DETROIT– American Axle & Manufacturing Holdings, Inc. (AAM) this week reported sales and earnings for the third quarter of 2005.
Third quarter earnings were $19.3 million or 38 cents per share. This compares to earnings of $36.4 million or 68 cents per share in the third quarter of 2004. AAM’s earnings in the third quarter of 2005 reflect the impact of a retroactive metal market cost recovery agreement under which AAM was reimbursed for costs incurred in the first half of 2005. This retroactive benefit was partly offset by costs related to other provisions of the metal market recovery agreement and other retroactive purchased material cost adjustments we incurred in the quarter. The net favorable impact of these agreements was $6.2 million in the quarter or 8 cents per share.
“AAM continues to be profitable in a challenging operating environment for the domestic automotive industry and the Tier I supply chain,” said AAM’s Co-Founder, Chairman of the Board and CEO Richard Dauch. “Although lower production levels and increased steel and metallic material prices continue to pressure sales and inflate costs, we are encouraged by the progress we have made this year to increase the diversity of our sales mix.”
Net sales in the third quarter of 2005 were $848.1 million as compared to $841.6 million in the third quarter of 2004. Sales to non-GM customers increased 18 percent to $207.2 million, representing 24 percent of AAM’s total sales in the quarter.
AAM sales for the quarter reflect approximately a 4 percent year-over-year decline in customer production volumes for the major North American light truck programs it currently supports. AAM’s content per vehicle in the quarter grew to $1,240 as compared to $1,163 in the third quarter of 2004.
Mix shifts favoring four-wheel drive and all-wheel drive (4WD/AWD) versions of our full-size and mid-size light truck programs continue to favorably impact content-per-vehicle in 2005. For the quarter, AAM’s 4WD/AWD penetration rate was 65.9 percent as compared to 61.4 percent in the third quarter of 2004. AAM defines its 4WD/AWD penetration rate as the total number of front axles produced divided by the number of rear axles produced for the vehicle programs on which it sells product.
Gross margin in the third quarter of 2005 was 9.8 percent as compared to 12.8 percent in the third quarter of 2004. Operating income was $34.9 million or 4.1 percent of sales in the third quarter as compared to $60.9 million or 7.2 percent of sales in the third quarter of 2004.
Net sales in the first three quarters of 2005 were approximately $2.5 billion as compared to $2.7 billion in the first three quarters of 2004. Gross margin was 9.5 percent in the first three quarters of 2005 as compared to 13.9 percent in first three quarters of 2004. Operating income for the first three quarters of 2005 was $97 million or 3.8 percent of sales versus $237 million or 8.7 percent of sales for the same period in 2004.
For the nine months ended September 30, 2005, AAM’s earnings were $51.5 million or $1.01 per share. AAM’s earnings for the nine months ended September 30, 2004 were $128.2 million, or $2.37 per share, and reflect a one- time charge of $23.5 million or 28 cents per share related to debt refinancing and redemption activities in the first quarter of 2004.
AAM defines free cash flow to be net cash provided by (or used in) operating activities less capital expenditures and dividends paid. Capital spending to support new product programs and other safety, quality and productivity initiatives for the nine months ended September 30 was $243.6 million as compared to $158.8 million for the nine months ended September 30, 2004. Pursuant to its quarterly cash dividend program, AAM paid $22.7 million in dividends in the first three quarters of 2005. Reflecting the impact of AAM’s capital investment and dividend payout, AAM’s free cash flow for the nine months ending September 30 was a use of $122.9 million.
AAM’s research and development spending (R&D) for the nine months ended September 30, 2005 increased to $54.7 million as compared to $51.5 million for the same period in 2004. AAM continues to invest heavily in the development and validation of products targeted for growth segments of the global driveline market, especially rear-wheel drive and all-wheel drive driveline systems for passenger cars and crossover vehicles. AAM’s long-term commitment to applied R&D and product line diversification is the primary catalyst for growth in AAM’s new business backlog, which has grown to approximately $1.3 billion in future annual sales.
2005 Outlook
AAM expects its full-year 2005 earnings to be in a range of $1.40 – $1.45 per share. This outlook includes a charge of $8.9 million, or $0.12 per share, related to voluntary lump-sum separation payments accepted by 162 hourly associates in the second quarter of 2005. AAM previously issued full-year 2005 guidance of $1.40 – $1.55 per share during its quarterly conference call on April 29, 2005.
AAM expects to increase its capital spending in 2005 to $300 million, a significant portion of which will support the accelerated launch of the GMT 900 program in the 2007 model year and increased capacity for the Chrysler Group’s heavy duty Dodge Ram program and derivatives. AAM is also incurring capital expenditures in 2005 to expand its international footprint with new manufacturing capacity outside of the U.S. in support of its $1.3 billion new business backlog.
Reflecting the increase in capital expenditures, as well as higher working capital investments in accounts receivable and inventories than were previously anticipated due to significantly higher production requirements in the fourth quarter of 2005 and a stronger mix of non-GM sales, AAM expects its free cash flow for 2005 to approximate a use of $60 million. Based on this earnings and cash flow guidance, AAM expects its net debt to capital ratio to approximate 33 percent at December 31.
“Our task for the remainder of 2005 and 2006 is to stay focused on world-class quality, warranty and delivery standards while flawlessly executing the accelerated product launch of GM’s new full-size truck products,” said Dauch. “At the same time, we will continue to diligently pursue our long-term strategic goals of further developing our product offerings, customer diversification, served market, and global manufacturing presence to prepare for future profitable growth.”
For more information about AAM, go to: aam.com.
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