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American Axle and Manufacturing Inc. (AXL - Analyst Report) reported a loss of $1.7 million or 2 cents per share in the fourth quarter of 2012, compared with a profit of $35.9 million or 47 cents in the year-ago quarter.

The fourth-quarter 2012 results excluded impacts of debt refinancing and redemption costs of $9.7 million or 13 cents per share and restructuring costs of $6.2 million or 8 cents. The quarterly results, however, included a favourable impact of a $337.5 million related to the reversal of valuation allowance against net federal deferred tax assets for entities in the United States. 

The year-ago quarter results reflected special charges and restructuring costs related to the closure of Detroit Manufacturing Complex and Cheektowaga Manufacturing Facility of $4.8 million or 6 cents.

The company’s loss considerably lagged the Zacks Consensus Estimate of a profit of 17 cents. Meanwhile, on a reported basis, the company reported a profit of $319.9 million or $4.21 per share, compared with a profit of $31.1 million or 41 cents in the fourth quarter of 2011.

The company’s revenues increased 21.6% year over year to $736.7 million during the quarter, surpassing the Zacks Consensus Estimate of $733.0 million. The company’s content-per-vehicle (dollar value of the product sales supporting the company’s customers’ North American light truck and SUV programs) increased to $1,514 from $1,498 in fourth quarter 2011.

Cost of goods sold rose 30.6% to $652.7 million from $499.9 million a year ago. As a result, gross profit went down 20.5% to $84.0 million from $105.7 million in the fourth quarter of 2011.

Gross margin was 11.4% compared to 17.5% in the year-ago quarter. Operating income plunged 61.6% to $18.6 million or 2.5% of sales from $48.5 million or 8% of sales in the prior-year quarter.

The company progressed well in diversifying its customer base during the quarter. The company has a high exposure to customers like General Motors Company (GM - Analyst Report) and Chrysler. Non-GM sales increased 16.6% to $204.1 million (27.7% of sales) in the quarter from $175.0 million (28.9% of sales) in the fourth quarter of 2011.

Adjusted earnings before interest expense, income taxes and depreciation and amortization fell 28.9% to $64.5 million (8.8% of sales) from $90.7 million (15% of sales) in the year-ago quarter.

For full year 2012, American Axle reported a significant increase in adjusted earnings per share to $5.67 from $2.15 a year ago. On a reported basis, profit was $367.7 million or $4.87 per share compared to $142.8 million or $1.89 in 2011. Revenues increased 13.4% to $2.93 billion.

Financial Position

American Axle had cash and cash equivalents of $62.4 million as of Dec 31, 2012, down from $169.2 million as of Dec 31, 2011. Long-term debt increased to $1.5 billion as of Dec 31, 2012 from $1.2 billion as of Dec 31, 2011. Long-term debt-to-capitalization ratio was 1.1% versus 1.6% as of Dec 31, 2011.

In full year 2012, American Axle’s cash flow used in operating activities increased to $175.5 million from $56.3 million in the same period of 2011. Capital expenditures (net) increased marginally to $185.4 million from $184.1 million in 2011. This led to a higher free operating cash flow use of $360.9 million in 2012 compared with $205.3 million in 2011.

Our Take

American Axle is a leading supplier of driveline systems, modules and components for the light vehicle market. The company makes axles, driveshafts and chassis components for light trucks, sport utility vehicles and passenger cars. It retains a Zacks Rank #3 (Hold).

Currently, Oshkosh Corporation (OSK - Snapshot Report) and Commercial Vehicle Group Inc. (CVGI - Snapshot Report), both carrying Zacks Rank #1 (Strong Buy), are performing well in the same industry where American Axle operates.

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