American Axle & Manufacturing Holdings, Inc. — Q1 2018 Form 10-Q
Filing identity: The supplied filing is for American Axle & Manufacturing Holdings, Inc. (AAM), not Dauch Corp. It covers the three months ended March 31, 2018; financial statements are unaudited.
Business context and reporting period
AAM is a global automotive, commercial and industrial supplier with Driveline, Metal Forming, Powertrain and Casting segments. The prior-year comparison predates AAM’s April 2017 acquisition of Metaldyne Performance Group (MPG), so much of the reported year-over-year growth reflects the expanded business rather than comparable organic growth.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Net sales | $1,858.4 million | $1,049.9 million |
| Gross profit / margin | $316.3 million / 17.0% | $210.7 million / 20.1% |
| Operating income / margin | $175.8 million / 9.5% | $111.9 million / 10.7% |
| Net income attributable to AAM | $89.4 million | $78.4 million |
| Diluted EPS | $0.78 | $0.99 |
| Operating cash flow | $66.9 million | $62.3 million |
| Capital expenditures | $130.8 million | $34.9 million |
- Sales rose about 77%, including approximately $738 million from MPG. AAM cited new crossover-vehicle volumes and metal pass-throughs, partly offset by lower North American light-truck and SUV volumes ahead of program changeovers.
- Gross profit increased, but gross and operating margins declined. Higher project costs ahead of program launches, acquisition-related costs, and the change in business mix contributed. Interest expense more than doubled to $53.2 million.
- Diluted EPS declined despite higher net income; AAM said shares issued for the MPG acquisition added approximately 35 million shares to the Q1 weighted-average denominator.
- Cash and equivalents were $340.7 million at March 31, down from $376.8 million at year-end. Operating cash flow less capital expenditures was negative $63.9 million. Accounts receivable increased $202.3 million from year-end.
- Total debt was $4,094.9 million, versus $4,050.8 million at year-end; long-term debt, net, was $3,986.2 million. AAM reported $865.3 million of unused revolving-credit availability and $135.8 million available under foreign credit facilities. Current assets were $2,155.1 million and current liabilities $1,349.9 million.
- Total Segment Adjusted EBITDA, a non-GAAP measure, was $317.0 million versus $183.6 million. Q1 2018 segment amounts: Driveline $170.0 million; Metal Forming $75.3 million; Powertrain $50.1 million; Casting $21.6 million.
Material changes, outlook, risks and unusual items
- In March, AAM issued $400 million of 6.25% notes due 2026 and tendered $383.1 million of 6.25% notes due 2021. The remaining $16.9 million of 2021 notes was redeemed in April. Q1 included $10.3 million of debt refinancing and redemption costs.
- Management expected 2018 interest expense of $210–$220 million, capital spending of approximately 8% of sales, and $50–$75 million of cash restructuring and acquisition/integration charges. It also expected $10–$20 million of additional restructuring charges and $30–$45 million of additional acquisition and integration charges during 2018.
- Management said operating cash flow, cash balances and committed borrowing capacity should meet liquidity needs. It expected 2018 pension funding of approximately $2 million and other postretirement benefit cash payments, net of GM cost sharing, of approximately $17 million.
- In April, AAM sold its Powertrain aftermarket business for approximately $50 million, receiving net proceeds of about $47 million; it expected a pretax gain of $15–$20 million in Q2. AAM also announced a redemption of $100 million of 6.625% notes due 2022.
- Key exposures include dependence on major customers (GM represented about 42% of Q1 sales; FCA about 13%), cyclical vehicle production, program changeovers, integration and synergy realization for MPG, raw-material and currency movements, and interest-rate risk. AAM reported no material change to previously disclosed risk factors and said it did not believe current legal proceedings would materially adversely affect its financial condition, results or cash flows.
Important facts for investors to verify
- How much of reported growth and segment performance reflects MPG, and how organic sales and margins are trending after acquisition effects.
- Whether margin pressure from launch preparation, project expenses and integration costs eases as program changeovers proceed.
- Progress against the capital-spending and restructuring/integration expectations, and the effect on operating cash flow and free cash flow.
- Debt-service capacity, refinancing activity and sensitivity to higher interest rates; also verify the announced 2022-note redemption and its funding.
- Customer concentration and vehicle-program volumes, particularly GM and FCA demand and the planned North American truck/SUV program transitions.