On Feb 24, 2014, we issued an updated research report on American Axle & Manufacturing Holdings Inc. (AXL). The company should benefit from new and incremental businesses to be launched, increased manufacturing in low-cost countries, efforts to diversify the customer base and the rising cash balance. However, growing debt and pricing pressure by original equipment manufacturers (OEMs) remain causes for concern.
American Axle reported fourth-quarter 2013 adjusted earnings of 70 cents per share, surpassing the Zacks Consensus Estimate of 51 cents. Earnings per share rebounded from a loss of 2 cents in the comparable quarter of 2012 (excluding special items). Adjusted net income jumped to $54.2 million from adjusted loss of $1.7 million reported in the fourth quarter of 2012.
American Axle generated positive earnings surprise in three of the trailing four quarters with an average beat of 22.38%. The company’s efforts at widening its customer base are generating incremental revenues. Apart from General Motors Company (GM) and Chrysler, the company supplies driveline systems and other components to Ford Motor Co. (F), Volkswagen AG (VLKAY) and various other OEMs.
Additionally, American Axle’s cash balance has improved. The company is also undergoing a significant expansion of its manufacturing footprint in Asia, where growing demand for vehicles is enhancing production volumes. Further, the company’s new and additional business backlog to be launched between 2014 and 2016 is valued at $900 million in annual sales. The new business should help the company maintain compounded annual growth rate of about 11–12%, double the expected industry growth rate, till 2015.
However, major OEM customers constantly demand price concessions from suppliers. This has been affecting the company negatively. Moreover, American Axle’s long-term debt increased to $1.6 billion as of Dec 31, 2013, from $1.5 billion as of Dec 31, 2012.
Since the company earns a significant portion of its revenues form products supporting rear-wheel-drive (RWD) light truck and SUV platforms in North America, the presence of factors hampering sales and output levels of these light trucks and SUVs is a bane.
Currently, American Axle holds a Zacks Rank #4 (Sell).
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