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American Axle (AXL) Down 20.8% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for American Axle & Manufacturing (AXL - Free Report) . Shares have lost about 20.8% in that time frame, underperforming the S&P 500.

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

American Axle Q3 Earnings Miss Estimates, Revenues Rise

American Axle posted adjusted earnings of 63 cents per share in the third quarter, missing the Zacks Consensus Estimate of 90 cents. In third-quarter 2017, adjusted earnings were 86 cents.
    
During the quarter under review, the company reported net income of $63.8 million or 55 cents per share compared with $86.2 million or 75 cents a year ago.

Revenues increased to $1.8 billion from the year-ago $1.72 billion. The top line slightly surpassed the Zacks Consensus Estimate of $1.78 billion.

American Axle’s SG&A (Selling, General & Administrative) expenses were $96.3 million for the third-quarter 2018 in comparison with $102.3 million in the prior-year quarter.

Gross profit decreased to $267.4 million in third-quarter 2018 from $297.7 million a year ago. Operating income declined to $134.6 million from $148.2 million.

Financial Position

American Axle had cash and cash equivalents of $439.4 million as of Sep 30, 2018, up from $376.8 million as of Dec 31, 2017. Net long-term debt was $3.9 billion as of Sep 30, 2018, compared with $4 billion as of Dec 31, 2017.

Cash flow from operations for the first three months of 2018 was $223.8 million in comparison with the prior-year $207.5 million. At the end of the first three months of 2018, American Axle’s adjusted free cash inflow was $121.3 million compared with an inflow of $87.8 million for the same period last year.

2018 Outlook

For 2018, the company expects sales of $7.25 billion compared with the prior expectation of $7.2-$7.25 billion.

American Axle anticipates adjusted earnings before income taxes, depreciation and amortization (EBITDA) margin of 16.25-16.5% compared with the previous expectation of 17.5-17.75%. Due to higher launch-related expenses and manufacturing costs in the second half of 2018, the company lowered the guidance. As a result of a drop in full-year adjusted EBITDA, the company is now targeting adjusted free cash flow of 4% of sales in 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -45.67% due to these changes.

VGM Scores

At this time, American Axle has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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 broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise American Axle has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.




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