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American Axle (AXL) Up 17.9% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for American Axle & Manufacturing (AXL - Free Report) . Shares have added about 17.9% 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 drivers.

American Axle's Q3 Earnings Top Estimates, Down Y/Y

American Axle delivered mixed 2019 third-quarter results, wherein the earnings topped the Zacks Consensus Estimates, but the revenues lagged the same. While the company’s results were negatively impacted by UAW-General Motors strike, operational efficiency offset the results. Detroit-based global automotive parts supplier posted adjusted earnings of 58 cents per share, topping the Zacks Consensus Estimate of 41 cents. Nonetheless, the bottom line reduced 7.9% year-over-year. The company reported revenues of $1,677 million, missing the Zacks Estimate of $1,697 million and also below the year ago figure of $1,817 million.

Segmental Highlights

The firm’s driveline segment recorded sales of $1,146.7 million, down 6.6% year-over-year. The EBITDA from the unit also declined 3% to come in at $171.6 million. Unfavorable impact from the 40-day strike of its largest customer General Motors (GM) led to weaker contribution. However, American Axle was able to improve its EBITDA margin from 14.4% to 14.9% in the quarter under review on the back of operational efficiency along with lower project and launch costs.

The company’s metal forming business generated revenues of $476.6 million, lower than the year-ago figure of $509 million. The EBITDA also scaled down 3.9% year-over-year to $80.4 million. While work stoppage at General Motors impacted the unit’s results, lower launch costs and synergy benefits offset the losses.

Casting unit posted revenues of $209 million, comparing unfavorably with the year-ago level of $219.1 million. The EBITDA from the segment also declined to $13.8 million from $14.5 million recorded in the third quarter of 2018. The segment bore the brunt of high operating costs and lower sales in commercial and industrial market.

Costs & Financial Position

American Axle’s SG&A (selling, general & administrative) expenses were $92.7 million for thirdd-quarter 2019 in comparison with $96.3 million in the prior-year quarter.

For the three months ending Sep 30, the company’s adjusted free cash flow (FCF) was $160.5 million compared with $121.3 million for the same period of last year. Capital spending in the quarter came in at $97.5 million, declining from $116.5 million in the year-quarter figure. 

As of Sep 30, American Axle had cash and cash equivalents of $375.1 million and Net long-term debt was $3,673.3 million, representing debt-to-capital ratio of 72.3%.

Outlook Trimmed

Amid the negative strike-related impacts, the company lowered its full year guidance and expects the stoppage to cost it $250 million. For 2019, American Axle anticipates sales of $6.6 billion, down from the previous view of $6.9-$7 billion. Adjusted EBITDA forecast is now expected in the band of $950-$975 million, compared to the prior range of $1.05-$1.10 billion. Adjusted FCF is now forecasted at $175 million, lower than the prior view of 250 $million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -93.68% due to these changes.

VGM Scores

Currently, American Axle has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. 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. Notably, American Axle has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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