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American Axle Remains Neutral

Zacks Equity Research

We maintain our neutral recommendation on American Axle and Manufacturing Holdings Inc. (AXL). The company’s first-quarter 2012 earnings of 61 cents per share missed the Zacks Consensus Estimate by 3 cents. Profit increased 22% year- over-year to $45.9 million.

Revenues swelled 16% year-over-year to $751.5 million due to a boost in production volume across the major product programs along with improvement in capacity utilization. However, revenues fell short of the Zacks Consensus Estimate of $765 million.

The company’s continuous effort to expand its geographic footprint is enhancing its growth opportunities. It has expanded significantly in Asia to meet the rising demand for vehicles. American Axle would also reap the benefits from accelerated extension in Brazil, China, India, Mexico, Poland and Thailand.

Besides geographic expansion, the company is also focusing on customer base diversification. It supplies driveline systems and other components to General Motors  Company (GM), Chrysler, PACCAR Inc. (PCAR), Ford Motor Co. (F), Volvo and various other OEMs. American Axle is also building on relationship with new partners including Volkswagen, Nissan Motor Co. (NSANY), Tata, Mahindra, Cherry, Brilliance and others. The company, in 2011, recorded a 25% hike in revenues to $710 million, from partners other than General Motors.

American Axle has huge exposure to General Motors and Chrysler. These two companies contributed about 73% and 8% of the revenues, respectively, in 2011. Any reduction in sales or decrease in volume by these two automakers will affect the company’s earnings. Apart from the demand for price reduction by major OEM customers, there are other factors that are putting pressure on the company.

The company’s major sources of revenues stem from supporting rear-wheel-drive(:RWD) light truck and sport utility vehicle (:SUV) in North America. However, this platform is undergoing a production cut. The major factors attributable towards the decline in production are shift to other types of light vehicles along with increasing fuel prices and stringent government regulation.

American Axle is a leading supplier of driveline systems, modules and components for the light vehicle market. The company makes axles, driveshaft and chassis components for light trucks, sport utility vehicles and passenger cars. The company with its numerous new global products and process launches is featuring advanced driveline technology.

Our recommendation on the stock is backed by a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating.

Read the Full Research Report on AXL

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Read the Full Research Report on PCAR

Read the Full Research Report on NSANY

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