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Why American Axle Is Soaring 30% Higher Friday Morning After Mixed Q3 Results

By Daniel Miller - Nov 1, 2019 at 11:27AM

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Despite negative impacts from GM's work stoppage, AAM managed to beat bottom-line estimates, which helped drive the share price higher.

What happened

Shares of American Axle & Manufacturing Holdings ( AXL 4.55% ), or AAM, a Detroit-based global automotive supplier of driveline and other automotive products, jumped over 24% early Friday morning after the company released third-quarter results.

So what

Revenue declined 7.7% to $1.68 billion during the third quarter, falling short of analysts' estimates. Despite the top-line miss, AAM's adjusted earnings per share checked in at $0.58, easily beating estimates calling for $0.47 per share. General Motors ( GM 0.22% ) is AAM's largest customer, and the worker strike and production halt caused an unfavorable financial impact. AAM estimates the GM work stoppage cost the company roughly $57 million in sales during the third quarter and that the full impact will be around $250 million.

An axle and undercarriage of a vehicle.

Image source: Getty Images.

Those negative strike-related impacts caused management to lower full-year sales guidance from a range of $6.9 billion to $7 billion down to roughly $6.6 billion. Management also expects full-year adjusted EBITDA in the range of $950 million to $975 million, compared to analysts' consensus estimates of $1.03 billion. "The strong free cash flow generated during the quarter, along with the announced sale of our U.S. iron casting operations, position us to continue to deliver on our commitment to reduce debt and strengthen our financial profile," said AAM's chairman and chief executive officer, David C. Dauch, in a press release.

Now what

Today's pop in AAM's share price could have come about simply because results weren't as bad as anticipated. Shares traded roughly 5% lower during the trading session prior to the earnings release, and multiple analysts had lowered estimates during the quarter, so when AAM managed to beat bottom-line estimates, it was enough to power the stock higher. However, investors should take today's price jump with a grain of salt, as the auto supplier has shed nearly 30% of its value over the past year -- taking Friday's gains into account -- and the supplier will face challenges as North America light-vehicle sales plateau.

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Stocks Mentioned

American Axle & Manufacturing Holdings, Inc. Stock Quote
American Axle & Manufacturing Holdings, Inc.
AXL
$9.42 (4.55%) $0.41
General Motors Company Stock Quote
General Motors Company
GM
$59.84 (0.22%) $0.13

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