceleration moving into April.

All right. As we think about -- obviously it's a very high priority. You've mentioned that already. How should we think about timing? Is this, look we are having ongoing discussions with the Board, and this is a one- or two-quarter thing? Or is this more of this could drag out into the back half of the year or into next year? What are your sense as to the timing of doing something?

I think the best way to answer that, Brett, is to maybe just repeat what I said before. And that is that the share repurchase and capital-allocation approach is very, very much a clear priority of this management team and the Board, as we speak. So to illustrate any other timing would be premature at this point, but these are active, current discussions and a clear priority.

Fair enough. And as we think about first-quarter results relative to your full-year guidance, obviously, first quarter is a little disappointing relative to the street, yet you're not necessarily changing your full-year guidance. So my question is, how do you think about it internally? Was the first quarter a little disappointing, but yet you're going to get some make up in the back half of the year? Or was the first quarter in line, and maybe the street was just too optimistic?

Well clearly maybe -- this is Roger, Brett. Clearly the first quarter we certainly had some challenges. And from a volume perspective, it was a little bit disappointing for sure. We expected that even though we knew it wasn't going to be a stellar or very strong first quarter, we did expect volumes a little bit more than what we had experienced. So from that perspective, yes, it's disappointing.

From a performance perspective, I think our teams did a very good job in each of the business units. Obviously, Mark's business unit had some difficulties with the currency issues and the mix issues in South America. But Mark's team is very focused. They are doing a great job at understanding what is going on there and having some confidence that the rest of the year is going to be as we've articulated here. So first quarter was certainly a bit down from what our initial expectations were, but it wasn't so far down that it took us out of the full-year scope, if you will, and that's why we're keeping the full year. So could have been better, but we don't know. As we have said consistently, these markets are pretty volatile. And many times what we think is going to happen doesn't happen. And we're looking very forward to it reversing itself the other way and coming up here in the future. We feel very good about the actions that have taken place in the Company to contain the costs and control the costs and lower the costs. And we are looking forward to a market uptick in the future, because we think we can do well with that. We've now reached the allotted time for questions.

Your final question comes from line of Joe Spak, RBC.

Just to follow up on that last comment, Roger, the 11% margin target for commercial vehicle, obviously, you still feel comfortable reaching that if it's towards the lower end of the 260,000 to 270,000 class-8's North America. And you guys have done, I think, a pretty admirable job managing through the lower volumes. But how much more can you do internally, if we were to go below that? Can we still model in call it, roundabout 20% decrementals, or does it gets a little bit more onerous if we drop below that?

Joe, from a decremental standpoint you said?

Yes.

Well, certainly, our team has done an admirable job, I agree with you, over the last year and half or so, at really attacking the cost base of the organization. That said, there always is some volume that's necessary for a team to do well on the profit side of the equation. So as we trend down from the low levels, and I think Bill characterized it as the low part of the trough, if you will. But as we trend down from there, gets a little bit more difficult, but I know our teams are looking at the right levers. We have our plans in place, from a downturn perspective, on what the actions we would take. So it's not a case of us developing actions. We know what the plans would be. But it would be at the higher end of the decremental. There's no question about that.

Joe, that's referenced -- conversely, I think in an uplift environment, maybe your question on the achievement of that type of margin profile over the year. We tried to highlight a bit on a couple of slides, is on a sequential basis, if you looked at our commercial vehicle business, we had about $33 million increase in sales, if you will, fourth to first. Not markedly large, and obviously we've got a mix between North America and South America, which we talked about have different margin profiles. But the contribution margin on that was about 15%. So I think that gives us great confidence with respect to moving forward if the volumes materializes. And in particular in the North American market, I think our teams are very poised to certainly convert on that opportunity. So I think the decrementals positive thing is a profitable business. We've got to manage through the decrementals. But again with respect to what we see, if in fact those out quarters are realized with respect to production, we feel pretty good with respect to the ability to convert in a higher margin.

Okay. And one more housekeeping than anything, but I know you kept the restructuring for the year $45 million to $55 million. It looked like it was only $2 million in the first quarter, so I'm assuming that's just timing. But maybe you could remind us of when that comes in and where that's focused, and when you can potentially see a benefit from that?

Joe, what you see is on a cash outflows on the guidance, that's a cash outflow. It's not the expense. So we had small expense, $2 million or so in the first quarter. What we have, we have about $40 million in liabilities, if you will, or reserves, that we're basically settling as we move forward. Many of the initiatives have been announced, and actually some of the initiatives go back several years that we're just continuing to settle off with respect to severance benefits or termination benefits. So some of those had somewhat of a longer tail, but we are still pretty confident in that $45 million to $55 million. There will always be some timing and restructuring when you settle, but that's not really the charge. It's the cash outflow expectation.

Okay. Thank you for the clarification.

This is Roger. I just want to say thank you to everybody for being on the call, and we appreciate your time this morning. Thank you.

Thank you. This concludes today's conference call. You may now disconnect.