We reiterate our Neutral recommendation on American Axle & Manufacturing Holdings Inc. (AXL), which 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 (SUVs) and passenger cars.
American Axle released its 2011 first quarter results on April 29, 2011. The company reported a profit of $37.7 million or 50 cents per share, almost doubling from $16.3 million or 22 cents per share in the year-ago quarter.
Revenues in the quarter grew 24% to $645.6 million. Customer production volumes for the North American light truck and SUV programs that the company currently supports for General Motors Company (GM) and Chrysler went up 11% from the prior-year the quarter. The company also expects sales to grow more than 5% to $2.4 billion in 2011, driven by the rebound in U.S. auto sales and turnaround performances of both of its highly exposed customers, GM and Chrysler.
American Axle’s cash flow has improved. In 2010, the company’s operating net cash flow improved significantly to $240.3 million from $15.9 million in 2009 due to higher income.
The company is currently undergoing a significant expansion of its manufacturing footprint in Asia, where growing demand for vehicles is enhancing production volumes. It expects to accelerate the expansion of its high quality, cost-competitive and operationally flexible global manufacturing footprint in Brazil, China, India, Mexico, Poland and Thailand.
Apart from manufacturing facilities, it also has business and engineering offices in Japan, China, India and South Korea. The company’s backlog of new and incremental business launched from 2010 to 2014 is valued at $1 billion.
In addition, American Axle’s efforts at diversifying its customer base are generating incremental revenue. Apart from GM and Chrysler, the company supplies driveline systems and other components to PACCAR Inc. (PCAR), Volvo AB (VOLVY), Ford Motor Co. (F) and various other OEMs.
However, American Axle’s high exposure to a few large clients has made its business more vulnerable to risks. Moreover, the major OEM customers are constantly demanding concessions from suppliers in the form of lower prices. This has been affecting the company negatively. Another threat is the company’s considerable exposure to platforms that have faced the maximum production cuts.
