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American Axle (AXL) Q3 Earnings Beat, Sales Lag, View Cut

Zacks Equity Research

American Axle & Manufacturing Holdings, Inc. AXL reported mixed 2019 third-quarter results, wherein earnings topped the Zacks Consensus Estimate, but revenues lagged the same. While the company’s results were negatively impacted by UAW-General Motors GM strike, operational efficiency offset the same. The Detroit-based global automotive parts supplier posted adjusted earnings of 58 cents per share, topping the Zacks Consensus Estimate of 41 cents. However, the bottom line declined 7.9% year over year. The company reported revenues of $1,677 million, missing the Zacks Consensus Estimate of $1,697 million and decreasing from the year-ago figure of $1,817 million.

Segmental Highlights

The firm’s driveline segment recorded sales of $1,146.7 million, down 6.6% year over year. EBITDA from the unit also declined 3% from the prior-year quarter to $171.6 million. Unfavorable impact from the 40-day strike of its largest customer General Motors (GM) resulted in the weaker contribution. However, American Axle was able to improve EBITDA margin from 14.4% to 14.9% in the quarter under review on the back of operational efficiency, and lower project and launch costs.

The company’s metal forming business generated revenues of $476.6 million, lower than the year-ago figure of $509 million. Its EBITDA also scaled down 3.9% year over year to $80.4 million. While work stoppage at General Motors impacted the unit’s results, lower launch costs and synergy benefits offset the losses.

The Casting unit posted revenues of $209 million, comparing unfavorably with the year-ago level of $219.1 million. EBITDA from the segment also declined to $13.8 million from $14.5 million recorded in third-quarter 2018. The segment bore the brunt of high operating costs and lower sales in commercial and industrial markets.

Costs & Financial Position

American Axle’s SG&A (selling, general & administrative) expenses were $92.7 million in third-quarter 2019 in comparison with $96.3 million in the prior-year period.

For the three months ended Sep 30, the company’s adjusted free cash flow (FCF) was $160.5 million compared with $121.3 million in the same period of last year. Capital spending in the quarter came in at $97.5 million, declining from $116.5 million in the year-ago quarter. 

As of Sep 30, American Axle had cash and cash equivalents of $375.1 million, and net long-term debt of $3,673.3 million, representing a debt-to-capital ratio of 72.3%.

Outlook Trimmed

Amid the negative strike-related impacts, the company lowered its full-year guidance and expects the stoppage to cost it $250 million. For 2019, American Axle anticipates sales of $6.6 billion, down from the previous view of $6.9-$7 billion. Adjusted EBITDA is now expected in the band of $950-$975 million compared with the prior guided range of $1.05-$1.10 billion. Adjusted FCF is now forecast to be $175 million, lower than the prior view of $250 million.

Zacks Rank and Other Stocks to Consider

American Axle currently carries a Zacks Rank #2 (Buy). Other top-ranked players in the same space include Horizon Global Corporation HZN and Commercial Vehicle Group, Inc. CVGI, each carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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