Dauch Corporation (DCH) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed picture: while there is a slight improvement in adjusted EPS and net leverage ratio, free cash flow decreased due to higher capital expenditures. The Q&A reveals concerns about ongoing restructuring costs and flat sales projections, suggesting limited growth potential. However, management's confidence in synergy targets and potential upside in operating efficiencies provide some positive outlook. Overall, the sentiment is neutral, with no significant catalysts to drive a strong positive or negative stock price movement.
Key Financial Performance
Fourth Quarter 2025 Sales $1.4 billion, flat compared to the fourth quarter of 2024. Reasons include volume mix and other factors lowering sales by $2 million, pricing increasing sales by $6 million, and the sale of the commercial vehicle axle business in India reducing sales by $27 million. Metal market pass-throughs and FX increased net sales by $38 million.
Full Year 2025 Sales $5.8 billion, down from $6.12 billion in 2024. The decrease was driven by volume and mix, and the sale of the India commercial vehicle axle business, partially offset by favorable FX and metal markets.
Fourth Quarter 2025 Adjusted EBITDA $169 million, or 12.2% of sales, up from $160.8 million in the fourth quarter of 2024. The increase was due to favorable mix effects, lower R&D expenses, and improved performance.
Full Year 2025 Adjusted EBITDA $743 million, or 12.7% of sales, up from 12.2% in 2024. The improvement was attributed to margin improvements in Metal Forming and Driveline business units, and operational efficiency.
Fourth Quarter 2025 Adjusted Earnings Per Share $0.07 per share, compared to a loss of $0.06 per share in the fourth quarter of 2024. The improvement was due to better operational performance and cost management.
Full Year 2025 Adjusted Earnings Per Share $0.53 per share, up from $0.51 per share in 2024. The increase was driven by improved profitability and operational efficiency.
Fourth Quarter 2025 Adjusted Free Cash Flow $70 million, compared to $151.2 million in the fourth quarter of 2024. The decrease was due to higher capital expenditures and cash payments related to the Dowlais acquisition.
Full Year 2025 Adjusted Free Cash Flow $213 million, down from $230 million in 2024. The decline was attributed to higher capital expenditures and restructuring costs.
Net Debt as of December 31, 2025 $1.8 billion, with a net leverage ratio of 2.5x, down from 2.8x in 2024. The improvement was driven by cash flow generation and proceeds from asset sales.
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Operating Highlights
SmartBar product: Dauch Corporation announced the supply of its innovative SmartBar product to Scout Motors, in addition to previously announced front electric drive units and electric rear beam axles.
Geographic presence: The acquisition of Dowlais Group plc diversifies Dauch Corporation's customer base and balances its geographic presence globally, anchored by a strong truck franchise in North America.
Operational efficiency: Achieved margin improvement in Metal Forming and Driveline business units, with adjusted EBITDA margin increasing to 12.7% in 2025 from 12.2% in 2024.
Synergy realization: Identified $300 million in synergies from the Dowlais acquisition, with a 60% annual run rate expected by the end of the second year and $100 million in run rate savings by the end of the first year.
Dowlais acquisition: Completed the acquisition of Dowlais Group plc, creating a leading global Driveline and Metal Forming supplier with a comprehensive powertrain-agnostic product portfolio.
Rebranding: Rebranded from American Axle Manufacturing Holdings, Inc. to Dauch Corporation, signaling a commitment to performance and operational excellence.
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Risk or Challenges
Macroeconomic Volatility: The company faced a very volatile macro environment in 2025, which could continue to impact operations and financial performance in 2026.
Trade Policy Uncertainty: The finalization of USMCA later in 2026 introduces uncertainty, as OEMs may adjust product planning and plant loading decisions based on the outcome.
Integration Risks: The acquisition of Dowlais Group and its subsidiaries presents integration challenges, including achieving $300 million in synergies and managing restructuring costs.
Debt and Interest Expense: The company issued new debt for the Dowlais acquisition, increasing interest expenses, which could strain financials if cash flow targets are not met.
Foreign Exchange Risks: The strengthening of the Mexican peso is expected to create headwinds, impacting profitability.
Restructuring Costs: The company anticipates $110 million to $150 million in restructuring outflows in 2026, which could pressure cash flow.
Synergy Realization Costs: Achieving synergies from the Dowlais acquisition will require $100 million to $125 million in cash costs in 2026, adding to financial pressures.
Seasonal and Operational Cash Flow Variability: The first quarter of 2026 is expected to be the weakest due to customer downtime and partial contributions from Dowlais, impacting cash flow.
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Guidance & Outlook
2026 Financial Outlook: Targeting sales of $10.3 billion to $10.7 billion, adjusted EBITDA of approximately $1.3 billion to $1.4 billion, and adjusted free cash flow in the range of $235 million to $325 million. This includes a partial year contribution from the Dowlais acquisition.
Synergy Realization from Dowlais Acquisition: Estimated $300 million in synergies with a full run rate achievement by the end of year 3. Expecting to achieve 60% annual run rate by the end of the second full year and exceeding $100 million in run rate savings by the end of the first year.
2026 Regional Production Assumptions: North American production at approximately 15 million units, Europe at approximately 17 million units, China at approximately 33 million units, and global production at approximately 93 million units.
Adjusted Free Cash Flow: Targeting $235 million to $325 million in 2026, with capital expenditures expected to be 4.5% to 5% of sales.
Operational and Financial Priorities: Focus on achieving efficient integration of Dowlais, delivering synergy value, generating solid adjusted free cash flow, strengthening the balance sheet, advancing the agnostic product portfolio, and positioning the company for sustained profitable growth.
2026 EBITDA Walk: Expecting $600 million contribution from Dowlais for the year, with synergy P&L flow-through contributing to margin improvement. Targeting a third consecutive year of margin growth.
Quarterly Guidance for 2026: First quarter expected to be the weakest due to January downtime at key customers and only a partial quarter for Dowlais sales contributions. Normal seasonal cash outflow anticipated in Q1.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What is the sales outlook for the two individual businesses, American Axle and Dowlais?
A:For American Axle, sales are down 2%, with a 1% decline attributed to sales. For Dowlais, the full-year sales are projected at $5.4 billion, but there is no significant growth observed. Sales assumptions for North America are slightly down from 15.3 million units to 15 million in 2026, with relatively flat sales in the European market.
Q:What is the GMT1 assumption for 2026?
A:The GMT1 assumption for 2026 is 1.3 million to 1.4 million units.
Q:Are restructuring and synergy integration costs expected to continue beyond 2026?
A:Yes, synergy integration costs are expected to continue into 2027, with a total of $300 million planned for implementation. Restructuring costs are expected to drop significantly as Dowlais completes its restructuring efforts and American Axle closes a couple of facilities by 2026.
Q:What is the cash flow outlook for 2026 after restructuring and synergy costs?
A:The company expects to generate $50 million of cash flow in 2026 after accounting for $125 million in synergy integration costs and $150 million in restructuring costs.
Q:What are the acquisition costs mentioned in the cash flow discussion?
A:Acquisition costs refer to the closing costs for transactions completed on February 3, funded through financing and cash build from the previous year. These costs are unrelated to the core operations of the company.
Q:Is there potential for upside in the $300 million synergy target from the Dowlais combination?
A:Yes, there is potential for upside, particularly in the operating efficiencies category. The company is confident in delivering the $300 million target and will evaluate opportunities for enhancement as they gain more familiarity with Dowlais plants.
Q:Why is the 2026 adjusted EBITDA estimate consistent with the 2025 guidance despite Dowlais exceeding its 2025 preliminary results?
A:The consistency is due to meaningful differences in accounting adjustments, such as joint venture equity share, pension differences, lease differences, and R&D differences. These adjustments can result in a delta of up to $100 million.
Q:What is the outlook for free cash flow growth beyond 2026?
A:Free cash flow growth beyond 2026 will be driven by $250 million in additional synergies, declining interest expenses, moderated CapEx, potential tax optimization, working capital optimization, and reduced restructuring costs.
Q:How is Dowlais equity income accounted for in the P&L?
A:Dowlais equity income is reported as equity income in the P&L and included in the adjusted EBITDA number, with an expected range of $65 million to $75 million for the 50% share.
Q:What is the outlook for the Dowlais business and the China JV in 2026?
A:The Dowlais business is expected to see benefits from reduced restructuring investments in 2026, with more meaningful impacts in 2027. The China JV, with revenues of nearly $1.5 billion, is expected to perform steadily, mirroring macro movements in the China market.
Q:How will the company report its segments going forward?
A:The company will update its segment reporting in the first quarter, but it is expected to remain similar to the current Driveline and Metal Forming segments.
Q:What are the expected savings from the $110 million to $150 million restructuring costs in 2026?
A:Savings from restructuring costs will primarily benefit 2027, with over two-thirds related to Dowlais' factory relocations and the remainder from American Axle's facility closures.
Q:What is the pro forma net debt post-transaction closing?
A:The pro forma net debt post-transaction closing is approximately $4.2 billion.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on Dowlais' full-year 2025 results, citing that they have not been completed or published. Additionally, they did not provide a clear breakdown of the IFRS adjustments' impact on the 2026 adjusted EBITDA estimate.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AAM
America
Automotive
Chery
Chief Financial
Conference
Dauch
Driveline supplier
Executive Vice
Financial Officer
GKN
GM
Global
Investor
Slide
acquisition
addition
brand
cash flow
conference
end
excellence
investor
market
measure
name
outlook
perspective
potential
product
quality
replay
result
run rate
sale
technology
today
transaction
unit
Frequently Asked Questions
Where does this earnings call transcript come from?
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