Very solid 2Q for AXL AXL reported 2Q:11 cont. ops. EPS of $0.69, ahead of our estimate of $0.48 and consensus of $0.44. GAAP EPS of $0.65 included a $3.1mm (~$0.04/sh) debt refinancing charge. A lower than modeled tax rate also added ~$0.05/sh versus our estimates, but this was still a solid beat. The quarter was driven by a strong 23% YoY increase in revenue to $686mm versus our $644mm estimate. Gross margin was also solid at 19% (BofAMLe 18.0%), which combined with SG&A as a % of sales at 8.6% (BofAMLe 8.8%) drove an operating margin of 10.4% (BofAMLe 9.2%). AXL’s 2Q adjusted EBITDA margin was also impressive at 15.7%, and was well above our 14.7% forecast. We believe AXL’s execution will continue to improve in 2011, likely enhanced by a recovery in volumes. 2011 revenue outlook raised AXL is now forecasting revenue of $2.5-$2.6bn (prior $2.4-$2.5bn), which compares top our $2.6bn estimate, and continues to expect an EBITDA margin of 14.5%-15% (BofAMLe 14.8%), based on a 2011 US SAAR of 13mm (prior 12.5mm) units. Although not explicitly mentioned in the press release, it appears that AXL continues to forecast YoY capex in 2011 of ~6% of sales, in order to support its 2011-2013 business backlog. Similar to other companies throughout the auto value chain, we believe AXL continues to prudently plan its business around conservative market demand forecasts and there may be upside. Balance sheet solid and improving AXL ended 2Q with cash and equivalents of $250mm, up from $217mm in cash at the end of 1Q11. In our view, AXL has made notable progress in strengthening its balance sheet and restructuring its operations. In fact, the company reduced debt by ~$47mm in 1H11, which follows similar actions in 2010, and we expect further delevering in the near term. Focus on North America to be beneficial We expect that a slowly improving US economy could bolster sales of light trucks, many of which are used for commercial purposes. AXL remains heavily exposed to the light truck and SUV platforms of GM and Chrysler for now, and therefore could see an outsized benefit from an economic recovery. It should also be noted that AXL is materially diversifying its sales base with non-GM sales increasing 35% in the quarter to ~$183mm or about 27% of total sales.