Now that Christmas is out of the way, it's time for that other "most wonderful time ... of the year" -- year-end earnings season, when those companies whose fiscal years align sensibly with the calendar version report their Q4 and full-year results. Next up is automobile power-train components maker American Axle & Manufacturing Holdings (NYSE:AXL), which reports bright and early Friday morning.

What analysts say:

  • Buy, sell, or waffle? Fourteen analysts track American Axle. Three say buy, nine hold, and two sell.
  • Revenues. On average, analysts expect an 11% slide in quarterly sales to $759.9 million.
  • Earnings. Profits are predicted to fall 56% to $0.04 per share.

What management says:
In January, American Axle said it had convinced 1,473 of its unionized employees to participate in a "special attrition program" of early retirement and pre-retirement buyouts, aimed at "realign[ing] our hourly workforce with actual and projected production and market conditions." After estimating the program's cost at $150 million to $250 million as recently as October, Axle has now narrowed the predicted "one-time charges" to $175 million to $200 million in fiscal 2006. Thus, the charges are going to be toward the low range of previous estimates. Even better, management believes the downsizing will result in savings in excess of "$100 million annually," so it should pay for itself within two years.

And now the bad news: American Axle also decided to "idle a portion of its U.S. production capacity dedicated to the mid-size light truck product range." That's going to cost as much as $200 million in asset impairment charges in Q4 alone.

What management does:
Thus, we should expect the downward trends in gross, operating, and net margins to take on an even redder hue after tomorrow's news -- even as we hope that as the anticipated savings take hold, margins will be revived in future quarters.

Margins

6/05

9/05

12/05

3/06

6/06

9/06

Gross

11.2%

11.7%

9.5%

9.2%

9.1%

8.3%

Operating

5.6%

6.0%

3.6%

3.3%

3.1%

2.2%

Net

2.9%

2.4%

1.7%

1.5%

1.6%

(0.9%)

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
One year ago, I was starting to think that Wall Street's pessimism about American Axle just had to be overdone, since it was so universal. Nope. In fact, things are still looking pretty lousy. The firm about which I wrote: "Yet it remains free cash flow positive" back in February 2006 is so no longer. In fact, it hasn't generated a positive red cent in three quarters. Although average accounts receivable have declined a bit more than sales (a good thing) over the past two quarters, inventories continue to tie up working capital, rising 9% in value on average even as sales slid.

So once again, in tomorrow's news, I'd recommend watching the balance sheet -- but this time, not for signs of a turnaround, but just for evidence that things have stopped getting worse.

Competitors:

  • Visteon (NYSE:VC)
  • TRW (NYSE:TRW)
  • Magna (NYSE:MGA)
  • Lear (NYSE:LEA)
  • Johnson Controls (NYSE:JCI)
  • Siemens (NYSE:SI)

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Fool contributor Rich Smith does not own shares of any company named above.