American Axle takes $485M charge in Q4, but outlook bullish for 2019

DETROIT — American Axle & Manufacturing Holdings Inc. said it posted a fourth-quarter loss following a major one-time noncash charge of $485.5 million, but the company's shares still surged on Wall Street.

The driveline supplier reported a fourth-quarter net loss of about $361.8 million compared with net income of $106.3 million in 2017.

Revenue for the quarter fell 2.3 percent to $1.69 billion. The supplier reported a $88.5 million income tax benefit compared with a tax benefit of $13.1 million in the fourth quarter of 2017.

Adjusted earnings during the quarter fell 17 percent to $244 million.

Despite the loss, American Axle's shares gained 14.5 percent to close at $16.83 during a robust day on Wall Street. American Axle's fourth-quarter performance beat Wall Street expectations and the company issued a bullish 2019 forecast.

The Detroit supplier said net results in the fourth quarter and full year reflect the impact of a noncash goodwill impairment charge of $485.5 million related to its casting and powertrain segments. Casting sales for the fourth quarter fell 2.5 percent to $218.5 million from a year earlier, and adjusted earnings for the segment decreased 17 percent to $10.6 million, the supplier said. The segment faced issues in the third quarter, including operational inefficiencies and inflationary pressures, American Axle said.

Fourth-quarter powertrain sales fell 3.3 percent to $262.9 million. The company said the segment faced launch-performance issues and capacity constraints in the third quarter of 2018.

For 2018, the company's revenue rose 16 percent to $7.27 billion from $6.26 billion in the previous year. The supplier reported a net loss of $57.5 million in 2018 compared with net income of $337.1 million in 2017.

"AAM's full year 2018 financial results reflect record sales, gross profit and operating cash flow, despite some launch and operating related challenges during the second half of the year," CEO David Dauch said in a statement. "We continued to fund organic growth, invest in advanced technologies and reduce our debt throughout the year."

Dauch said the company expects profitability to grow in 2019, with more business diversification and continued strong cash flow. The company's free cash flow grew 46 percent during the past year to $252 million, the company's report said.

American Axle's 2019 outlook includes:

• Sales target: $7.3 billion-$7.4 billion
• Adjusted earnings: $1.2 billion-$1.25 billion
• Adjusted free cash flow: $350 million-$400 million

American Axle ranks No. 40 on Automotive News' list of the top 100 global parts suppliers, with global sales to automakers of $6.26 billion in 2017.

American Axle said in its 10-K filing that it is still significantly dependent on General Motors.

It is the primary supplier of driveline components to GM for its full-size rear-wheel-drive light trucks manufactured in North America. Furthermore, it supplies GM with various products from each of its metal forming, powertrain and casting segments.

Sales to GM accounted for about 41 percent of the supplier’s consolidated net sales in 2018, 6 percentage points fewer than in 2017, the company said. A reduction in American Axle’s sales to GM or a reduction by GM of its production of rwd light trucks or SUVs -- as a result of market share losses by GM or other factors -- could have a material adverse effect on the supplier’s finances.

The company also said its business is dependent on its driveline manufacturing facility, Guanajuato Manufacturing Complex in Mexico.
In 2018, the Guanajuato factory represented a significant portion of the supplier’s net sales, profitability and cash flow from operations. American Axle expects it to continue to represent a substantial portion of those financial performance measures for the foreseeable future and warned that a disruption to operations resulting from changes in trade agreements between Mexico and the U.S., tariffs, natural disaster or other factors could have an adverse impact on its financial condition.
 

The increase in 2018 revenue reflects an increase of about $738 million related to a full year of Metaldyne Performance Group Inc. sales, which American Axle acquired in April 2017.

The increase in sales also reflects higher production volumes related to crossover vehicles and increased production volumes from program launches associated with American Axle’s new business backlog, the supplier said.  This was partially offset by the impact of lower full-size truck sales because of a decision by the company’s largest customer to in-source a portion of a replacement program that launched in 2018, the supplier said in a statement.

American Axle also said net sales were impacted by an increase in metal market passthroughs to its customers and the impact of foreign exchange related to translation adjustments totaling about $67 million.