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American Axle Closing Detroit Plant

AXL GM

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American Axle and Manufacturing Inc. (AXL - Analyst Report) plans to close its manufacturing facility in Detroit as communication with the United Auto Workers (UAW) union broke down. The parties had disagreement over the reduction of compensation for the workers from $45 an hour to $30 an hour. The shutdown will affect 300 hourly and salaried workers at the plant.

American Axle went through tough times during the global economic recession as it is one of the companies that is exposed to platforms which have seen maximum production cuts.

The company derives a substantial portion of its revenue from products supporting rear-wheel-drive (RWD) light truck and sports utility vehicle (SUV) platforms in North America. However, sales and output levels of light trucks and SUVs are being affected by many factors during the period.

Moreover, the auto parts maker has a high exposure to General Motors Company (GM - Analyst Report) and Chrysler, which has been restructuring under the Chapter 11 bankruptcy. Sales to GM and Chrysler were 75% and 9% of its total net sales, respectively in 2010, 78% and 8% in 2009 and 74% and 10% in 2008.

The Zacks #3 Rank (Hold) company posted a profit of $37.7 million or 50 cents per share in the first quarter of 2011 that more than doubled from $16.3 million or 22 cents per share in the year-ago quarter. With this, the company has beaten the Zacks Consensus Estimate by 12 cents per share. The increase in profit was attributable to improved capacity utilization and sustained reductions in fixed cost structure.

Revenues in the quarter grew 24% to $645.6 million, up from the Zacks Consensus Estimate of $591 million. The company expects its sales to grow in excess of $3 billion by 2013 through product launches. It also aims to improve its business diversification in terms of product mix, customer base and served markets.

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