USA: Rising materials cost impacts Dana Q3 results
Dana Corporation has announced third-quarter 2004 net income was $60 million, or 40 cents per share, excluding unusual items, compared to $43 million, or 29 cents per share for the period last year.
Sales of $2.1 billion compared to $1.9 billion during Q3 2004.
Net income for the quarter totalled $40 million, or 27 cents per share, compared to $61 million, or 41 cents per share, for the period in 2003.
Net unusual charges for the quarter totalled $20 million. This amount includes net gains resulting from the sale of Dana's interest in certain assets and technology to a joint venture with the Knorr-Bremse Group and the company's continued programme of divesting assets of its Dana Credit Corporation operation. These gains were more than offset by charges primarily associated with the sale of Dana's automotive aftermarket businesses, including the reversal of an anticipated tax benefit of $20 million which was recognised in the second quarter of 2004.
"Setting aside taxes, it was an otherwise disappointing quarter, largely because of the increasing cost of raw materials," said Dana chairman and CEO Mike Burns. "The increase in steel costs alone totalled $22 million after tax, net of recoveries from our customers.
"We had expected that the bottom-line impact of the commodity price increases would be offset by the stronger performance in our heavy-vehicle business and continuing cost-reduction efforts," he added. "But the magnitude of the raw material increases, coupled with a decrease in light vehicle production volumes, hit us harder than expected."
Dana's nine-month consolidated sales were $6.8 billion, up from $5.9 billion during the same period last year. Net income during the first three quarters of 2004 was $215 million, or $1.43 per share, including $15 million in unusual net gains. This compares to net income of $154 million, or $1.04 per share, including $33 million in unusual net gains during the initial nine months of 2003.
"Looking at the year-to-date results, we were reasonably satisfied with the performance from our Heavy Vehicle Technologies and Systems Group, which benefited from a solid commercial vehicle market in North America, and strong global off-highway vehicle production," Burns said. "It was a different story in our Automotive Systems Group. Although their sales were up, about 30% of the sales increase resulted from currency translation and new programs in our structures group, which are only beginning to contribute to the bottom line. Additionally, the automotive group bore the brunt of the increased steel costs."
On Oct. 12, Dana revised its expectation for 2004 earnings per share, excluding unusual items, from $1.90 per share to a range of $1.60 to $1.65 per share.
"We believe that raw material costs will continue to adversely affect us, at least in the near term," Burns said. "As we move into 2005, however, we can expect more of an offsetting benefit from our cost reduction programmes."