Yahoo Finance American Axle & Manufacturing Holdings, Inc. (NYSE:AXL) Q1 2024 Earnings Call Transcript
American Axle & Manufacturing Holdings, Inc. (NYSE:AXL) Q1 2024 Earnings Call Transcript May 3, 2024
American Axle & Manufacturing Holdings, Inc. misses on earnings expectations. Reported EPS is $-0.09 EPS, expectations were $0.01. American Axle & Manufacturing Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning. My name is Jason, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the American Axle & Manufacturing First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the call over to Mr. David Lim, Head of Investor Relations. Please go ahead, Mr. Lim.
David Lim: Thank you, and good morning from Detroit. I'd like to welcome everyone who is joining us on AAM's first quarter earnings call. Earlier this morning, we released our first quarter of 2024 earnings announcement. You can access this announcement on the Investor Relations page of our website, www.aam.com, and through the PR Newswire services. You can also find supplemental slides for this conference call on the Investor page of our website as well. To listen to a replay of this call, you can dial 1-877-344-7529, replay access code 944-4230. This replay will be available through May 10. Before we begin, I'd like to remind everyone on the matters discussed in this call may contain comments and forward-looking statements subject to risks and uncertainties which cannot be predicted or quantified, and which may cause future activities and results of operations to differ materially from those discussed.
For additional information, we ask that you refer to our filings with the Securities and Exchange Commission. Also during this call, we may refer to certain non-GAAP financial measures. Information regarding these non-GAAP measures, as well as a reconciliation of these non-GAAP measures to GAAP financial information is available on our website. With that, let me turn things over to AAM's Chairman and CEO, David Dauch.
David Dauch: Thank you, David, and good morning, everyone. Thank you for joining us today to discuss AAM's financial results for the first quarter of 2024. Joining me on the call today is Chris May, AAM's Executive Vice President and Chief Financial Officer. To begin my comments, I'll review the highlights of our first quarter financial performance. Next, I'll touch on some business development news and provide commentary about the industry. After Chris covers the details of our financial results, we will open up the call for any questions that you may have. So let's begin. AAM's first quarter of 2024 sales were $1.61 billion. AAM's adjusted earnings per share was $0.18 per share and our adjusted free cash flow was a use of $21 million.
First quarter production environment was relatively more stable compared to previous quarters, supporting our production system efficiency. Volumes on our key programs were also stronger than a year ago. From a profitability perspective, AAM's adjusted EBITDA in the first quarter was $206 million, or 12.8% of sales. The year-over-year margin improvement stemmed from the benefits of production stability, stronger volumes, and our improvement initiatives. Our results demonstrate on a sequential basis that we are experiencing good traction with our performance plans. Margins for both of our business units increased in the first quarter from the fourth quarter, so 2024 is off to a solid start. Chris will provide more details about our overall financial performance during the prepared remarks.
Let me talk about some business updates, which you can see on Slide 4 of our presentation deck. We are very pleased to announce that AAM, working with our key partner, Inovance, will supply XPENG DiDi with 3-in-1 electric drive units in China. The start of production is slated for later this year. Thus far, our shipments are approaching almost 0.5 million electric drive units in China over the last several years. This clearly demonstrates AAM technology and the market demand for our electric drive systems. Furthermore, we won contracts with multiple luxury European OEMs to supply electric vehicle components. In addition to our strong ICE and hybrid business, our two-pronged electrification strategy of providing full electric drive systems and components for electric vehicles well-positions AAM to take advantage of the growing global electrification market.
Now let's talk about the industry. Although timing is fluid, electric vehicles have established a footing in the developed markets. However, in the near term, OEMs are reformulating their respective powertrain strategies given the recent consumer adoption rates, especially here in North America. What this means is current ICE platforms will run longer than originally expected and their potential could even be additional future generations of ICE vehicles, especially with hybrid applications. Either way, this is highly beneficial for American Axle. I've said this before, the market is the boss and the end customer will ultimately influence what is moving through the showroom. While battery technology, charging infrastructure, and cost structure improve over time, AAM will continue the development of our electric product portfolio and further position ourselves to be agnostic to changes in propulsion system technologies.
But as a company, AAM is very focused on maximizing our current product portfolio and driving profitable growth. But given the dynamics I just mentioned, it's not a growth-at-all-cost approach. We will be disciplined, we will seek appropriate returns, and we will make hard but necessary decisions while pursuing new business, especially in the area of electrification. In other words, any business we take on must make business sense and add value to our company. From an ESG perspective, we are also very pleased to announce that we recently published our 2023 Sustainability Report. Some of the key highlights from that report include: We achieved ISO 50001 certification at all of our manufacturing facilities; we received 21 quality performance awards; we exceeded our 2023 U.S. renewable and carbon-free energy goals; we increased our supplier diversity spend year-over-year by 12%; and we launched a global transportation campaign to reduce emissions.
Clearly, AAM is committed to profitably growing our business, but in a sustainable and socially responsible way. Let's quickly talk about our guidance. The strong first quarter performance gives us added confidence about our full-year guide. However, the year is still early and much can change between now and December 31. As such, our guidance remains unchanged for now. AAM is targeting sales of $6.05 billion to $6.35 billion, our adjusted EBITDA of approximately $685 million to 750 million, and adjusted free cash flow of approximately $200 million to $240 million. To conclude my remarks, and as I have communicated previously, our aim is on the future and we will continue to drive our efforts towards securing our primary legacy business, and we made great progress on that, generating strong free cash flow, strengthening our balance sheet, advancing our electrification portfolio, and positioning AAM for profitable growth.
So with that, let me now turn the call over to our Executive Vice President and Chief Financial Officer, Chris May. Chris?
Christopher May: Okay. Thank you, David, and good morning to everyone. I will cover the financial details of our first quarter 2024 with you today. I will also refer to the earnings slide deck as part of my prepared comments. So let's go ahead and begin with sales. In the first quarter of 2024, AAM sales were $1.61 billion compared to $1.49 billion in the first quarter of 2023. Slide 8 shows a walk of first quarter 2023 sales to first quarter 2024 sales. Positive volume mix and other was $114 million, driven in part by our backlog with key programs such as GM's mid-size truck and a Cherry SUV in China. In addition, we've had better-than-expected volumes on certain programs, including the T1XX platforms. Metal market pass-throughs and FX increased sales by approximately $6 million.
The increase was mainly from metals, which were higher than a year ago. Now let's move on to profitability. Gross profit was $198.5 million in the first quarter of 2024 as compared to $160.6 million in the first quarter of 2023. Adjusted EBITDA was $205.6 million in the first quarter of 2024 versus $175.4 million last year. You can see the year-over-year walk-down of adjusted EBITDA on Slide 9. In the quarter volume, mix and other added a net $31 million of adjusted EBITDA versus the prior year, resulting in a profit conversion rate of approximately 27%. R&D was lower year-over-year as timing of R&D spend can be lumpy from quarter to quarter. And net inflation, performance and other was favorable by $8 million, driven by a combination of the efficiency benefits of less production volatility and our operational improvement initiatives partially offset by inflation costs.
Let me now cover SG&A. SG&A expense, including R&D in the first quarter of 2024, was $98.3 million, or 6.1% of sales. This compares to an identical $98.3 million, or 6.6% of sales in the first quarter of 2023. AAM's R&D spending in the first quarter of 2024 was approximately $37 million. We expect our R&D spend to be flattish year-over-year and anticipate about $35 million to $40 million per quarter on average. But as I mentioned, this amount can vary from quarter to quarter. We anticipate R&D spending should moderate in the coming years as we finish developing our electric platform technologies. Let's now move on to interest and taxes. Net interest expense was $41 million in the first quarter of 2024 compared to $45 million in the first quarter of 2023, due in part to lower debt balances.
In addition, we paid down over $10 million of debt in the quarter. In the first quarter of 2024, we recorded income tax expense of $15.9 million compared to no tax expense in the first quarter of 2023. This increase in our elevated effective tax rate was driven by higher profitability and an expense for valuation allowances, primarily related to interest expense deduction limitations in the U.S. As we head into 2024, we expect our adjusted effective tax rate to be approximately 40% to 45%. This elevated book tax rate is a function of the valuation allowance I just described. We also expect cash taxes of approximately $50 million to $55 million this year. Taking all these sales and cost drivers into account, our GAAP net income was $20.5 million, or $0.17 per share in the first quarter of 2024, compared to a net loss of $5.1 million, or $0.04 per share in the first quarter of 2023.
Adjusted earnings per share, which excludes the impact of items noted in our earnings press release, was $0.18 per share in the first quarter of 2024, compared to a loss of $0.01 per share for the first quarter of 2023. Let's now move on to cash flow and the balance sheet. Net cash provided by operating activities for the first quarter of 2024 was $17.8 million. Capital expenditures, net of proceeds from the sale of property, plant and equipment for the first quarter of 2024, were $44.9 million. Cash payments for restructuring and acquisition-related activity for the first quarter of 2024 were $5.7 million. Reflecting the impact of these activities, AAM's adjusted free cash flow was a seasonal use of $21.4 million in the first quarter of 2024.
From a debt leverage perspective, we ended the quarter with a net debt of $2.3 billion and LTM-adjusted EBITDA of $723.5 million, calculating a net leverage ratio of 3.2 times at March 31. Our focus is to continue to strengthen the balance sheet by reducing our debt. AAM ended the quarter with total available liquidity of approximately $1.4 billion, consisting of available cash and borrowing capacity on AAM's global credit facilities. As for the full year outlook on Slide 6, it remains unchanged from when we initially provided 2024 guidance on February 16. For sales, our target range is at $6.05 billion to $6.35 billion for 2024. This sales target is based upon a North America production of approximately 15.8 million units. And assumptions for our key programs remain unchanged from our previous outlook.
As you all know, our sales results are more sensitive to performance of these key programs versus just macro changes to overall industry production. Relative to past quarters, the production environment was less volatile, and we hope this trend continues for the balance of the year. From an EBITDA perspective, the range remains at $685 million to $750 million, and our adjusted free cash flow target is $200 million to 240 million. Although first quarter financial results were off to a good start, the year is just beginning. However, from a timing perspective, later in the year several key programs that we support will be launching and transitioning to new models. In addition, certain third party estimates have the T1XX platform production to be first half-weighted in their latest forecasts.
This compares to an almost even split first half versus second half when we gave our guidance back in February. But all that said, we're making great progress on the performance drivers in our business, and we look forward to the remainder of 2024 and continuing driving positive results. Thank you for your time and participation on the call today. I'm going to stop here and turn it back over to David so we can start Q&A. David?
David Lim: Thank you, Chris and David. We have reserved some time to take questions. I would ask that you please limit your questions to no more than two. So at this time, please feel free to proceed with any questions you may have.
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