DAN - Earnings call transcript Q3 2018

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Operator

Good morning and welcome to Dana Incorporated third quarter 2018 financial webcast and conference call. My name is Angela 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]. Barber. would over begin of to and Planning, I turning presentation Investor time, Strategic call the Dana’s Craig this like the to by Relations At Senior Director Please go ahead, Mr. Barber.

Craig Barber

joining everyone And Angela. call you third call. good XXXX to us Thanks, on today’s for morning and the thank earnings quarter for

Dana website. not press materials being is recorded recorded, the supporting You morning’s presentation rebroadcast written been call release will without find may posted consent. Today’s have the Incorporated. property copied or of are and be this on They Dana’s investor our and

with As as always, those suggested we results Q&A questions forward-looking will session. comments keep for our please by our allow end brief. questions Actual our Dana’s many about differ presentation performance. includes call statements could as from your today. Today’s To possible, expectations future

about summarized are and Kamsickas, our with Executive Additional With President are this future that filed in over Vice Jonathan filings, morning our factors that, the including Officer. information Chief affect in Executive to Harbor and the Officer, our and reports mic Chief hand statement Presenting Jim. public could results I’ll Financial Collins, the SEC. President Safe Jim

James Kamsickas

I'm in revenue you morning so this to Good you, XX% in shy a us increase was Thank third year. that, sales of far Craig. for just joining report quarter, today. that Dana and achieved thank pleased again $X billion,

EPS XX% over in $XX was increase year-over-year to Our per quarter XX% Net adjusted XX% a resulting strong for quarter. million, over which the Diluted the very share. prior-year. at growth, basis year income $XXX for also points is last adjusted over XX% the increased EBITDA was quarter last $X.XX margin a million, XX the

definitive the the highlighted growth We backlog. in our are demand by on affirming Consistent announcement of conversion we also on will acquisition for and the guidance our Systems the to steady inorganic with deliver end the opportunities on that segment of with Combined electrification focused commitment end-market our TMX, each remain this agreement strategy, accelerating of Jonathan provide are value markets. will vehicle sales later purchase for portfolio to presentation. detail confident our of strengthening a year due greater and by long-term transactions technology the Drive ranges our to recent our we significant Oerlikon Group. these

in Lastly, share we’ll to market two continue grow organically ways.

immediate in environment. providing basis we’ll business. through which go-forward In we third demand commercial a retain performance existing takeover of this the exceptional high quarter, by gained market vehicle on customers our supply First, for share

I as business also turn pursuit in moments, few to Please update. discuss business number were a market Second, for will we awarded through X new slide Dana activities. significant traditional

balance of the the strengths light-duty our One is between of markets. heavy-duty and Dana

of we all seen few Over three the have in expect growth year. years, past remain end to positive markets and strong next all we our

In coming previously have expect from XXXX. addition to the backlog in our communicated, on business to sales we in million about new markets, additional as we $XXX

half crossover light vehicle emerging Bronco. demand the in is But all-wheel-drive driven we On of see market rising the expansion growth. in entirely by evidenced business. we America vehicles for vehicles as as such continuing drive Asia Ranger markets such the our North strong vehicle left will the trucks, growth to where And where Ford of crossover remains further capability page, for light programs market side the as and shift SUVs and highlight only new light with by

of political stability new where product Brazil year We demand next and In good a our high heavy-duty are continued positive after signs We gains level remained weekend's vehicle markets. also remain the are share very dividends seeing be all committed Class stable launches is excited year this we market pay the the And in and indications to very There at about our and growth and are X that recent to the America we in for in region of economic recovery will commercial segment, very trucks. see North will as commercial improves. a election. expect demand

We continue off-highway Asia, mining strong particularly to the least we and see this end demand will and markets, Europe continue at in in and construction expect XXXX. strength through

model Edge Previously, by that’s provide on for market system line, been Brevini in over is the America, focus largely discussion on units future We recently the deal lot global placed growth about Europe, expect of a morning, continue service and as this of Spicer with a through of in featured Oerlikon worldwide the exclusive and I'm the to noise and Ford track you would that all exceptional that growth. versions the advance all-wheel-drive and markets soon for space. this program. today is we great – be result on be growth this past program. examples providing rear Ford is opportunity we shared with will what through not next we to you customer you we this is Bottom market the Dana My trend. new Dana's SmartConnect platform core and innovation, our that organic a product markets an years Dana's global how message on system have Ford Dana trajectory our to a mobility three platform. to drive On you able connecting inorganically be growth next North thank selected for there of note, XXXX continue the accomplishing year, in this on the has pleased update supplier slides provide industry-leading Edge to leading gains Starting was share be several And the and Asia. few of declining in all-wheel-drive to acquisitions. a that we of are the year. class-leading

axle improvement loss when achieves which reduction substantial and AdvanTEK energy all-wheel technology, Our best-in-class of our competitive XX% typical best-in-class XX% drive with a axle in takes advantage a the compared products. with system Spicer ultra-efficient compared

in Our in able update eight to cutting-edge News that market, to Automotive a segment, technology crossover completed, named early you Ford team the been years important in and row. and has Dana strengthen fast-growing this North technology further leverage next of SUV there for our on is Notably, our Award Edge This successfully is exceptional at launch penetrate to nominated being a year come, we’ll technology proud be growth finalist a of America validated With will one and the only five recently PACE Dana enthusiasm consecutive we year. which position suppliers especially more this was is finalist. and to named with this eighth their be is XXXX. it least

agreements on the vocational Moving in Navistar, together Spicer Single solidifies Drive PACCAR and entered our the trucks equipment buses. buses, axles with Dana customers, to standard in customers. long-term not Series and vehicle for of and agreement agreement axles limited we Dana into signed Series to, work medium-duty to and preferred and America new major has the and segment, are We've positioning seven, a RE and and be slide PACCAR Kenworth meets alignment needs with This long-term Peterbilt also provide including, of chosen PACCAR, solutions CE to Daimler. further Navistar their in that vehicles. but the trucks as cultivate to North including has our commercial MB recently medium-duty international

with presence South In relationship is housing our to and line excited expanded we've supplier heavy-duty addition our Daimler Europe. Europe we Lastly, multiple both be for products. This trucks to full expanded in and where the in Daimler supply we’re America driveline Brazil, the axle of buses. in

talk like growth our I'd eight, segment. off-highway Moving to in about slide to organic

in XXXX. in We Similar Deere and yet market. we we’re conjunction as cross-selling last in another new calls, conquest axles India. in John representative we during These by communication with also Italy to continued acquisition influenced announce manufactured be the soil for axles by synergies was in compactors the to off-highway acquired gained all especially next the of conquest year. business win segments, growing the will pleased was this earnings providing business will our previous generation construction for win Brevini Today, to leveraging our be who win Wirtgen

For Brevini opportunities of on on agriculture partner segment. well-positioned to decades, in to construction lead the very a the to John Dana construction market Dana capitalize business. will the in strong side supplier the growth additional historically has strong foundation been the is was This following. Deere, largely as

market is market Dana demand from global and expected in First, construction for to strong, Asia, benefit remain will expansion. to especially this continue

Second, vehicle. content per

an powertrain slew and offer products not construction as acquisition but remaining drives of drives, systems, we motion vehicles, such or winches. also in For application our other extension hydraulics products and XXXX, planetary Brevini provide hub only as and traditional Dana

is lever third conquest The wins.

we [ph], January, John granular In Dynapac, Kubota, we including past Deere/Wirtgen, construction our Volvo, manufacturing SANY conquest numerous of continue win business [ph], has more the in with capabilities, new and will product customers, Dingley Bottom detail to years, portfolio footprint. provide JLG addition organically and strengthened Manitou, and our system to many inorganically developed couple expanded full global the over others. line, Dana

rewarded benefiting. are turn, new customers Dana Our business Thus, in through being is awards.

to to and strengthen System off-highway significantly capabilities. acquisition Now, systems nine. the product will let's Similar slide turn Brevini, Drive Oerlikon

our our definitive update bolster mobility to will and you last transaction. to the across products, support on the of of call, Oerlikon is global tracked across Oerlikon high wheeled planetary System and is vehicle units. a vehicles, of scalable portfolio overall Group the and our like manufacturer and segment electrification Having know-how agreement hub take I'd addition, a e-Propulsion In to for signed their as drives earnings software precision that purchase moment further a Drive competencies electrification business industry. gears, Oerlikon since all controls

track adding the provide facilities and in by synergies Dana capability in United The Off-Highway States our Dana our to acquisition for three our end as China, footprint. It markets. suburb increase and adding significant in markets, technology new for provide while generating and an significant by in markets core long-term value deal product will portfolio, key also in including XXXX. all and early of enhancement opportunities will products, segment. our electric technology, capabilities, serve vehicles capabilities in Asia, and particularly development all markets, to hybrid expanded This end We Oerlikon growth on manufacturing engineering also strengthening the are of manufacturing balancing the those thus e-Drive across well transaction emerging will of off-highway India software as growth close specifically

and with XX, TMX. Since like in been is would interest significant. has management likely Commercial integrating some to exciting our motors, complete e-Propulsion acquisition team Vehicle Turning to June, Light you as inverters, customers. slide Off-Highway in other across systems majority The capabilities busy segments for Vehicle, TMX combined the share thermal interest e-gearboxes things to our I’d incredibly develop happening the acquiring and Dana's imagine,

doing is out in develop to team great driveline our As jointly displayed future. picture, in of a our job customers the technologies front the of getting

As you Electrified the upper recognize long granted have may systems of we and Obviously, both mobility notice e-Propulsion corner with TMX. page, Spicer left-hand brands in customers histories the our storied trust. that our as have

us leader enables conveyance it's agnostic, Our or vision and energy today, efficient to unforeseen cell the combustion the solutions for or remain management engines completely electric energy being something fuel vehicles power in tomorrow, in internal future. whether

this provides our thermal management to solutions of stated components, capability in and full As configurations electric has conveyance brought drive hybrid leading to in-house. end with for power and all markets. before, partnership including range we inverters experience a provide electric of power electrodynamic all together motors vehicle and the inverters our across It Dana electric motors three technologies mechanical, TMX’s with and have offer

and to is appreciate Turning Dana is full solutions to of opportunity with electric when in this with displaying XX, the slide the supplier capability thermal of along products a that Dana’s range the full portfolio, to Oerlikon only solutions previously The you vehicle message e-Propulsion spectrum. the full TMX, me range vehicle from classes. a combined existing of conveyance manufacturing our provided and e-gearbox Dana's complete have I illustrate of to resulting clear. lead across Dana's capabilities, design, and along customers enabler powertrains as with vehicle e-Propulsion serve us mobility The support engineering Oerlikon’s technologies, evolution TMX’s portfolio product Dana to of continue all customers to will for the combination and provide with and solutions, industries. products complete allowing covers our that power

into excited with complementing customers tremendous thermal axle value future see with together years They experience TMX’s expertise. integrate years of very the XXX Our are and us motor solutions traction by of to work management Dana's to mobility. best XX

to you an partnering As illustration we slide additional along this turn our where with we’re XX, find electrification customers will journey.

electric capitalizing growing rolled and more to sector. more in components. Dana Dana's Electric, ranges, is at all LF city truck regulations of motor announce out its delivery key Europe, featuring trucks, SUMO DAF As on The the with is this fleet meet in truck greater important new a Last to in, TMX DAF, applications is Commercial and and Vehicles vehicle efficiency, environmental medium-duty OEMs market for medium-duty PACCAR growth including area a all IAA movement distribution brand, new plug month, that these a stricter demand in electric just electrification, but the and electrodynamic beginning. for defined routes especially fleets opportunities

school considering fleets just also to slide operating Moving are to year to have US markets around these electric collectively XX billion to have it heavily continue effects. as populated Many bus years. in purchase Regulators the providing engines are urban also expand use for are entire approximately and that buses. to buses grow, X.X cause some some beyond These diesel XX of Dana. additional buses. common. cities concerns buses more school the over buses. shown cancer children alone, the pollution other opportunities school With miles a their in significant goes than becoming health transit studies areas buses XX, negative more made and million upcoming But world electric which switch state ride commitments or million Many estimates in been

bus. States, complete bus production C the an the have the SUMO may more United such The e-Propulsion on model driveshaft, by logged featured motor, establishing in thus axles in Dana X the it's electric C, a Lion your Dana's all-electric than the that and first road Here as America. system, drive TMX child with Lion has all riding the on an Dana's already North school far. including all-electric and million of already Type coupled in vehicles miles possible hundreds features currently quite system, one Lion be powered school

game-changer acquisition see, As of us. for you can the a has proven already TMX recent to be

very need the As year, the leading costs solutions we Dana's fast-growing environmental to for increased is continue provider product concerns, e-Mobility of to customers. globalization, our market. attractive strengthen drive offerings our full next our will after a operating transaction, customer demand, technology range and of Oerlikon in to position And this further vehicle reduce complete scope electric as

Now, I’ll turn of to for the over Jonathan presentation the financials. the review

Jonathan Collins

periods third with compared provides XX nine quarter financial first a of last of months Slide year. Jim. overview you, and the XXXX Thank the same

our X%, quarter, third a backlog our Adjusted $XXX growth of for so sales the and basis $XX due was next reached raw million the million to material on of expectations XX.X%, compared from for increase over quarter period more $X.XX second last for $XXX The cost quarter below million sales in the a the improvement margin the us a from increase this of the market same billion, I'll this provide profit higher slightly result million, prior slide. year an XX color over EBITDA and margin to far is third of For which point last demand the for primarily growth year's quarter $XXX year which is XX-basis year. improvement propelling rate strong year. conversion point nearly a of to

of both details year, $XX adjusted the EPS million third turn working growth. net So adjusted lower profit net an of year $XXX were regarding $X.XX income far XX% benefit for to with more $XX adjusted share we’ve with $XX is year-over-year EPS million, and third generated million XX improvement income EBITDA, million sales higher increase. quarter improvement, the offset diluted me million quarter capital in adjusted this $X.XX, over EBITDA. per for Results higher and a of the nearly than of last $XX and last cash third slide further Please as Free year's quarter. higher in flow quarter, the a

growth EBITDA adjusted year is to the key and and million factors. sales of quarter $XX respectively $XXX Third over attributable prior four million

The improvement our we $XX of markets growth to our rate delivered an backlog strong. million for First, continue organic sales due organic as conversion in The than in to million conversion added convert is demand XX%. launch in profit the bit of sequential that cost and growth first primarily more of fact provide of this recoveries, remain of impact Jeep the a $XXX incremental as this margin. net of the commodity having including our profit well more Wrangler insight we discrete cost, a on the end the half have broken dissipation as to increases, out into effect the year, is

cost synergies to Brevini drive continues margin last year's Second, as expansion acquisition to realized. inorganic are related growth

quarter, that currency million EBITDA of Latin Third, due $XX translation the impact at $X although international our of against commodity million small. impact to headwind foreign by margin modest adjusted primarily quarter. American a sales a currency had scale weakened in the Fourth, on margins to the and the in in countries, by US the significant increases relatively dollar, cost was lowering rates, is results the

communicated, As million material three-month we on majority $XX recover cost customers, prices from one our year. increases over a of we’ve Raw last period typically increased consistently but lag. to same these the the by

$XX taxes spite requirements in and we growth last closer free higher nearly margins free with was in to profit million The turn the than profit deliver higher However, our We our to of been at growth were Needless capital cash build more do growth during selling cash point prices. expect $XXX Elevated the sales by on to conscious look encouraged lowering slide year. profile use me impact seasonal of of form million reduced of our commodity by quarter the periods the $XX a first cash of XXX as in XX We to our as flow flow a as cash we customers’ remain of inventory in by maximize of reflects during offset year typically operating to third at inventory for for compared that income sales generated working a for and our this to significant a points. of million profitable balances year. $XX million, the able this not expand continue basis were cost. we choice higher Working cash recovered approximately of on and say, net uninterrupted in Please significant timing margins third-quarter our pattern jurisdictions. time to growth the our us of for based is generate more cash patterns. the supply in deliver has significant part customers This do the taxing and result quarter and efficiency. payments own carry unusual a fourth taxes capital fall assure months amount nine increased to receivable year. they and the to

line. year capital red how in produce. movements expenditures the and a key them the Steel, we prior spending in Please had aluminum year, we represented price intermediate expect of last base now increased purchase, Wrangler has into of goods in have center such forgings, this to be majority purchase the the to tubes but during to contracts increased, as customers, by below and had from XX% goods steel gross note than prior the the represented elevated far $XXX by of costs the So second and year. The have year corresponding from slide and, fourth we movements quarter, third We and impact from The are largest the impact to stock, year. related remain of the illustrate for Please by year a quarter bar these compared from Please with our steel. materials, commodities made at launch. Jeep steel charge have price costs XX the commodity of commodity any we impact recovery steel. more the the the the significantly below blue how mobility line, In how higher preceded increases growth. disputes. such trade as They nearly experienced full-year the cost these as nature extent, impact aggregate, are steel year. inflation half have the XX specialty that being impact increases, the XX% to base this suppliers, well our significant recovery the than an occurred indirect turn closer lesser with made earlier slide. a intermediate cost our demand the increases Well me to the of the and driven experienced primarily increases Aluminum casting commodity as purchase we be before by in the the we've sales parts experienced global with significant look impact, price we’ve towards the year. SBQ, rapid year. parts turn these commodities. by me Specialty expect risen our now metals, due we we last as this business. affecting receive, commodity for the million intermediate majority profit Like more the of overview price These slide in index to on the the this they're other costs and

sales guidance full-year prior we within profit expectations and the provided. Our ranges remain

commodity impact which the profit next flow just and provide margin put adjusted the EBITDA and increases have guidance, on expectations the cash I’ll on implied cost However, of free our below discussed our midpoint page. our an range also I

third growth we year-over-year same separately impact quarter key we’ve with are results. driving factors as our full-year the chart, As the four the did isolated commodity

contributions First, to continued a sales backlog with this generate XX% projections of our organic year, demand primary year, profit remains growth expected organic strong and driver conversion. in $XXX and both the with for million the nearly growth

Second, on margin to to cost provide remains Brevini the contribution with a the the associated our due primarily acquisition. growth expansion, track synergies inorganic benefit of meaningful to

to Please in profit foreign in of This versus we to summary of a with a impact adverse prior a $XX the for impact impact compared cost forecasted. had be flat Third, about me about year from with page, a million currency $XXX net expect of on we million. recovery profit financial turn year XX-basis detail now slide results previously margin. total we the we of XX of full-year tailwind now modest a discussed our commodity as last with $XX relatively expect million headwind the guidance. our this to inflation, point for Fourth,

are our from July. financial guidance full-year affirming We ranges

XX-basis would Due changes high-end range, to and double-digit entirely net $X.X the continue the represents point commodity free to a we we to our billion This to expansion million, our slightly expect lower our growth over combination a implied is expectations of adjusted capital closer result of margin. expected. our of fourth last a than to cash double-digit EBITDA approaching be third in likely in to in well We for row. profit implying sales flow year margin XX% X% growth the adjusted last $XXX the year of over cost, be year. margin the at now in as X.X% for latest last expect quarter, EBITDA closer to which a Due as a also requirements recoveries, working

with now it range midpoint the per $X.XX cash and detail slide EPS unchanged adjusted of me we the near remains convert expect we Please diluted how expect flow. on more at to turn will free profit Our to share. range for XX

prior last expect profit of free our higher flow year. the over growth. free guidance $XX points We $XXX XX% to represents basis our XX year, convert cash million to growth expansion flow margin million, cash implied At of than

year. last previous addition which will be to expect cost do with year year adjusted million paying to over and in the as our in well than of higher concentration jurisdictions, line to Cash $XX indication, future last in the this restructuring due one-time million increase of a increase lower taxes that earlier tax will as we be EBITDA, completed an interest provide In we expense is benefits. earnings $XXX

line production to year of to our the of growth. through our working support Now we sales the we higher schedules capital into expect have slightly year, this use end a better that sight be

As of increase compensation in the was reflects the working also incentive capital year. that all earned last we've year, indicated year-over-year payment

it Finally, about sales subside because support we've expect X% approximately level the from majority investment to year's of growth. as our last capital new we spending our completed of be of X.X% peak business to will

the are of our As we want slide outlined the contributors on a in move two represent sentiment our XX. into major the of topline summary The on growth. months the top you on perspectives quadrants we provide final The to year, business. four

Jim outlined, the sales to our for continue As we very outlook business. be by encouraged

On remember backlog the trends. In our to the of our that markets outperformance and overall left, $XXX it's our coming we we of three year all have important next highlight consistent online segments. the view, million strength to across

will the on dollar the the headwinds currencies. we recent as escalate inorganic to see the to The on on transaction bottom for the Oerlikon the US disputes strengthening close actions continue against early electromobility on portfolio growth TMX demand reflect via from we quadrants the environment product right, our as, trend next we reflect the by expect macroeconomic and On Drive and, have positioning year. Systems experience right, impact left, capitalize the of to expect commodities impact will in see an foreign of trade global we we to the

recoveries over year our next morning as to Angela, this profit moving expansion On into solid to free manage targets. top to questions. continue long-term both margin of mitigants. along risk bottom back synthetic growth We and your continued we closing like expect take for line we with and we flow in that meaningful as commercial call to as the now through these everyone so natural on balance, and listening continue issues and can I'll in cash financial turn well to I’d thank

Operator

Instructions]. [Operator

with from is Barclays. Brian Your first question Johnson

Brian Johnson

morning. a Good couple – to a want things. talk of I little Yes. bit

Is additional plant without of up to that or you that the could and cash of significant went you're remind that that First, going big down growth on plant the will Edge coming CapEx the that at accommodate the other flow doing. program is the you of us things reason CapEx, be announced, was Toledo plant part a program CapEx. online in additional that produced some went

James Kamsickas

Good is Thanks question. A couple for of things. Jim. morning, the Brian. This

aware, in in facility Columbia, you're of produced and another that. well all, Ranger will the done right that specific, launching the disconnecting now, end program. all-wheel-drive is front as for the this which that the that job It’s perhaps facility, of program doing vehicle plant, Toledo is now and China in after First launch that Relative to be it's Wrangler Missouri right as as that as a Chongqing. we’re Bronco building after well our the on great program well as

of which gear we’re gearing. is items, that. you kind group support a thing other the relates precision will also now, plant would to it the remind The So, market in building for that's that high-end big only of I right capital Hungary collective

Brian Johnson

The subtext over of how should couple about the Okay. then is then thinking be we just years. next CapEx

Jonathan Collins

as of into Brian, refresh us continue of Wrangler, range well the an program, pretty the before of we've drove as annual to believe a gotten years. the X% launch long-due you the will as CapEx noted, replacement Jeep the to going that closer Yeah. are our that’s major what Once combination we the basis past, super-duty X% normalized close of couple of year to on forward that those that, be for mid level. sales

Brian Johnson

Okay.

know the in is a our for not that back power is recoveries on are reason making least lot Is at for those of that questions concentrated power the commodities your tech than Power quarters management particularly tech? commodity you models or the sure on around and go row. time on of tech. in two When power I and you powertrain? going below a there different spent Devine driveline through was set in all Second whatever way been tech margins something in same commodities. units all pressures, prior place there to have John

James Kamsickas

commodity. onto you're No, primarily Brian. it, It's

driveline focus business, about on but do tech. recovery, when So, we our the do power we we’ve include blended also talked

As recoveries ranges are of our you different business. would across there imagine,

think become quarters. opportunities couple as has impact that, the Off-Highway of technologies an rates up business going segment to We power our substantially improve them positioned aluminum example, continue the recovery at growth and any being our efficient. of overall that recovery engines do in For recover of rates has We’ll ways had on for to the the profitable combination past forward. other that business remain highest does lowest more fact look their The the to of is and lowest. has

thermal in content the the and related margin is aluminum. term, near both solutions. We’re some pressure seeing we to ceiling and experienced have But, commodities in the higher the of specifically

Brian Johnson

Okay, thanks.

James Kamsickas

you. Thank

Operator

with from of Your is next Merrill Bank Smith Lynch. question America Aileen

Aileen Smith

taking the -- morning. question. for The Good Thanks

James Kamsickas

Good morning, Aileen.

Aileen Smith

in hit to more The EBITDA the from commodities as adjusted of getting all? $XX burden customers back million this your million $XX And pushing you cost material at P&L you're and despite are do the from into on recovery your commodity customers, that they you forward raw get if costs you commodity XXXX, not that into high-level look for for intensify any going expectations and all how your you do headwinds further? at comfortable how work have to is

Jonathan Collins

Yeah.

a recovery more pushed substantial. question, your reason The So, the margin we've is of calling $XXX being million, perspective discreetly not the over a us. is impact part towards is first ratio that now we’re from that burden the to out now economic of reflection hit just the it because,

of lower bit little recovery ratio stated rate, is a the that because impact. lag than largely So, our

to just rise, don't they until they get As plateau. caught up continue we

we talked that's than XX% little have that we’re lower about. range So, a the why

we it's We next we be to a expect intensity cost that, think will that able did next think cost try year. got do to perspective, recover continue As we've these that of we about business growth will is expand we think to to into us bit us inorganic on other ratios an probably headwind up. but and early to for direction moving that grow number margins we that basis, to the year. confidence and be to going continue profitably we’re and year, to to organic be go things do it into noted, which is in intone From going next at we moving as giving a able moving our year. call next think a But the go up commodity

Aileen Smith

the you revenue a follow-up to to of or difference great. the explicitly there for deck XX conversion that, improved expectation? now of deck, just in is an a assumption in implied function slide of the And your impact relative last Okay, the to breaking relative prior XX% the just one, EBITDA commodities implicitly out at XQ conversion is slide your relative looking XX% to on this XXXX as and on slide walk

Jonathan Collins

No, it's former. primarily the

QX the the point of in that to half but first primary it the comparison was about So, how efficiencies it hadn't we has when – the think previously, improving launch driver something discreetly, that change to year, the that it break year, associated the Wrangler, is primary of the QX as out I also gotten compares our but with to that's did from a where commodities the it perspective, you mention the driver. impact from felt move we to to do with necessary throughout the

Aileen Smith

to what end economic question, production at And explicit last volatility backlogs looking indicators? you perspective of macro or looking specifically third-party and it’s it from expectations, your Great. in sources customers’ the markets? ISM XXXX, you're gauge a but remind terms really the seeing industry on are and at give or on you Is production revisions can some and sources to future early programs? us key realize your Are given other quoting I strengthen guidance from data just you your demand of on or recent

James Kamsickas

at external We’re or well. at that you same typically as looking look the external guidance research

at year. our where look to at sense our vehicle It’s a ACT as heavy light we a business. of from vehicle you note example, getting customers for next we look our be For we’ll as looking business, commercial combination IHS of feedback those for well get at as

being within look going year. next X at year of medium-duty some example. in it's we the Class the think North another to that there’s strong intoning, Most relative I consistency we’re be America, things think strong sources market for

calls largely around think see next and we stable the focused on light to move places that vehicle, most for we’re to segments remember, in And into the construction we trucks in mining will year. world. truck next growth as be look again, continue year and then, as We at segment we the continue

only us to sources unique that is us our and So, it’s internal are backlog. combination that’s – giving factor a those the the sense of

have we of we've next backlog, the in our content of So, a that buildup to in conquested the businesses growth at a give level confidence year. program $XXX us that detailed million incremental

Aileen Smith

thank you. very Great, helpful. That’s

James Kamsickas

Yep.

Operator

Spak Joseph is next with from Capital. RBC Your question

Joseph Spak

morning, Good everyone. Thanks.

James Kamsickas

Joe. morning, Good

Joseph Spak

flow, still page big like on lower free sort quarter. Just turning it's cash benefit a this correct the fourth EBITDA capital it little the sounds of the working mostly and of from lower you're to the some interpretation? that in bit counting the Is that

Jonathan Collins

Yup.

being a plan we pretty factors. pretty inventory versus expected. through just when you'll million. fourth million in than all $XXX But the a good what it's third then, free in It’s we It's it to we what And to to the know, will going our of it. the were as flow as acute is the of happens sight line in of of customers it growth $XXX to have that on quarter, more the XX of have have last patterns build based in in normal cash year. which our generate noted, second So, quarter bit the It’s the two year we’re the about fourth the be closer you half quarter. $XX million to higher days, little

Joseph Spak

sort targets. progress sort mentioned of your you then, And longer-term of towards

you've Oerlikon and at deeper that bit sort a had flow thoughts that, of whether on all? Any revised that especially of cash little free to You've XXXX. on a X% got for ratio sales dive maybe this impacts target

Jonathan Collins

Yeah.

confident those pre-Oerlikon to of of to to refer I on will the basis. cost first margin based It’s in it bit question to we referring takes on be commodities. an its there. think it get does going free to into core those come little very certainly with numbers, I'm clear Certainly, the I’ll able are what view because of cash convicted of XX.X% comparison put be of on two to on just the in get XXXX, able fact be making the financial that be that we impact the full-year when issue say about an will getting first a our ex-Oerlikon, like. where year that's free Oerlikon when And out timing will of I'm a half to there, we investments year cash do this than XXXX, pieces targets. long-term doing but we’ll timing we seen But those of flow. a we The we the second impact when certainly, that the So, have early guidance, synergies. X% our that that more in on flow commodities a look both remain give very achieve business we've to we’ll And guidance

Joseph Spak

of through side how as sort any for gone then companies very off-highway side? that? me, seeing That's Or the inventories helpful. just some here, then, reporting of earnings of lastly we’ve up. hearing, even season building you been on the the sort would channel maybe some you we've And classify off-highway like, on Are

Jonathan Collins

perspective our their driving to see as their orders remains with is communication the core need I what's fill have into sight continually particularly construction mining, from end in would segments, that strong. demand of order customers. line for we The our an customers that

– what of we part year. in some our next outlook for So, not it affects the that's the into that of most And seeing areas are in us. moving significant areas

expect segments. demand to core in pretty continue strong We our

Joseph Spak

Thanks.

Jonathan Collins

Sure.

Operator

from question Research. Rod is next Wolfe Lache with Your

Rod Lache

morning, everybody. Good

James Kamsickas

Good morning, Rod.

Rod Lache

the prepared you on of that had can Wanted at about talked bit comment timing? to sounded you I – you business the mentioned a like ask, it think the remarks, new takeover business. your start some And

have the beyond backlog business like some So, And other sounds of does provide? color that you it's into affect million for you year? any spreading segments. vehicle can other next the that the $XXX that It light just

James Kamsickas

Thanks for the Jim. is This question, Rod.

history We – out supply going shortage – strategy think I’d around in Yes, things We color dealt quite know, place. and of capacity some maybe a these made don't a spikes year there have high off-highway commercial higher vehicle people have ago there any to inventories, that back, over I of didn't is and having everybody's markets. specific these in course a you call especially sorts very, Just manufacturing on. the carrying right the and about all repeat that. I it, even, aware some call with need cyclical of when

make of vehicle, sure go-forward them multiple moved and works, can basis. it particularly that us and with a And positioned across to we customers, they moved supply how customer. of our commitments in to make ultimately, share ourselves customers quite protect share. So, commercial you fortunately, for have protect well. bit know their sure many They long-term really, really And

want the really example, less all we that material the a seeing some but on to details the don't we’re matter duty in that as of I of medium off-highway get than of into happened. surrogate that example some what to standard And a we Navistar perspective, segments see use but announce position to So, a exactly well. that's other as

is it come. to takeover, So, for years but retains it

Rod Lache

in words, to $XXX million? there's So, upside, fair? that the Is other

James Kamsickas

Absolutely. Absolutely.

Rod Lache

for market, America? just believe you of the of before sort trough performance that at real of of even you at is you've South I in the that breakeven. said us the optimism what The And the speak little more just that, kind appreciating now. about vehicles? commercial could Can that opportunity business of is been that region. There's remind bit a has to

Jonathan Collins

Yep.

for us. continued has Demand We see continue improvements segment to that move within to up.

money where, made the has has operation the been it closer that point past, in a at breakeven. us are We to for

So, we’re really that. by encouraged

an also stability economic to has that very always looking in hopes the continued We've pointed some the that fact to have political provide perspective. strong the to conversion for and to rates We’re traction opportunity us. outcome of elections, from the

there commodities, for as very some year, So, to thoughtful other look we headwinds, opportunity coming that’s into like next potentially these example. of we’ll be offset the help about

Rod Lache

Great, thank you.

Jonathan Collins

Sure.

Operator

from is Colin UBS. Langan with question next Your

Colin Langan

guidance Thanks has much you think would crack why great. key been, wrong, The of it’s Can what suddenly question. absolutely think, I'm are only QX, so my us for of remind growth taking XX%. X% drivers I [indiscernible] for rate Oh, downward? the about unless year-over-year. just the I

Jonathan Collins

Yeah. The which QX our year-over-year perspective, going little basis be is the sales then, And year. last better. bit a patterns the normal due smallest is be of quarter could that pretty a And We you seasonal we’re guidance market It range. our growth to is a build other to have have. factor at from at FX. the a good to customers of on look the high-end saw

be to in fourth quarter. a it bit headwind expecting the we’re a FX, of So,

X% X% the growth rate higher So, than mentioned. the constant a would bit currency that to be you just

factors. say a of So, combination it’s those I would

Colin Langan

surprising you steel what Got us grades any grades now? have why it. the And suddenly bit exposure given that particular this a commodity so it’s was So, terms to been certain because or remind color anticipated you steel Can in deal that of spiked is key it of in costs, the has the more the year, you up beginning there since earlier? wasn't highlighted of steel. up

Jonathan Collins

half as Yeah. of even saw used page more the on bit in been a us. do impact and would of for steel steel the that a significantly you up see lag move that but out it We Its up, too. to It in has the we the unique that second specialty that the up commodity well see been by the we note somewhat illustrate we try year. there movement is redline. impact for index an to but is then, pretty us, And a I category we us SBQ a called has as separate

I of those combination are the say causing it’s would So, impact. both of that a

Colin Langan

improved have the seems lastly, tax Got forward it. been down tax half. think to brought should rate And second Why and how about the then, implies in lower guidance guidance a just much and importantly? bit we tax going more

Jonathan Collins

the third always mix quarter rates significant relatively From rate only cash perspective, effective The the you of profit tax us made in been for see a our in payments regions Yeah. in being been we’re would driver and growth jurisdictional and where is third tax the has normally. where our just has our high profits. tax incurring quarter

reflects based on expected our tax where mix. balance, EPS see jurisdictional rate our full-year the on we So,

Colin Langan

has outlook And tax modeling to in? so, the that long-term should changed nothing we be

Jonathan Collins

think pretty I consistent. be would it No,

Colin Langan

Thank all you. Okay, right.

Jonathan Collins

Sure.

Operator

question Colley And your with Brian last Stephens. is from

Brian Colley

Hey. Good morning, guys.

James Kamsickas

Brian. morning, Good

Brian Colley

it your or I you've the case? to the years, Is given over deals a updated past expect the pause couple that going of reasonable the not additional get recent and been take deals of likelihood of So, some digest acquisitive pretty you is want about to thoughts forward?

Jonathan Collins

footprint looking technology. better position augment before, mentioned to a for competitive opportunities through we've our As we’re constantly and product better

the acquisition to to would been tool and term do sure So, integrate when given the that. we’re that a the focused in prepared we’re the very acquisition, would that deal say, I TMX recent some the closes, next Oerlikon near which Oerlikon in making M&A prepared expect activities be on early with the evidenced Jim during and of the that heavily TMX been through some was remarks. that we year. We've walked integration of slides focused has

architectures. all products We’re a technology have vehicle and suite we electric that available seeing propulsion of full on road for

from sheet of fit sign we've perspective energy been for looking continue keep I to heavily always deals a and our we and places say are in closing, always a right to up We’ll our able have look So, augment. to the would near-term that but the process integrating focused in pricing balance disciplined are things for and be has that position. strong on been a

James Kamsickas

Further qualifying it, the from point on to fever. don't this thing what up your you us future, can you one said, can deal from just the tell point Jonathan certainly to get we and for

piece make can a it and and Our the It’s thing them last did to And another that nice pull particularly different nice been piece there And been to thing the be. you be have Oerlikon, product certainly, acquisitions future. earnings accretive. They’ll little to together. a that's call, continue sure a in with software controls. one was will continue as portfolio. to It’s on bit have a gap, I mention of

for thanks the question. So,

Brian Colley

thoughts wanted just buybacks lastly, going you then, any on guys And Thanks. updated forward. it. if Got have

that front, Just more given pull about wondering back the guys getting in you aggressive if stock. maybe thought the have on

Jonathan Collins

that Sure. an That’s to a back we've made stock our given we have continue at. sheet, significant look our this year. earlier authorization back more. continue constantly commitment there balance of to value, good bought the we’ll view se. Certainly, monitor to from We it, perspective per had some quality some of do it's change buy in we but We no commitments the something believe inorganic the there's been and the to

time. year next, our authorization but perspective no We’re eye for keep an operating But under change a $XXX we’ll it. this from to and million this at continue on major

Brian Colley

Well, Great. the time. appreciate I

Jonathan Collins

Sure, thanks.

James Kamsickas

the successfully company. would I well for thank just our Team, call. and team, launch. a recap the one Wrangler to take complex largest second. in particular. this that, completed done. much. the Thank you proud It's in our We joining Very everybody, With very most you, program of Okay. JL

but we've to leg demand go across standpoint, first kind Exciting I of all my mentioned time, that we new and the and of in at product business. bit addition drive. performing earlier our our select launched for have in markets, the As Dana the a not our basis. should of From continuing market. in conscious their standpoint, all-wheel now, strong to same little that, just we’re the And a that on go-forward as to are decisions market make elect customers

We have integrating of record a and companies. track acquiring

excited important. about of only beginning not the Oerlikon starting the coming very on, you today, Thank year, very the company call. at next really for future. the which We’re Very, joining for positions but much

Operator

This our concludes call. webcast conference and

You may now disconnect.

Dana (DAN) 29 Oct 182018 Q3 Earnings call transcript