American Axle and Manufacturing Inc. (AXL) posted an increase in profit to $49.2 million or 65 cents per share in the second quarter of 2011 from $25.4 million or 34 cents per share in the same quarter of 2010, driven by increased production volumes across its major product programs and continuous improvements in capacity utilization.
With this, the auto parts maker has surpassed the Zacks Consensus Estimate by a significant margin of 21 per share.
Sales in the quarter grew 23% to $686.2 million. Customer production volumes for the major North American light truck and SUV programs that the company currently supports for GM, Chrysler and Nissan rose 15% in the quarter.
The company’s content-per-vehicle (dollar value of its product sales supporting GM’s North American light truck and SUV programs) increased 7% to $1,504 from $1,408 in the second quarter of 2010.
Adjusted earnings before interest expense, income taxes and depreciation and amortization (Adjusted EBITDA) was $107.5 million versus $83.2 million a year ago. Gross profit increased $31.6 million to $130.5 million from $98.9 million in the second quarter of 2010. Gross margin improved to 19.0% in the quarter from 17.7% in the prior-year quarter.
Operating income went up $21.3 million to $71.7 million from $50.4 million in the second quarter of 2010. This translated into an operating margin of 10.4% versus 9% in the prior year.
The company progressed well in diversifying its customer base during the quarter. The company has a high exposure to customers, including General Motors Company (GM) and Chrysler. This is reflected in its non-GM sales that increased 39% to $361.1 million in the first half of 2011, which accounted for 27% of total sales, up from 24% of total sales in the first half of 2010.
Selling, general and administrative spending was $58.8 million as compared to $48.5 million in the second quarter of 2010. Meanwhile, research and development spending escalated $8.7 million to $27.3 million from $18.6 million in the year-ago quarter.
Financial Position
American Axle had cash and cash equivalents of $250.3 million as of June 30, 2011, up from $244.6 million as of December 31, 2010. Long-term debt reduced to $964.6 million as of June 30, 2011 (reflecting a debt-to-equity ratio of 1.59) from $1.01 billion (1.86) as of December 31, 2010.
In the first half of 2011, American Axle’s operating net cash flow deteriorated to $116.5 million from $164.9 million in the same period of 2010. Meanwhile, capital expenditures (net) reduced to $63.8 million from $35.7 million a year ago.
In the same period, free cash flow declined to $52.7 million from $129.2 million in the prior year-period. As of June 30, 2011, the company’s total available liquidity was $595 million, consisting of available cash and committed borrowing capacity on its amended and restated revolving credit facility.
Outlook
For full year 2011, American Axle expects sales in the range of $2.5 billion–$2.6 billion based on the company’s new business backlog, continued recovery in market demand for full-size pickups and SUVs and the assumption that the U.S. seasonally adjusted annual rate of light vehicle sales will approximate 13.0 million vehicle units in 2011.
American Axle expects to be profitable and adjusted EBITDA in the range of 14.5% – 15.0% of sales during the year.
However, the company’s high exposure to General Motors and Chrysler could adversely affect its operating results in the near term. Furthermore, weak SUV demand, high commodity costs and pricing pressure by OEMs bother the company.
These factors have led the company to retain a Zacks #3 Rank on its stock, which translates to a Hold rating for the short term (1 to 3 months) and we reiterate our Neutral recommendation for the long term (more than 6 months).
