American Axle (AXL) Down 51.9% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for American Axle & Manufacturing (AXL). Shares have lost about 51.9% 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 drivers.

American Axle's Q4 Earnings Top Estimates, Down Y/Y

American Axle reported mixed results for fourth-quarter 2019, wherein earnings topped the Zacks Consensus Estimate but revenues lagged the same. While the UAW-General Motors strike affected the company’s performance, better-than-expected EBITDA in the Driveline and Metal Forming segments led to the outperformance.

The Detroit-based global automotive parts supplier posted adjusted earnings of 13 cents per share, topping the Zacks Consensus Estimate of 1 cent. The bottom-line figure, however, slumped 71.1%, year on year. The company reported revenues of $1,430 million, missing the Zacks Consensus Estimate of $1,492 million. The revenue number also came in lower than the year-ago figure of $1,694 million.

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Segmental Highlights

The firm’s Driveline segment recorded sales of $1,015.6 million, down 13.4% year over year. Negative impact of the 40-day strike of its largest customer GM, a choppy metal market and unfavorable foreign-currency translation resulted in this decline. The unit EBITDA also declined 23.7% from the prior-year quarter to $124.9 million. However, the figure surpassed the Zacks Consensus Estimate of $123 million.

The company’s Metal Forming business generated revenues of $401.2 million, lower than the year-ago figure of $464.3 million. Its EBITDA also decreased $7.6 million year on year to $66.2 million. However, it beat the Zacks Consensus Estimate of $54 million. While lower North American and European production volumes marred the unit’s performance, improved launch and operating performance offset the losses.

The Casting unit posted revenues of $127.5 million, significantly lower than the year-ago level of $184.2 million. The segment EBITDA also declined to $2.4 million from the $6.4 million recorded in fourth-quarter 2018. It also missed the Zacks Consensus Estimate of $12.8 million.

Costs & Financial Position

American Axle’s SG&A (selling, general & administrative) expenses were $90 million in fourth-quarter 2019 comparison with the $97.1 million incurred in the prior-year period.

For the three-month period ended Dec 31, 2019, the company’s adjusted free cash flow (FCF) was $116.5 million compared with the $142.4 million witnessed in the year-earlier period. Capital spending in the quarter came in at $95 million, down from the year-ago quarter’s $131.2 million.

As of Dec 31, 2019, American Axle had cash and cash equivalents of $532 million, and net long-term debt of $3,612.3 million, representing a debt-to-capital ratio of 78.8%.

2020 Outlook

For 2020, American Axle anticipates sales of $5.8-$6 billion. While adjusted EBITDA is expected in the $930-$960 million band, adjusted EBITDA margin is likely to be around 16% of sales. Adjusted FCF is projected at $300 million, which assumes capital spending of 5.5% of sales.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -44.09% due to these changes.

VGM Scores

At this time, American Axle has an average Growth Score of C, though it is lagging a bit 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 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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 this revision 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.