Business context and reporting period
American Axle & Manufacturing Holdings, Inc. (AAM; NYSE: AXL) filed this unaudited Form 10-Q for the quarter ended March 31, 2023. Although the request metadata names Dauch Corp, the filing identifies AAM as the registrant. AAM is a global automotive supplier with Driveline and Metal Forming segments; its results include Tekfor, acquired in June 2022.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $1,493.9 million | $1,436.2 million |
| Gross profit / margin | $160.6 million / 10.8% | $186.8 million / 13.0% |
| Operating income / margin | $36.1 million / 2.4% | $70.3 million / 4.9% |
| Net income (loss) | $(5.1) million | $1.0 million |
| Diluted EPS | $(0.04) | $0.01 |
| Operating cash flow | $32.1 million | $68.5 million |
| Capital expenditures | $46.6 million | $28.6 million |
| Segment Adjusted EBITDA (non-GAAP) | $175.4 million | $196.1 million |
Sales rose 4.0%, primarily reflecting about $101 million of Tekfor sales, partly offset by lower metal pass-through sales and foreign-exchange effects. Cost of goods sold grew 6.7%; gross profit fell 14.0%. SG&A increased 14.2% to $98.3 million, including higher R&D spending ($42.8 million versus $34.7 million) and compensation costs. Interest expense increased to $50.5 million from $44.7 million.
Driveline sales were $1,013.8 million and Segment Adjusted EBITDA was $114.1 million, compared with $1,045.4 million and $122.8 million, respectively. Metal Forming sales were $619.1 million, including intersegment sales, and Segment Adjusted EBITDA was $61.3 million; prior-year figures were $525.1 million and $73.3 million. Segment EBITDA declined amid higher labor, transportation, launch and other manufacturing costs, partly offset by lower metal costs.
Balance sheet, debt and liquidity
At March 31, 2023, cash and equivalents were $465.7 million, down from $511.5 million at year-end 2022. Total debt was $2,946.9 million; balance-sheet long-term debt, net of issuance costs and current maturities, was $2,847.7 million. The weighted-average debt interest rate was 6.6%. AAM reported more than $1.4 billion of liquidity, including $891.2 million available on its revolving facility and $63.7 million under foreign credit facilities. Management reported no significant debt maturities before 2026.
Investing cash outflow was $30.5 million and financing cash outflow was $49.1 million. Cash declined by $45.8 million in the quarter. AAM received $24.0 million of final insurance proceeds related to the 2020 Malvern facility fire, with $7.0 million classified as operating cash flow and $17.0 million as investing cash flow; there was no Q1 2023 income-statement impact from the fire recovery.
Outlook, risks and unusual items
- Management expects automotive supply-chain constraints, production volatility, labor shortages and elevated labor, transportation, utility and input costs to continue through 2023; their ultimate effect on sales, earnings and cash flow is uncertain.
- 2023 capital spending is expected to be 3.5% to 4% of sales. Full-year interest expense is expected to be approximately $195 million to $205 million.
- AAM expects $10 million to $20 million of 2023 restructuring charges and up to $10 million of Tekfor integration costs. Cash payments for restructuring and acquisition-related costs are expected to total $20 million to $30 million.
- AAM paid the IRS $10.1 million in January 2023 in a dispute over its 2015 federal tax return and filed a refund claim. It believes its position is likely to prevail; if unsuccessful, estimated additional tax and interest for 2015–2022 could be $285 million to $335 million.
- GM, Stellantis and Ford accounted for approximately 39%, 17% and 11% of Q1 sales, respectively. Reduced purchases or production changes by these customers are material risks. Other cited risks include supply disruptions, commodity and currency volatility, interest rates, product warranty or recall claims, cybersecurity, labor relations and global operations.
- Warranty liabilities were $61.4 million at quarter-end. AAM’s risk factors were reported as unchanged from its 2022 Form 10-K. Management stated disclosure controls were effective as of March 31, 2023.
Most important facts for investors to verify
- Whether margin and segment EBITDA pressure persists, and whether AAM can recover higher operating costs from customers.
- Whether supply-chain disruptions, production schedules and working-capital movements affect future cash generation.
- Progress and potential outcome of the IRS dispute, including the stated $285 million to $335 million exposure if AAM does not prevail.
- Debt service, variable-rate exposure, available credit capacity and the accuracy of management’s interest-cost and capital-spending outlook.
- Tekfor’s contribution and integration costs, restructuring charges, and the sustainability of the reported liquidity position.