Squeak, squeak! Is there anything more annoying than a squeaky wheel? Depends. If you're a shareholder of American Axle (NYSE:AXL), you probably won't be pleased to read what analysts are predicting for your company's Q4 and full-year 2005 earnings report tomorrow. Read on only if you can stand the squeak.

Wall Street Wisdom:

  • General consensus. There are 14 analysts tracking the fortunes of American Axle -- quite a lot, actually, for a company valued at less than $1 billion. "Buys" outnumber "sells" among these trackers by 2-to-1, but only because 11 analysts rate the stock a "hold."
  • Revenues. The analysts believe that in Q4 2005, Axle's revenues slid 2% to about $860 million.
  • Earnings. Profits are thought to have slid much more than that -- down more than 50% to $0.29 per share.

Margin watch:
Now that we know what Wall Street is thinking, let's take a look at why it's thinking that. Basically, Axle's business is a mess from a margins perspective. Raw-material costs are rising, and Axle's customers -- the likes of Ford (NYSE:F), GM (NYSE:GM), and DaimlerChrysler (NYSE:DCX) -- are in no condition to pay price hikes. As a result, the company's rolling gross margins are down by more than a third over the past 18 months and are biting even more deeply into operating and net margins, each of which has fallen by more than half.

Margins %

6/04

9/04

12/04

3/05

6/05

9/05

Gross

14.7

14.5

13.2

11.8

10.5

9.8

Op.

9.5

9.3

7.9

6.5

4.9

4.1

Net

5.0

5.0

4.4

3.9

2.9

2.4

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

Foolish lookout:
One thing that you need to keep foremost in your mind when weighing tomorrow's results: Axle has become a magnet for short-sellers betting against the American auto industry. At last report, more than 20% of the company's shares are sold short. Yet it remains free cash flow positive, and it carries a manageable debt load. Any good news, and the shorts could head for the hills.

As for what would constitute good news, I'd recommend focusing on the company's inventories and accounts receivable. With sales flat to declining, you don't want to see either inventories or A/R rise in comparison with their year-ago numbers (as, sadly, they have been doing recently.) If Axle finds a way to reverse those numbers' rise, though, that would bode well for the company's, and the stock's, future.

Fool contributorRich Smithdoes not own shares of any company named above.