Dana’s Q4 Earnings Call: Contradictions in Commercial Vehicle Forecasts, Stranded Cost Timelines, and Tariff Recovery

Date of Call: Jan 21, 2026

Financials Results

• Revenue: $7.5B for full year 2025, at high end of range
• Operating Margin: 8% for full year 2025, at high end of range

Guidance:

• Sales for 2026 expected to be flat to 2025 at around $7.5B (range ±$200M).
• EBITDA for 2026 expected to be $800M, implying margin of 10.5%, up $200M and 250 bps from 2025.
• Adjusted free cash flow for 2026 expected to be $300M, despite sale of Off-Highway business.
• Cost reduction target for 2026 increased to $325M, up $15M from prior communication.

Business Commentary:

Cost Reduction and Margin Expansion:

• Dana Incorporated achieved a cost reduction target increase to $325 million, up from the previous target of $300 million, and expects to improve year-over-year by an additional $65 million in 2026.
• The company finished 2025 with a margin of 8% and aims for a range of 10% to 11% in 2026.
• The improvements are driven by reductions in R&D, SG&A, and cost of goods sold, along with operational efficiencies and cost-saving initiatives.

Backlog Growth and Market Outlook:

• Dana's 3-year backlog grew to $750 million, up from the previous year, despite a downturn in the EV market.
• The backlog growth is attributed to strong quoting activity and robust commercial vehicle OE and aftermarket business.

Commercial Vehicle Segment Performance:

• Dana's commercial vehicle segment reported flat market conditions for full-frame trucks and a decline in North American heavy-duty markets, but expects share gains.
• The segment benefits from investments in low-cost manufacturing in Mexico and new product launches in medium-duty and bus markets.

Aftermarket Business Focus:

• The aftermarket business, representing 12% of Dana's overall company, or about $900 million, is a key growth area.
• The focus is on leveraging strong brands like Spicer and Victor Reinz, with new contracts in North America and expansion efforts in the independent aftermarket gasket business.

Financial Position and Capital Structure:

• Dana improved its capital structure by reducing debt by $1.9 billion using proceeds from the sale of the Off-Highway business and bought out its TM4 joint venture for $200 million.
• The company's strong balance sheet and reduced interest expenses position it well for future growth and margin expansion.

Sentiment Analysis:

Overall Tone: Positive

• CEO stated "we feel really good about that" regarding cost reductions and "the team has done a terrific job." CFO noted results were "at the high end of our ranges and above market consensus." CEO expressed being "more excited about the future that's in front of us" and that "the new news today is our backlog is improving, and we expect to see top line growth as well."

Q&A:

• Question from Gautam Narayan (RBC Capital Markets): I just wanted to drill down a bit on the EBITDA guidance for 2026... Just love some more details on the confidence in that other $125 million? And kind of what makes that up?
  Response: Confidence is 'off the charts' due to stranded costs removal, accretive new business, ongoing plant operating performance improvements, and portfolio optimization.

• Question from Gautam Narayan (RBC Capital Markets): Is that aftermarket business new? Is that why it's incrementally new that maybe you weren't capturing that before?
  Response: No, the aftermarket business has always existed; it's now a renewed focus, front and center in the CV segment, with increased investment to capitalize on opportunities.

• Question from James Picariello (BNP Paribas): ...can you confirm what the year-end cash balance is after the proceeds... With the year-end cash balance that hopefully a number that you could share right now.
  Response: Year-end cash balance, inclusive of stock buybacks but exclusive of Off-Highway proceeds, is expected to be at the higher end of $450M to $500M.

• Question from James Picariello (BNP Paribas): What drives the 1% implied core sales decline?
  Response: The decline is driven by mix within the Light Vehicle segment (exposure to pass cars and small SUVs) and a conservative planning assumption for North America heavy-duty, though there could be upside.

• Question from James Picariello (BNP Paribas): The $200 million to $300 million of buybacks for this year, is it safe to assume that the March Analyst Day will be the platform for Dana to really touch on the future capital allocation, shareholder return?
  Response: Yes, the Analyst Day will cover growth strategy, margin aspirations, and capital allocation, including organic reinvestment and shareholder returns.

• Question from Yan Dong (Deutsche Bank AG): Drilling down on your assumptions for North America heavy duty, I do see that it's -- you're assuming about like more than 10% decline... So I'm wondering if you can maybe provide some context for that assumption within the outlook?
  Response: The assumption is based on planning done a bit ago; there could be green shoots for improvement, but the plan is built conservatively, allowing for upside if market conditions change.

• Question from Yan Dong (Deutsche Bank AG): ...maybe you can give us a flavor of what you might be reviewing on the Capital Markets Day.
  Response: The focus will be on growth strategy and margin aspirations; capital allocation will balance organic reinvestment for high-return plant efficiencies with returning capital to shareholders, potentially including inorganic opportunities later.

• Question from Joseph Spak (UBS Investment Bank): Maybe just one quick housekeeping question. Just of the $750 million total 3-year backlog, roughly how much is light trucks versus commercial vehicle?
  Response: The majority is light truck, well north of 50%.

• Question from Joseph Spak (UBS Investment Bank): ...is aftermarket included in that? Or are you thinking about that separately?
  Response: The sales outlook is for OE; aftermarket sales are separate and expected to grow in 2026, but are not included in the market-driven sales forecast.

• Question from Joseph Spak (UBS Investment Bank): ...how should we think about CapEx, working capital -- for your free cash flow guidance...
  Response: Working capital should improve; CapEx for 2026 is expected to be around 4% of sales.

• Question from Ryan Brinkman (JPMorgan Chase & Co): ...I'm curious if you view the TM4 consolidation as something that just made good financial sense... Or does it potentially confer important strategic or commercial benefits do you think?
  Response: The buyout was driven by a contractual put option from the JV partner and is not an indication of strategic shift; the company now owns 100% and is evaluating the strategic implications internally.

• Question from Ryan Brinkman (JPMorgan Chase & Co): ...if maybe there might be a focus on investing more internally in the operations... does it require the next step for improving the margin of the business to spend to make money by consolidating facilities or investing in restructuring?
  Response: The company will invest more in plant automation and efficiency to drive margin expansion, using operating free cash flow; this is a balanced approach alongside returning capital to shareholders.

• Question from Dan Levy (Barclays Bank PLC): First, I wanted to maybe drill down on the margin dynamics for this year... One is tariffs... Second is commodities... And then the third piece is if you could just talk about any recoveries on EV programs...
  Response: Most tariff under-recoveries from 2025 will be recovered in 2026; commodities are a slight headwind; EV-related recoveries are ongoing, with the company taking a small charge and successfully negotiating customer recoveries, including pricing adjustments for future volumes.

• Question from Dan Levy (Barclays Bank PLC): ...should we view right now your current revenue mix as more of a placeholder as you're going to start to maybe rediversify?
  Response: The current mix is a result of the Off-Highway sale and a depressed CV market; strategy includes diversification into aftermarket and gaining CV share, but significant organic diversification will come from growth opportunities within the large Light Vehicle segment.

Contradiction Point 1

Commercial Vehicle Market Outlook

Contradiction on the near-term recovery prospects for the North American Commercial Vehicle market.

Why is the 1% core sales decline primarily driven by North America's heavy duty segment despite growth in other regions? - James Picariello (BNP Paribas)

2025Q4: The plan uses a conservative outlook... there could be upside if market conditions improve, particularly in heavy-duty. - Timothy Kraus(CFO), R. McDonald(CEO)

Commercial Vehicle sector is deteriorating. Can you explain the typical cycle dynamics and whether improvement is on the horizon? - Gautam Narayan (RBC Capital Markets)

2025Q3: No light at the end of the tunnel.... the market is expected to remain soft into mid-2026, with no significant deterioration anticipated from current depressed levels. - R. McDonald(CEO)

Contradiction Point 2

North America Heavy Duty Sales Forecast

Contradiction on the expected year-over-year change for North America Heavy Duty sales in 2026.

Why is there a more than 10% decline assumed for North America heavy duty when App Research forecasts flat to low single-digit changes? - Yan Dong (Deutsche Bank AG) for Edison Yu

2025Q4: The assumption is based on the plan built a few months ago. While there may be green shoots and actuals could be better, the plan uses a conservative outlook. - Timothy Kraus(CFO)

For both Light Vehicle and Commercial Vehicle, can you provide high-level preliminary puts and takes for 2026? - Yan Dong (Deutsche Bank)

2025Q3: No significant Commercial Vehicle improvement expected in first half 2026, especially North America. - Timothy Kraus(CFO)

Contradiction Point 3

Stranded Cost Recovery Timeline

Inconsistent timeline for eliminating stranded costs.

What is the confidence level in the $125 million component of the 2026 EBITDA guidance, and what factors contribute to it? - Gautam Narayan (RBC Capital Markets)

2025Q4: Confidence is 'off the charts.' The increase is driven by: (1) removing stranded costs from the $600M 2025 EBITDA... - Timothy Kraus(CFO)

What incremental cost savings potential remains after raising the target to $310 million? - Gautam Narayan (RBC)

2025Q2: The company believes it can eliminate at least half, if not more, of the ~$40 million stranded cost by end of 2026. There is significant long-term opportunity beyond 2026... - Timothy Kraus(CFO) & R. McDonald(CEO)

Contradiction Point 4

Tariff Recovery Timing and Expectations

Contradiction on the timing and certainty of recovering tariff costs.

What factors are impacting margins this year, specifically tariffs and commodities? - Dan Levy (Barclays Bank PLC)

2025Q4: On EV program investments... Most of the economic impact has been recovered, which is why the required EV-related charge is small. - Byron Foster(CFO)

What is Dana's tariff exposure and expected recovery timeline? - Edison Yu (Deutsche Bank)

2025Q1: Recovery lag is expected to be less than a quarter, with processes underway... Dana believes it will recover 100% of tariffs... Timing is a cash flow issue, not a major bridge item. - Timothy Kraus(CFO), Bruce McDonald(CEO)

Contradiction Point 5

Outlook on North American Light Vehicle Production

Contradiction on the stability and conservatism of production assumptions.

What causes the 1% core sales decline despite all regions being slightly up except North America, which is heavily impacted? - James Picariello (BNP Paribas)

2025Q4: The plan was built on a conservative volume assumption, and there could be upside if market conditions improve... - R. McDonald(CEO)

What assumptions underlie light vehicle production? - Colin Langan (Wells Fargo)

2025Q1: North American light truck production assumptions are unchanged from February, with no material customer changes yet... The latest S&P data, if accurate, would still allow Dana to hold its guidance, given extra cost savings. Acknowledged risk exists, which is why guidance is not being raised. - Bruce McDonald(CEO), Timothy Kraus(CFO)