From Bloomberg, Detroit Free Press
TOLEDO, OH — Dana Corp., the biggest maker of axles for light trucks, said third-quarter net income fell 34 percent as U.S. carmakers trimmed production and raw material costs rose.
Net income dropped to $40 million, or 27 cents a share, from $61 million, or 41 cents, the Toledo company said Wednesday. Sales rose 12.2 percent to $2.11 billion from $1.88 billion. Higher steel costs alone reduced net income by $22 million, Chief Executive Michael Burns said in a statement.
Rising prices for steel and plastics are hitting suppliers as they confront cost-cutting demands and lower production from automakers. Delphi Corp., the biggest auto supplier, blamed those factors for additional job cuts and a third-quarter loss announced Monday.
“The magnitude of the raw-material increases, coupled with a decrease in light-vehicle production volumes, hit us harder than expected,” Burns said.
A ton of hot-rolled sheet steel, which Dana uses to produce frames for such vehicles as Ford Motor Co.’s F-150 pickup, has more than doubled in the past year to $680 from $300, according to American Metal Market, a trade publication.
Dana expects to spend $1.7 billion this year on steel. “We can’t throw up our hands and play the victim,” Burns, 52, said. “We are working with our customers, increasing pricing surcharges and working aggressively to remove costs elsewhere in the system.”
Burns said, for example, the company is attempting to commonize the alloys in the metals it needs to reduce the need for different steel varieties.
Steel prices are rising in part because of a surge in demand from China’s manufacturing and construction industries.
Dana shares fell 22 cents to close at $14.17 on the New York Stock Exchange. They reached a 52-week low of $13.90 earlier Wednesday. Auto suppliers’ shares are expected to be pinched in the next few quarters as companies contend with rising costs and a drop in production from automakers, said Kevin Tynan, an analyst with Argus Research.
“If the broader markets find a rally because of good job data or a decrease in oil prices, then they might get pulled off their lows,” said Tynan. “But these stocks are not going to fly in the face of the broader market.”
Excluding certain costs, Dana’s net income was $60 million, or 40 cents a share. The company was expected to earn 37 cents a share, the average estimate of analysts surveyed by Thomson Financial.
The $1.1-billion sale of Dana’s replacement parts business to buyout firm Cypress Group LLC is expected to be complete by the end of November, Robert Richter, Dana’s CFO, said. Dana said in July the sale would be completed in the third quarter.
The unit, whose products include Raybestos brakes and Wix air filters, made up about one-fifth of Dana’s $10 billion in 2003 revenue and $222 million in net income. Dana has said proceeds of the sale could be used to reduce $2.59 billion in long-term debt.
Dana reiterated its full-year forecast of $1.60 to $1.65 a share, excluding unusual costs, or $240 million to $248 million in net income. Dana lowered its forecast from $1.90 a share on Oct. 12.
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