Dana Inc (DAN) 2016 Q1 法說會逐字稿

Good morning and welcome to Dana Holding Corporation's first quarter's 2016 financial webcast and conference call. My name is Brent and I will be your conference facilitator.

(Operator Instructions)

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.

Thanks, Brent. And thank you to everyone on the call for joining us today for Dana's first quarter 2016 earnings call.

Copies of our press release and presentation have been posted on Dana's Investor website. 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 consent. Today's call will include a Q&A session. In order to allow as many questions as possible, please keep your questions brief.

Today's presentation includes forward-looking statements about our expectations for Dana's future performance. Actual results could differ from those suggested our comments today. 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 public filings, including our reports with the FCC.

Presenting this morning, is Jim Kamsickas, President and Chief Executive Officer; Jonathan Collins, Senior Vice President and Chief Financial Officer; and joining us for Q&A is Rod Filcek, Senior Vice President and Chief Accounting Officer. With that, I'd like to turn the call over to, Jim

Thank you Craig. Good morning, everyone, and thank you for joining us.

I'm pleased to report that we're off to a good start this year. Our focus on customer satisfaction and technology is coming through in a big way this year, with new business wins. In our calls earlier this year we talked about a very significant win with one of our global customers. And in a few minutes I will update you on two very important programs, one of which is a significant new business win, which we have received since our last call in February.

On the financial front for the first-quarter, sales were $1.45 billion in the quarter, a decline of 10% from the first quarter of last year. Coming into the year, we expected currency headwinds from a stronger dollar and this accounted for about half of our sales decline in the quarter. Also as expected, our sales were impacted by lower commercial vehicle production levels and customer demand. The off-highway markets have been a bit weaker than expected this far, this year. And that's been balanced by continuing strength in the light vehicle markets, where we posted 3% organic sales growth. Our earnings in the quarter were in line with sales -- were about 10.2% adjusted EBITDA margin was driven by strong light vehicle markets, offset by currency headwinds and weaker commercial vehicle and off-highway markets.

On the customer front, on numerous occasions I've stated that customer satisfaction is the key to our success. Accordingly, we are continuing to strengthen our customer relationships by relentlessly improving our performance and increasing our portfolio of advanced technologies. Recognition from our customers and industry organization in the form of awards are certainly an important testament of these efforts. However, more importantly, our customers voice their commitment, [while this] by trusting Dana through new business awards. We are very excited with the success with which we are increasing our sales backlog, and new business wins in each of our four business segments.

As discussed in the February call, we completed the acquisition of Magnet Gaskets in the first quarter. The integration is transitioning very well. Our extremely talented and dedicated new team members have contributed to the business and will continue to generate benefits side by side with the Dana team for years to come.

And finally we continue the execution on a $1.7 billion share repurchase program, returning $28 million to our shareholders in the first quarter. Some of our customer initiatives, recognition, and new business wins are highlighted on the next two slides. So lets move to page 5. I'd like to share a few notable accomplishments achieved this quarter by each of our new business units. Dana was privileged to once again participate in the Easter Jeep Safari, which was celebrating its 50th anniversary this month in Moab, Utah. The safari is a premier off-road enthusiast event, and attracts thousands of national and international attendees alike. It's a great opportunity to showcase our entire aftermarket product range, especially performance products for extreme off-roading, and to highlight Dana, Spicer, and SVL brands, as some of the technology we provide to Jeep and the broader truck and SUV market in general.

In our commercial vehicle business, we started this year off by winning new business around the globe. Three of these wins totaled more than $315 million over the next 10 years. In North America, we will be supplying a full product line of steer axle modules, drive axle modules, and drive shafts for the 2018 Isuzu FTR, the company's all new entry into the Class 6 medium-duty trucks segment. The FTR will be assembled by Spartan motors. Further to our business relationships with Spartan, we're also proud to share with you that Dana recently was awarded the Spartan Truck Supplier of the Year award, which recognizes top-performing suppliers who maintain relentless commitment to quality, on-time delivery, cost control, and excellent customer support. We have been instrumental in helping Spartan to progress its continuous improvement initiatives and improving quality.

Our commercial vehicle team in South America is also doing an outstanding job, winning new business in spite of a very challenge economic environment in that region. Recently we secured 100% of the drive axle housing business on a new truck and bus program for a very prominent global customer. In addition, we have also been supplying -- will be supplying -- front and rear axles for two major truck platforms with a second major customer in the region. In Asia, Dana is teaming up with a major India OEM, to provide rear axles to four new trucks beginning in 2018.

Moving to our off-highway business, the team continues to perform well in spite of the volatility in the global market. Just last week, at the Bauma Construction trade show in Munich, Germany, we announced that Dana's front and rear axles and transmissions will begin the new Sany 18.5 ton wheel loader, which features the latest technologies for improving fuel economy and maximizing performance. Sany believes that our commitment to innovation, as well as extensive engineering and manufacturing resources in China, make us the ideal partner.

And finally, our power technologies group has done an outstanding job winning new business in the North American, European and Asian markets, including China, where we will be supplying transmission belt, body separator plates to Volkswagen. We're also recently recognized by the European Association of Automotive Suppliers for work with Audi in developing transmission separator plates, which are featured on the next generation Audi A3. This award recognized innovation capabilities of automotive suppliers with a presence in Europe and demonstrates our ability to work closely with valued customers.

Turning to slide 6. Dana customer service and innovative products continue to drive positive organic growth, which we believe offers the best return and highest [compass] path to profitable growth. As you know, over the next three years we have incremental sales of $750 million coming on line. This represents secured new business wins and will provide profitable top line growth in excess of market factors. Last quarter we announced new business with our disconnecting all-wheel drive technology. This quarter I am excited to talk about new business that will have a major impact on our backlog. We have secure drive line content on an all new truck and SUV program with a very successful global OEM. Unfortunately, we aren't able to provide you details about the program just yet, but it will be incremental to our backlog beginning in 2019, with an eight-year program life. We will update you as the program progresses.

And, if you recall, during the third quarter of 2015, we announced that we have been awarded both the front and rear axles and prop shaft on the next generation Jeep Wrangler. We are anticipating strong demand for this iconic vehicle and this will further benefit our sales backlog beginning in late 2018. These two programs are expected to provide Dana an additional $1.5 billion in sales over the life of the programs. We are thrilled with the opportunity to further demonstrate our technology and dedication to our customers. Naturally, these programs will require some capital investment on our part, and we will see this as an excellent opportunity to further our profitable growth objectives.

Moving to slide 7. Lastly, I would like to highlight some of the actions we have taken this past quarter to further the priorities we laid out at the beginning of the year. On the left side of the page are our three key priorities: enhancing our competitive position and growing our core business, continuing driving profit margin improvement, and maintaining a strong balance sheet. This quarter we have certainly grown our core business with more than $1.5 billion in new business that will be added to the future backlog in our light vehicle drive line group alone. Combined with new business in all of our other business units, we are certainly on a good growth trajectory.

When it comes to deriving our profit margins, we're taking significant actions. One of the key drivers of our profitable growth is our development of new products and technologies. We have been very successful and continue to bring on new products. As you know, the majority of our capital investment goes to support new business wins. And with these latest new business wins it's exciting to report that we adding capacity in light vehicle drive line business in the near future. We will be talking more about this, as our plans unfold over the next year or so.

We are also continuously looking at opportunities to optimize our manufacturing footprint. We announced earlier this week that we'll be closing a North America facility in our commercial vehicle business. To be clear, we are not reducing our end production capacity; we are rationalizing our footprint or our floor space capacity to improve our operational efficiency. This project should be largely completed by the end of the year and the cost of the restructuring has already been included in our guidance. And speaking of the commercial vehicle drive line, that [for] business is performing well and the margins have rebounded from the issues last year, as we communicated. Jonathan will go into more detail in just a moment.

And finally, we are focused on maintaining our strong balance sheet. We see our investment in organic growth is an excellent use of capital. Our capital investment is driven by business wins. These programs are generally long life -- sometimes decades long -- so our returns will remain strong. And consistent with our capital allocation priorities, we continued to return excess capital to our shareholders. Thank you.

Before we go through the financials I'd like to take just a minute to introduce our new Senior Vice President and Chief Financial Officer, Jonathan Collins. Jonathan joined Dana at the end of March. Prior to this, he most recently served as CFO for ProQuest and worked in executive-level operational and commercial finance positions at International Automotive Components and Lear Corporation. Jonathan has extensive experience in various facets of corporate finance and has built a solid reputation for improving profitability and executing growth objectives. We are so pleased to have someone of his caliber join the Dana team. And with this I'll turn the call over to him, to review the financial results. Jonathan?

Thank you, Jim. I am very excited to be a part of the Dana team. The Company has an excellent long-standing reputation and a very bright future.

Please turn with me to slide 9 for an overview of the first-quarter results. First-quarter sales of $1.45 billion were down $159 million or 10% from the same period in 2015. Half of the decline is attributable to foreign exchange, as the US dollar continued to appreciate against other foreign currencies. Lower demand in the commercial vehicle and off-highway segments more than account for the balance of the decline, as we experienced volume growth in the light vehicle and power technologies segments.

Adjusted EBITDA for the quarter was $148 million, $28 million lower than last year, yielding a 10.2% adjusted EBITDA margin. While slightly below last year, this represents solid improvement over the fourth quarter and is in line with our expectations. Net income was $45 million, $18 million lower than the first quarter of last year, as the adjusted EBITDA decline was partially offset by lower tax expense and income from non-controlling interests. Capital expenditures were $71 million, slightly higher than last year, as we increased our investments to support new program launches and deliver our growing backlog. Free cash flow for the quarter was a use of $98 million. While the first(technical difficulty) use of cash, it was a bit higher than last year due to lower earnings, higher cash taxes, and increased capital spending, partially offset by lower working capital requirements.

Slide 10 provides a more detailed look at the consolidated sales and adjusted EBITDA changes versus the prior year. As you can see, on the left side of the page, sales declined 5% on a constant currency basis, as the growth in the light vehicle and power technologies segments were offset by declines in the commercial vehicle and off-highway segments. The foreign currency headwind of $72 million is primarily a result of the devaluation of the Brazilian real, Argentine peso, and the euro against the US dollar. Volumes in light vehicle and power technologies increased sales by $28 million for a 3% growth rate on a constant currency basis. Stronger light vehicle demand levels in North America, Europe, and Asia Pacific, along with new customer programs, drove the increase. Looking at the right side of the page, the $28 million decline in EBITDA and a 70 basis point margin deterioration was due to the flow-through impact of foreign exchange, volume mix, and pricing recovery, but was ameliorated by $6 million of cost-savings action.

Let's now move to slides 11 and 12 for closer look at the year over year changes to sales and adjusted EBITDA by business segment. On the left side of page 11 you can see the light vehicle group had a strong first quarter with sales of $613 million, up $12 million or 2% on a constant currency basis on higher volumes in the light truck market in North America and Asia-Pacific, as well as the incremental sales from new business. We anticipate sales will trend higher through the remainder of this year. Adjusted EBITDA was $58 million this quarter, down nominally from last year, adjusted for the negative effects of currency, as the conversion on the incremental volume was offset by unfavorable performance, which was caused by the timing of engineering cost recovery from our customers. For the remainder of the year, we anticipate our light vehicle margin will improve to over 11% as we launch new business.

On the right side of the page you can see the commercial vehicle sales of $333 million were down $100 million compared to the first quarter last year. Weaker international currencies reduced first-quarter sales by $20 million, with the Brazilian real accounting for over half of the impact. The expected lower market demand in North America, which began in the fourth quarter of last year, coupled with our reduced share in the Class 8 market, lowered sales by $60 million. For the next few quarters, volume will be a headwind when comparing to last year, due to this year's Class 8 market production, which is expected to be in the range of 240,000 to 260,000 units, down from over 300,000 units last year. Weaker truck demand in Brazil reduced sales by another $19 million. If you recall, demand in Brazil did not see the full impact of a slowdown until the second quarter of last year. As we said in February, we expect demand in Brazil to remain weak for the remainder of the year.

It's useful to note that while overall sales were down compared to last year on a tough comp, when comparing sequentially, commercial vehicle sales are up 10% over the fourth quarter due to beneficial product mix and higher medium-duty sales. Medium duty now makes up a more meaningful portion of our commercial vehicle sales and we expect this sub-segment to be stable this year.

Segment EBITDA for the first quarter was $26 million, lower than last year by $9 million. While the margin for the first quarter was 7.8%, slightly below last year due to the lower volume, it is up significantly from the fourth quarter as the one-time warranty charge last year did not recur and we have continued to bring our cost structure in line with demand. When we look at the year-over-year comparison on the bottom right of page 11, we experienced the anticipated flow-through of currency and volume, which accounted for a combined $17 million of the change. Offsetting this decline was improved operational performance, yielding $8 million of cost reductions. These improvements have stabilized our commercial vehicle business and we will continue to take actions, like the footprint actions Jim mentioned, that will improve our cost structure and margins, which we expect remain on target for the remainder of the year.

On the left side of page 12 you can see sales in the off-highway segment were $241 million, down $43 million from the first quarter last year. The weaker euro drove the currency-related reduction in sales of $8 million. Lower end-user demand globally and key end markets, and unfavorable mix in industrial in the aftermarket, accounted for the volume decline. We remain cautious on the end markets this year; however, new business that came on late in 2015 is providing a buffer to the market volatility. Segment EBITDA for off-highway was $32 million or 13.3% margin, compared to $39 million in adjusted EBITDA last year. Currency effects and lower sales volumes were partially offset by improved cost performance, principally material cost savings.

Power technologies demonstrated solid top-line growth, with sales of $262 million, which is more than 6% year-over-year growth on a constant currency basis. Increased volume of $20 million, driven by light vehicle market strength in North America and Europe, was partially offset by weaker currencies, primarily the euro and the Canadian dollar, which lowered sales by $8 million. Segment EBITDA of $35 million in the first quarter was lowered by $3 million compared to last year, due to a combination of engineering investments and operational inefficiencies we experienced as we ramped up to deliver the higher volume levels. As we move through the remainder of the year we expect margins and power technologies will recover due to efficiency improvements.

Slide 13 highlights our free cash flow for the quarter, as well as our ending liquidity position. As is typical in our business, free cash flow was a use in the first quarter of $98 million. It was $16 million lower than prior year, largely due to lower adjusted EBITDA and higher investment in new programs to support future growth, which were partially offset by improved working capital efficiency. At the end of the first quarter, cash and marketable securities were $833 million, while outstanding debt was $1.6 billion, resulting in a net debt position of $789 million. Total liquidity, including the availability under our credit facility, was more than $1.1 billion, of which nearly $1 billion is available for operating uses.

Slide 14 highlights our outlook for the full year. Our 2016 sales, adjusted EBITDA, and EPS guidance is unchanged from what we provided in February. We are increasing our capital spending due to the new program wins we booked in the first quarter. We expect sales to still be in the range of $5.8 to $6 billion, with adjusted EBITDA of $640 million to $670 million, and a full-year margin between 11% and 11.2%. Our diluted adjusted EPS target remains in the range of $1.65 to $1.75. From a cash-flow perspective, as mentioned before, we're now planning for higher capital spend of $320 million to $340 million. This increase is entirely driven by the new business wins we delivered in the first quarter. As a result of the higher capital spend, we're targeting cash flow -- free cash flow -- in a range of $120 million to $140 million for the full year.

If you'll turn with me to slide 15 we can take a closer look at how we see the rest of the year unfolding. Our sales growth is on track for this year to meet our guidance range. Our light vehicle markets are mostly stable, with North America and Europe performing well; and while we remain cautious on South America, we have new business launches in Argentina, which will help to offset volume headwinds in the region. Within the commercial vehicle segment, the North American Class 8 truck market remained stable. While there's meaningful variation in third-party volume projections for the remainder of the year, we've yet to see weakness in our order patterns or discussions with our customers.

The medium-duty market has held up well and we expect this market will be a growth opportunity for Dana going forward. The off-highway markets remain challenging. We're monitoring volatility in the orders and we will make adjustments to our cost structure as necessary. But just like last year, we continue to win new business as customers look for strong partners. This will help offset some of the market pressures and will certainly be a benefit when markets rebound.

As implied in our guidance, our margins will improve throughout the year. Light vehicle second-half margins will outpace the first, as new business rolls on with an improved margin profile, and as we experience the impact of the timing of commercial recoveries. Commercial vehicle is right on track with their margins in the first quarter, and the base business will continue to be strong. But there will be a slight margin decline in the second half as we shift production to one of our light-vehicle facilities of a single truck platform that will now use a newly designed light-vehicle axle. This move will be a net positive for Dana as we gain manufacturing efficiencies with the new product. Finally, off-highway and power technology will see improving margins from continued cost actions in the normal seasonality of market demand.

As Jim mentioned at the start of the call, we continue to be extremely encouraged by the confidence our customers have placed in us by awarding us new business in the first quarter, and we're acutely focused on executing on these new programs.

That concludes our presentation this morning, and I'll now turn the call back over to Brent for any questions. Thank you for listening in today.

(Operator Instructions)

Your first question comes from the line of Brian Johnson with Barclays. Please go ahead.

Yes. Good morning. A couple questions. One, can you give us some color on the capital spending. We certainly appreciate the new business wins. But those seem to be out in 2018. What's the capital going for this year?

Yes, so Brian, this is Jonathan. In order to be prepared for those programs, we're going to have to start make investments on some of the longer lead items. Primarily, machinery equipment that we have to kick off and get moving to be able to meet the demand of the program. The incremental amount that we've included is what we have to spend in 2016 to be able to meet the production requirements for the customer.

Okay, even though they don't launch for a year or two.

That's correct. So there is a meaningful lag between when you have to indicate the investment and when we'll start production.

Okay. Secondly, can you give us more color around the initiative to make medium duty capacity in light vehicle, capacity fungible. Couple things, what percent of the capacity is fungible? Are there operational capital cost as you flex that?

And then just more mechanically, how are you going to allocate transfer pricing or cost allocation so we think about the two divisions?

Good morning, Brian. This is, Jim. Nice to hear your voice and talk to you again. Relative to moving around if you want to call it that, the production that is one of the key initiatives we strive for and continue to work in that direction.

Making our capacity between our light vehicle group and our commercial vehicle group more flexible to be able to support one to the other. To answer your question specifically, yes we're able to do that, particularly on the program that Jonathan referred to earlier today.

Brian this is Jonathan. On your question related to the cost allocation, we're actually moving the business from a CV facility, to a light vehicle facility so the cost attribution of those are pretty straightforward

Okay. So it will actually be both the cost and revenue will be over in CV

You got it -- I said it the opposite way. It's going from CV to LV. Excuse me.

Okay. Great. But it's going to be manufacturing light vehicle platforms, not medium vehicle platforms

Yes. Brian in our business there is a [betweener] area sometimes depending on customer demand in product requirements et cetera. Sometimes we'll find that our products need to SKU over into our commercial vehicle group and sometimes have to SKU over into the light vehicle the stuff we're talking about today are SKU from commercial to light, no loss of business actually incremental business, but it does flow from CV to LV.

Okay. Thank you.

Your next question comes from the line of Patrick Nolan with Deutsche Bank. Please go ahead.

Good morning everyone.

Hi, Patrick

Morning.

Two questions. Just wanted to discuss the dynamics of the new business rolling through at better margins than light vehicle business. Is that going to be a similar trend we're going to see over the next couple years, if that's a bigger part of your backlog? Does that mean that'll be, you'll see meaningful improvement in that light vehicle drive line business over the next couple years?

The big picture answer to that one, Patrick, good morning again is that we have some pretty dated older programs that roll on, roll off. You get that very, very well.

That naturally there's going to be some improvement. It falls in line with what our hurdle rates are and our investment criteria, to be able to pay for the investment. Punch line too it is, they will be improved for all the factors I just mentioned.

Got it. Given the new business wins, could you maybe give us a little bit of clarity on how you see that CapEx line trending over the next couple years?

Yes, Patrick this is Jonathan. Given the success that we're having and winning new business in our growing backlog, we think it's likely that over the next few years we will see a capital spending level in line with what we're projecting for this year, which is slightly elevated over of what you've seen in the last years. Again, we think it's a directly attributable to the success we're having in the market.

I'll get back in the queue, thanks guys.

Your next question comes from the line of Joe Spak with RBC Capital Markets. Please go ahead.

Thanks for taking my question. Sticking with the major new business wins. I guess just wanted to first get some clarity on the Wrangler, because that's a platform you are already on.

Is there a CPV uptake on that or is this, should we think of that more of a continuation of business you already won. You got to volume bump as it changes over.

Good morning again Joe. Good question. All good questions. Big picture from where we were at, what we projected as our volume assumptions back when we announced I guess it was Q3 last year to where we are today.

It's a volume pick up as what we're ultimately getting too. Hopefully that answers your question.

Okay. And then on the I, guess still on the unnamed when -- can you talk a little bit about that process? Is it something you went after it's been on? Where you approached by the customer? And I guess just given that life of that program I'm a little bit surprised. I think you said [$1.5 billion] is a lifetime number.

I'm a little surprised that it isn't a little bit higher maybe some of the volume assumption acclimated with that.

Again I do want to reinforce to your Joe that's the revenue for both of the two announcements that you want to call it that. Comment one. I can tell you from generally speaking what we sell products for against volume.

It's a very good normal program. Good normal program. It's not a small program by any stretch of the imagination.

Into the front end of your question on that, about how did we go up it if that specifically what it was. It's really the blocking and tackling of what I told you from day one since I came around.

We will continue to be laser focused on customer satisfaction and making sure we provide the technology to separate ourselves for these key wins and this obviously is a very instrumental win. This is a big win for us.

And then last question. Just with the reiteration of the full-year guidance, which was good to see, obviously -- at least versus where the Street was, the quarter was a little light. Could you just talk us a little bit with some of the cadence especially since you have a big program with the super [duty] which is experience some downtime here in the second third quarter here. Should we be thinking more of the growth is fourth quarter weighted versus over the next two?

Joe this is Jonathan. Just point to a couple things in the light vehicle segment, it is the fact we have new business coming out of improved margins, as we just mentioned a moment ago. You will see that program we are referring to launching about midyear.

It's also the fact, you'll remember as you follow this business we sometimes have different timing associated with commercial recovery. As it turns out the commercial recovery that we had in the first quarter relative to what we expected for the balance of the year will be different. Those are the real main drivers of the improvement in the margin with the light vehicle between the first quarter and the balance of the year.

And then just second thing I would note is when you look at power technologies, we mention the fact that we started to see a little bit of inefficiency as we ramped up production quickly. But we have made progress on conforming our cost more towards standard of becoming more efficient and that will play out in the balance of the year as well. When you look at each of the segments those of the two items that drive most of the improvement in the margin and balance of the year.

Great. That's helpful. Thanks.

Your next question comes from the line of Colin Langan of UBS. Please go ahead.

Thanks for taking my question. Just a follow-up on your comment on power technologies. What is the driver of the $6 million negative performance that you had, trying to understand the margin seems lower on buyers [sale]. What was the exact issue in the quarter?

To a lesser extent we experienced incremental engineering investment in the quarter. The larger issue we saw though was performance related, dealing with material conversion, labor and those types of issues as we ramped up to a higher production level. Often times if it jumps up pretty quickly you know it can catch us a little bit off guard.

We are little bit inefficient the reality is we have taken steps and made improvements to get those costs in line and that's what you'll see a big driver of the improvement in the balance of the year. And then also we have a little bit of timing on recovery, you'll remember in that segment of the business. We had recovery from material costs that can somewhat be on a lag and also depressed first-quarter results as well.

Any color on -- in commercial vehicle how your share with [backlog] has been trending? It was an issue in Q1. Is it stable now at this point? What point do we start anniversary the share issue?

Good morning, Colin. Thank you for the questions. It's definitely stabilize.

We have been running at a pretty solid trajectory. Obviously there is the impact of the overall market but as it relates to share we are about where we have been. To get to a clear claim if everything stays the same one that level itself out we're talking about Q4 this year.

Okay. Okay. And just lastly looking at commercial vehicle decrement seem pretty low on the lower volume. Is that how we should think about that? You can manage -- what is driving the strong performance in the margins relative to sales decline

Colin, this is Jonathan. Certainly the Management of the cost structure is part of that equation.

But also remember we had experience some higher cost associated with performance issues last year which we made improvement on which has helped to improve the situation and make our ability to flex cost even greater. Combination of normal operating and dealing with some of the anomalous issues from last year.

Okay. Thank you very much.

Your next question comes from the line of Justin Long with Stephens. Please go ahead.

This is actually Brian Colley on the line for Justin. First question looking at your end market expectations for this year and what's embedded within your guidance. Which areas do you guys see the best chance for upside and then also where do you see the most risk based on how things have regressed so far this year?

Good morning, Brian, thanks for the questions. I guess if I framed it in those terms I would say risk might be a bit of a strong work but for lack of word of use, I'll use that as well. That we are cautious on the, I would say we're cautious on that off-highway side of the business.

Agriculture remains depressed. I'm talking on a global -- I'm not going to give the segments too much. And construction I would say is flat that stable.

That one I'd say it's too early in the year to tell. I think I said I know I said in my comments just at the Bauma event, which is the biggest event in the construction industry last week, so certainly a lot of Intel or perspective from a lot of people.

I think everybody is cautious but still a little too early to tell, so that would be on the risk side. And I think on the opportunity side, big picture, everybody is pretty bullish particularly in the truck market where we play so much in light vehicle. Hopefully that answers your question

Absolutely. That's helpful. Thank you.

Secondly just on CapEx you guys have given the new target $320 million to $340 million if you stress test the model and assume that demand weakens more than your current expectations could you speak to your ability to take that CapEx number lower?

Hey Brian this is Jonathan. There's certainly some flexibility there, not only on the capital spending side but also on our operating expenditures given where the market goes In many cases we need to make sure that we deliver for our customers and follow their production schedule but we certainly have some control over the timing that we could influence that.

Okay. Great. Thanks for taking my questions.

Your next question comes from the line of Brian Sponheimer with Gabelli and Company. Please go ahead.

Hi. Good Morning. Welcome Jonathan.

Thank you

I guess, most of my questions have been answered, but you mentioned some timing of recoveries in light vehicle in the first quarter. Is there anyway you can quantify that?

In terms of sequentially it was noticeable from the end of last year. And it will be noticeable, but we have not given the specifics on the balance of the year. But it will have a noticeable impact on the margin profile.

Okay. And you know one thing I've asked a few times over the last 1.5 years or so, is regarding the super duty changeover and expected downtime. Jim as you are kind of looking at this large platform going to aluminum, what's the confidence level you're not going to see major disruption in your own light vehicle business as you head down the path this year in that change over?

Thank you Brian. Nice to talk to you again.

I am bullish. And I tell you otherwise you know made. I bullish now that Fords in pretty good shape, as it relates to their launch.

They put a lot of focus energy resources and other into their ability to launch of the last two or three years. We have seen the evolution coming off Fusion -- just talk North America Fusion platforms, was a challenge they'd be the first to say two or three years ago too much better success as it relates to the F-series F-150 stock. With a couple of snafus here and there -- okay whatever.

Nothing to substantial but they have done a lot of things right things I think to put themselves in a good position as it relates to our releases. You understand that well in terms of what we are seeing. They are still in line with our forecast.

I feel pretty comfortable any manufacturing Company -- you'd be the first one to say this you never know that something could come up and bite you that they certainly have pulled ahead a lot of their activities -- APQP activities and focused on their launches so I feel pretty good about it.

And with the increased CapEx any changes to thoughts on returning capital to shareholders, given the need to be there for your customers over the several years

Not necessarily Brian. We still have the ability more than sufficient liquidity to be able continue our share repurchase program. So in the balance of the year we will continue to evaluate the market and continue to execute on that opportunistically.

All right. Thank you.

Thanks Brian.

Your next question comes from the line of Christopher Van Horn with FBR Company. Please go ahead.

Good morning. Thanks for taking my question. Could you highlight the new business wins you talked about in commercial and in light vehicle and even off-highway.

Could you give us a sense of the mix of what we are kind of conquest wins versus maybe the OEM moving from doing it themselves to going outside? Then on the Jeep Wrangler I know you're the incumbent there but was that a competitive bid or was that just you guys rebidding on the existing contract

Let me take those. To go back Chris you go by, Chris or Christopher?

Chris is fine, thanks.

Thanks for the questions. I'll try to hit all of these make sure you tell me if I miss one. Let's go to the last one first. On the Wrangler, I would tell you nothing is a free pass in any of our businesses so certainly the customer could've chosen to do different things.

I don't know that other dialogue with our competitors know we were in a good position to take on incremental volume. I would call it more [fully] toward the bottom side of that -- the answer to that question. That we fell in line.

As it relates to your CV questions as it relates to a conquest, is it captive moving to supplier. It's a combination of all of the above.

I announced three different awards. One being with the Isuzu /Spartan no one falls into more -- I could be an optimist -- I'm pretty sure that falls into a new platform in general. The two that I imagine down in Brazil, one was conquest, one was captive supply moving out into the supply base, which of course is Dana.

Got it. And one last one. Is a look at the portfolio is there anything that looks interesting from a possible divestitures standpoint or do you see, you think you talked about in the past gaps that could be filled from possible acquisitions. Is that still on the radar for you or just given the CapEx ramp maybe that's on pause for a little while?

Again thanks, Chris. Divestitures I don't see anything imminent there. I very much like the way Dana fits together. I hope at the risk of not being redundant to anything I have said in the past. We're not talking about a Company that is trying to pigeonhole bumpers with seats, with tires, with whatever.

We're very much the liner from the engine back to the rear axle and everything in between. We see a lot of internal benefits with our customer because of that. And of course all of our Driveline stuff goes across three of the four platforms.

I feel very good about that at least for today and anything's possible in terms of change. But I don't have [anything] on my to do list on that one. As it relates to the inorganic side, [when] we go there I think anybody worth their salt running a Company has to see that as one of the levers of opportunity, all depending on what it does for you strategically, the price point at which it may be. We keep them on the radar like, hopefully, any sophisticated Company would.

Got it. Thanks again for taking my call.

Your next question comes from the line of Brett Hoselton with KeyBanc. Please go ahead.

Good morning Jim, Jonathan, Rod and Craig. Wanted to talk you a little bit about the $1.5 billion in new business. First question would simply be, how can you quantify the impact on the 2018 backlog?

Yes, the impact on the 2018 backlog is quite small. Most of the volumes for these programs ramp up and 2019 and beyond. So that's where we start to see the impact which is where we referenced the total program volumes rather than the backlog period we're currently measuring.

Fair enough. Specifically with reference to the new truck and sport utility program, can you quantify the annual revenue impact?

We haven't provided that but what I can tell you is the program [life] sales make up the majority of what we announced today for the program.

Got it. And does that program steel or aluminum by chance?

So we're not sure -- we can't disclose it at that point.

Fair enough. And then I presume -- it seems like a large program, I presume as is the case with most of the programs that are rolling on at this point in time. I assume it's higher-margin than your current core light vehicle business is that a fair assessment or is it more likely to be in line with your current quarter margin structure?

We have not commented on that margin profile of the business well out into the future.

Fair enough. Thank you very much, gentlemen.

I think that's it for the presentation in question a comments today. Thank you everyone for joining the call.

Just in quick summary, to the at least the window of when I came here almost nine months now. One of the key things many of us have talked about is about we need to get the top line headed in the right direction. To me that's always a result of the actions.

The actions of course our customer satisfaction and being the supplier of choice and certainly I am proud of the Dana team for putting us in that position to be able to announce the things we announced today. Certainly staying the path and doing the right thing.

I hope that comes through loud and clear very still very comfortable with where we are at for the year. Thank you for your attendance today.

Think you that concludes today's conference call. You may now disconnect.