Dauch’s $300M Synergy Target Faces $150M Integration Costs in 2026

Date of Call: Feb 13, 2026

Financials Results

• Revenue: Q4: $1.38B, flat YOY; Full Year: $5.84B, down from $6.12B YOY.
• EPS: Q4 adjusted: $0.07 per share vs loss of $0.06 YOY; Full Year adjusted: $0.53 vs $0.51 YOY.
• Gross Margin: Not explicitly provided.
• Operating Margin: Adjusted EBITDA margin: Q4 12.2% vs 12.2% YOY; Full Year 12.7% vs 12.2% YOY, up 50 bps.

Guidance:

• Sales: $10.3B to $10.7B for 2026.
• Adjusted EBITDA: $1.3B to $1.4B for 2026.
• Adjusted free cash flow: $235M to $325M for 2026.
• North America production assumed at ~15M units; Europe ~17M; China ~33M; global ~93M.
• GM's large pickup/SUV production assumed at 1.3M to 1.4M units.

Business Commentary:

Financial Performance and Synergy Potential:

• Dauch Corporation reported adjusted EBITDA of $743 million for the full year 2025, representing a margin of 12.7%, up from 12.2% last year.
• The company anticipates achieving approximately $300 million in synergies from its acquisition of Dowlais, with an expected full run rate by the end of year 3.

Geographic and Market Diversification:

• The acquisition of Dowlais Group diversifies Dauch Corporation's customer base and balances its geographic presence, with a strong truck franchise in North America and a significant global presence.
• This strategic combination aims to leverage an estimated $300 million in synergies, enhancing the company's position as a leading global Driveline and Metal Forming supplier.

2026 Financial Outlook and Challenges:

• Dauch Corporation targets sales of $10.3 billion to $10.7 billion and adjusted EBITDA of $1.3 billion to $1.4 billion for 2026, considering a partial year contribution from Dowlais.
• The company expects trade policy discussions to continue, impacting North American production assumptions and requiring careful business management.

Operational Efficiency and Cost Management:

• The company achieved margin improvements in both Metal Forming and Driveline business units by focusing on operational efficiency.
• Dauch Corporation expects R&D optimization to yield $10 million to $20 million in annual savings and anticipates continued cost reductions and operational productivity gains.

Integration and Restructuring Efforts:

• A dedicated integration office has been established to drive synergy realization, with an expected 60% annual run rate by the end of the second full year post-acquisition.
• Restructuring and synergy costs are anticipated to be significant in 2026, with cash outflows estimated between $110 million to $150 million.

Sentiment Analysis:

Overall Tone: Positive

• Management stated: "We concluded 2025 at a positive note with good momentum." and "Our new brand honors the strengthen shared entrepreneurial spirit... and signaling our commitment to performance with staying power." The tone highlights strong synergy potential and a "very exciting time" post-acquisition.

Q&A:

• Question from Joseph Spak (UBS Investment Bank, Research Division): Could you help us understand what happened at the two individual businesses in the back half of 2025 and the outlook beyond this year?
  Response: Management could not comment on Dowlais's full-year results as they are not published, but noted core sales assumptions for 2026 are relatively flat across regions.

• Question from Joseph Spak (UBS Investment Bank, Research Division): What is the GMT1 assumption for 2026? Clarification on cash flow excluding restructuring/integration costs and whether those costs continue beyond 2026.
  Response: T1 assumption is 1.3M to 1.4M units. Synergy integration costs are expected to continue into 2027, while core restructuring costs will drop significantly in 2026.

• Question from Thomas Ito (RBC): Is there room for upside in the $300M synergy estimate, particularly in operating efficiencies?
  Response: Management is highly confident in delivering the $300M synergy target, with potential for future increases after plant reviews, but nothing will be adjusted until after quarterly financial reporting begins.

• Question from Thomas Ito (RBC): Can you quantify the impact of IFRS adjustments on Dowlais's published results compared to expectations?
  Response: IFRS adjustments can create a meaningful delta, including joint venture sales (up ~$0.75B) and other items (up to $100M difference in EBITDA), which were part of the initial planning.

• Question from Thomas Scholl (BNP Paribas, Research Division): How do we get from the 2026 adjusted free cash flow midpoint to the previous standalone Axle target of $600M?
  Response: Path to higher cash flow includes synergy flow-through, declining interest expense, moderated CapEx, potential tax optimization, working capital optimization, and reduced restructuring costs post-2026.

• Question from Yan Dong (Deutsche Bank AG, Research Division): How should we frame Dowlais's core operations on an apples-to-apples basis for 2026 vs 2025, and expectations for the China JV?
  Response: Dowlais operates in similar markets with comparable demand; benefits from prior restructuring will flow through in 2026/2027. The China JV is a large, steady business mirroring the China market, with a sizable dividend expected.

• Question from Itay Michaeli (TD Cowen, Research Division): Can you dimension the savings from the 2026 restructuring costs and when they pay back?
  Response: Over two-thirds relates to Dowlais's final restructuring, with benefits concluding in 2026 and realizing in 2027. The remaining third is for AAM facility closures, with benefits in 2027.

Contradiction Point 1

Free Cash Flow Guidance and Components

The treatment and magnitude of restructuring/synergy costs in FCF guidance changed materially.

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2025Q4: The $235-$325 million [adjusted free cash flow] range **excludes restructuring and synergy costs**. To model net cash flow, subtract the $110-$150 million restructuring and $100-$125 million synergy integration costs from the FCF. - Chris May(CFO)

Can you clarify the T1 truck production assumption for 2026, whether the free cash flow guidance includes restructuring and synergy costs, and if there are still such costs beyond 2026? - Douglas Karson (BofA Securities)

2025Q3: Yes. The company expects leverage to be **'somewhere around neutral'** at closing compared to its pre-announcement level (~2.8x). Stand-alone initiatives (selling assets, exiting JV) are proceeding as planned to achieve this leverage-neutral outcome. - Chris May(CFO)

Contradiction Point 2

Leverage Outlook Post-Acquisition

The expected leverage position following the Dowlais acquisition shifted from "neutral" to explicitly acknowledging net debt.

What is your response to Itay Michaeli's question? - Itay Michaeli (TD Cowen)

2025Q4: Net debt was in the ballpark of **$4.2 billion at closing**, consistent with plans supported by cash flow generation and financing activity. - Chris May(CFO)

What is the pro forma net debt after the Dowlais transaction closing? - Douglas Karson (BofA Securities)

2025Q3: Yes. The company expects leverage to be **'somewhere around neutral'** at closing compared to its pre-announcement level (~2.8x). Stand-alone initiatives (selling assets, exiting JV) are proceeding as planned to achieve this leverage-neutral outcome. - Chris May(CFO)

Contradiction Point 3

T1 Truck Production Assumption

Guidance for 2026 T1 production range appears inconsistent.

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2025Q4: T1 truck production assumption for 2026 is **1.3 million to 1.4 million units**. - Chris May(CFO)

What is the T1 truck production assumption for 2026, does the free cash flow guidance include restructuring and synergy costs, and are there restructuring and synergy integration costs beyond 2026? - Joseph Robert Spak (UBS Investment Bank)

2025Q2: The assumed range for T1 platform production is **1.3 million to 1.4 million units for the year**. - Chris May(CFO)

Contradiction Point 4

Outlook for Restructuring and Synergy Cost Benefits

Timing of realizing benefits from restructuring and synergies has shifted.

Who is Joseph Spak from UBS Investment Bank? - Joseph Spak (UBS Investment Bank)

2025Q4: Synergy integration costs... are expected to continue into 2027. Core restructuring costs... should drop significantly in 2027... Benefits from Dowlais's restructuring will be realized in 2026 and **more significantly in 2027**. - Chris May(CFO)

What is the T1 truck production assumption for 2026, and does the free cash flow guidance include restructuring and synergy costs? Are there remaining restructuring and synergy integration costs beyond 2026? - Joseph Robert Spak (UBS Investment Bank)

2025Q2: The deal is on track to close in **Q4 2025**... The Dowlais acquisition will provide greater global flexibility and is expected to result in content gains on the T1XX platform. - David Dauch(CEO) & Chris May(CFO)

Contradiction Point 5

Assessment of Synergy Upside Potential

Confidence in synergy target has increased, but the basis for assessment has changed.

What are your key takeaways from the latest earnings report? - Thomas Ito (RBC)

2025Q4: The company is **confident in delivering the $300 million in synergies** as previously identified... The $300 million target remains the commitment, with **potential for future increases** on a quarterly basis. - David Dauch(CEO)

Is there upside potential in operating efficiencies with access to the Dowlais plants? - Gautam Narayan (RBC Capital Markets)

2025Q2: With shareholder approvals secured... AAM is now conducting more detailed plant assessments to evaluate the full operational synergy potential. While confident in the previously communicated synergy estimates, **additional upside on the manufacturing side is still possible**. - David Dauch(CEO)