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Why Is American Axle (AXL) Up 24.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for American Axle & Manufacturing (AXL). Shares have added about 24.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is American Axle due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

American Axle's Q3 Earnings Surpass Estimates, Rise Y/Y

American Axle reported third-quarter 2020 adjusted earnings of $1.15 per share, handily beating the Zacks Consensus Estimate of earnings of 21 cents. Moreover, the reported figure comes in significantly higher than the year-ago quarter’s earnings of 58 cents per share.

The Detroit-based global automotive parts supplier generated revenues of $1,414.1 million, missing the Zacks Consensus Estimate of $1,444 million on lower-than-expected revenues from both major segments of the company.  

Revenues, moreover, slipped 15.7% from the year-ago figure of $1,677.4 million on the pandemic-led sluggish demand. Per the company, the coronavirus crisis affected sales to the tune of $87 million for the reported quarter.

Segmental Performance

For the September-end quarter, the Driveline segment recorded sales of $1,094.5 million, down 7.8% year over year. The metric also missed the Zacks Consensus Estimate of $1,133 million. Nonetheless, the segment posted adjusted EBITDA of $207.4 million, higher than the $181 million witnessed in the prior-year quarter.

The company’s Metal Forming business generated revenues of $433.2 million during the third quarter, declining 9.1% from the year-ago figure of $476.6 million. The reported figure also lagged the consensus mark of $458 million. Nonetheless, the segment witnessed an adjusted EBITDA of $89.7 million against the prior year’s income of $79.3 million.

Financial Position

American Axle’s third-quarter 2020 SG&A (selling, general & administrative) expenses totaled $66.5 million, down from the $92.7 million incurred in the prior-year period.

For the three-month period ended Sep 30, 2020, the company posted adjusted free cash flow (FCF) of $217.2 million, as against the adjusted FCF of $160.5 million recorded in the year-earlier period. Capital spending for the quarter came in at $40.5 million, down from the year-ago period’s $97.5 million.

As of Sep 30, 2020, American Axle had cash and cash equivalents of $537.3 million compared with $532 million on Dec 31, 2019. The company had net long-term debt of $3,555.4 million as of Sep 30, 2020, down from $3,612.3 million on Dec 31, 2019.

Outlook

Amid the improving scenario, management reissued the previously-suspended 2020 guidance and expects full-year sales of $4.6 billion, with adjusted EBITDA in the range of $665-$680 million. The company also anticipates adjusted free cash flow for the current year to be in the band of $220-$235 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 1310% due to these changes.

VGM Scores

Currently, American Axle has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise American Axle has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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