American Axle & Manufacturing Q3 Earnings Call Highlights

Key Points

• Third-quarter sales nearly doubled to $2.91 billion after the Dowlais combination, while adjusted earnings per share fell to $0.22 from $0.30 and the adjusted EBITDA margin narrowed to 12.3% from 13.0%.
• The company raised its full-year sales forecast to $10.8 billion–$10.875 billion but lowered its adjusted EBITDA outlook to $1.35 billion–$1.375 billion, citing inflation, supplier pressures and customer production changes.
• Integration savings are ahead of schedule, with $100 million in annualized run-rate synergies realized to date. American Axle ended September with about $4.1 billion in net debt and aims to reduce leverage below two times.

American Axle & Manufacturing NYSE: DCH, referred to as Dauch Corporation on its earnings call, reported higher third-quarter revenue following its combination with Dowlais, but lowered its full-year adjusted earnings outlook as inflation and supplier pressures weighed on the automotive industry.

The company reported third-quarter sales of $2.91 billion, up from $1.51 billion a year earlier. Adjusted earnings fell to $0.22 per share from $0.30, while adjusted free cash flow rose to $126.7 million from $98.1 million.

Chairman and CEO David Dauch said the company generated strong cash flow despite production volatility and rising input costs. He also said integration savings were ahead of schedule, with $100 million in annualized run-rate synergies realized to date.

Dowlais lifts sales, while margins narrow

Legacy Dauch sales rose slightly to $1.52 billion from $1.51 billion a year earlier, CFO Chris May said. Dowlais contributed $1.41 billion in gross sales during the quarter.

Adjusted EBITDA increased to $358.5 million from $195.7 million, though the adjusted EBITDA margin narrowed to 12.3% from 13.0%. Legacy Dowlais contributed approximately $140 million in adjusted EBITDA, May said.

The company reported a GAAP net loss of $45.3 million, or $0.19 per share, compared with net income of $9.2 million, or $0.07 per share, a year earlier. Net interest expense rose to $80.9 million from $35.7 million, primarily reflecting debt issued or assumed in connection with the Dowlais acquisition.

Dauch said global vehicle production declined approximately 2% year over year in the third quarter, while North American production fell approximately 5%. Ram heavy-duty volumes declined approximately 15%, he said, and the company also experienced the effects of planned downtime associated with General Motors’ large pickup truck launch.

Profit outlook lowered as costs rise

Management raised and narrowed its full-year sales forecast but reduced its adjusted EBITDA outlook. The updated guidance, announced October 30, calls for:

• Sales of $10.8 billion to $10.875 billion, compared with the prior range of $10.6 billion to $10.8 billion.
• Adjusted EBITDA of $1.35 billion to $1.375 billion, down from $1.36 billion to $1.425 billion.
• Adjusted free cash flow of $270 million to $310 million, compared with $260 million to $325 million previously.

May said the lower EBITDA outlook reflects higher fuel and energy costs, stress among some lower-tier suppliers and customer production schedule changes. He expects inflationary pressures to have an approximately $10 million greater impact in the fourth quarter than in the third.

The company is working to reduce costs, including by optimizing freight routes and considering alternative factory coolants, May said. It also plans to discuss compensation with customers, although he cautioned that such negotiations take time.

Costs associated with a few challenged suppliers were approximately $10 million in the third quarter, May said. He added that the company had most of those situations under control and expected the costs to begin tapering, while noting that the broader economic environment could influence supplier conditions.

Integration savings and debt reduction

The company recorded $25 million in savings from synergies during the third quarter, May said. Management expects to exceed its goal of more than $100 million in annualized run-rate savings by year-end.

Dauch said the original combination plan targeted $300 million in synergies, with savings from selling, general and administrative costs and engineering progressing faster than those from purchasing and operations. He said the company sees potential for additional operational improvements, including in scrap management, productivity and plant capacity utilization.

The company ended September with approximately $4.1 billion in net debt and a net leverage ratio of 2.6 times. It redeemed the remaining $125 million of its 2028 notes during the quarter and has no significant debt maturities until 2029, May said. Dauch reiterated the company’s objective of reducing leverage below two times.

New business and 2027 priorities

Dauch highlighted a next-generation award for propshafts, sideshafts and electronic limited-slip differentials on a European luxury SUV program, along with a sideshaft award for an Infantry Squad Vehicle. He described the military award as small but important and said the combined company would explore opportunities in adjacent markets, including aerospace and defense.

Management expects to provide formal 2027 guidance with fourth-quarter results in February. May said the company is focused on further synergy savings and upcoming customer truck launches, while monitoring inflation, steel costs and the Mexican peso.

Dauch said the GM truck changeover was on schedule for 2026 and 2027. May added that the company’s content per vehicle and margin profile were expected to be similar between the current and next-generation products.

Senior Vice President Nathan Iles is scheduled to succeed May as CFO on December 1. The company will host a capital markets day in New York on November 17, according to Head of Investor Relations David Lim.

About American Axle & Manufacturing (NYSE:DCH)

American Axle & Manufacturing Holdings, Inc NYSE: DCH designs, engineers and manufactures driveline and metal-forming systems for the global automotive industry. Its products include axles, driveshafts, differentials, transfer cases, electric drive units and other components used in light trucks, SUVs, passenger cars and commercial vehicles.

The company also produces forged, cast and machined metal components, as well as chassis and powertrain parts. American Axle supplies original equipment manufacturers and serves vehicle programs across North America, South America, Europe and Asia.

American Axle was established in 1994 when it acquired several driveline manufacturing operations from General Motors.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.