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  Title	American Axle & Manufacturing: 7.6% Yielding Long-Term Debt Attractive For Income Investors
  ID	3296589
  External ID	7217069142
  Author	Unknown
  Published Date	Oct. 16, 2024, 1:29 a.m.
  Summary	Oct. 16, 2024 2:26 AM ET American Axle & Manufacturing Holdings, Inc. (AXL) Stock Jeremy LaKosh 5.02K Follower s Follow Play 6min Summary American Axle has shown solid financial results, i
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  URL	https://seekingalpha.com/article/4727006-american-axle-and-manufacturing-7-6-percent-yielding-long-term-debt-attractive-income-investors
  Sentiment	Negative: 0.16949    Neutral: 0.04695    Positive: 0.78356
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  Content ID	1682331
  Key	d69c89e1-2e07-4e42-8bed-f462160ec4dd
  Content	Oct. 16, 2024 2:26 AM ET American Axle & Manufacturing Holdings, Inc. (AXL) Stock Jeremy LaKosh 5.02K Follower s Follow Play 6min Summary American Axle has shown solid financial results, increasing net sales by over $175 million and maintaining steady operating cash flow, despite industry pressures. The company is effectively managing its debt, using free cash flow to pay down foreign credit facilities and debt maturing in 2026. Risks include a potential drop in automotive demand, but AXL's expanding gross margin and debt reduction efforts provide a buffer against downturns. The decline in bond prices offers a great entry point for income investors, with the 2028 bonds providing a higher income yield, but 2029 bonds providing a higher yield to maturity. Monty Rakusen/DigitalVision via Getty Images Introduction American Axle & Manufacturing Holdings, Inc. ( NYSE: AXL ) is an automobile parts supplier that manufactures auto parts for a broad range of vehicle models within the automotive industry. Last year, I wrote about how the company's high-yield debt was an attractive holding for income investors. Now, concerns in the automotive industry have placed pressure on the company's shares and their debt has sold off slightly, creating attractive yields once again for income investors. FINRA American Axle Financial Results American Axle has shown solid financial results through the first half of 2024. In the first six months of the year, the company increased net sales by $175 million or more than 5% to more than $3.2 billion. The cost of goods also grew, but by less than $100 million, which allowed gross profit to rise from $339 million to $416 million. The company kept operating costs under control as well, which allowed the growth in revenue to translate down to operating income with a $70 million year-over-year increase. SEC 10-Q American Axle's balance sheet consists of over $2 billion in current assets along with $1.7 billion in property, plant, and equipment. Current assets and PP&E comprise most of the company's assets. The company does carry over $670 million in intangible assets. Long-term debt, vendor payables, and retirement benefits are the three largest components on the liability side. The company has reduced debt by nearly $50 million this year. Shareholder equity has remained steady at just under $610 million. SEC 10-Q SEC 10-Q Cash Flow And Liquidity Are Healthy For debt holders, the company's ability to generate meaningful cash to pay down debt is important. American Axle is doing just that. The company's operating cash flow remained steady at $160 million during the first half of 2024. One highlight of operating cash flow is that despite being a manufacturer, American Axle does not experience big swings in cash flow related to inventory. After accounting for capital expenditures, the company generated nearly $65 million in free cash flow this year, down slightly from a year ago. American Axle shares do not pay dividends, so most of the company's free cash flow can be dedicated to debt reduction. Despite the slight decline in free cash flow, American Axle has generated consistently positive free cash flow over the last few years. SEC 10-Q TIKR American Axle is not wasting time when it comes to addressing its debt. The company has used excess cash flow to pay down its foreign credit facilities and its 6.25% coupon debt maturing in 2026. The company has a real opportunity to pay both debts down over the next six quarters with the generation of free cash flow. Even if the company is unable to get those debts paid off, it can roll them into its resting revolving credit facility, which has nearly $900 million in capacity and would be a great source of liquidity in a declining rate environment. SEC 10-Q SEC 10-Q Risks To American Axle The primary risk to American Axle is a drop in automotive demand. A decline in demand would slow automotive manufacturing and consequently, the orders of automotive parts. Fears that demand is declining have played a large role in the sell off American Axle shares and why I am currently avoiding them in favor of debt. American Axle's management has been helpful in providing investors with information to watch. As part of their 2024 guidance, American Axle stated their financial targets would be reached if light vehicle production in North America was at or above 15.8 million. So far, the projections are looking-like production will come in at around 16 million, but light vehicle production did drop noticeably in September compared to a year ago. Earnings Presentation Alliance for Automotive Innovation Federal Reserve Despite the headwinds it currently faces, American Axle has a lot going for it. The expansion of its gross margin will help maintain profitability if there is a downturn, and the reduction of debt (along with lower interest rates) will help buoy earnings. In fact, analysts seem unfazed by the recent developments in the auto sector, as they have the company's earnings more than doubling in 2026. Either way, the prospects of insolvency, which is what would be required for bondholders to lose principal, seem very slim. Seeking Alpha Conclusion American Axle shares have been on the decline as risks to the health of the auto industry emerge. Yet, the company continues to generate meaningful cash flow and improve its balance sheet. For debt holders, the decline in bond prices represents a great entry point for an income-based investment. I prefer the longest duration bonds as they provide the best yield to maturity and a solid income yield, but investors who value higher income yield may consider the 2028 bonds with a coupon rate 188 basis points higher than the 2029 bonds. Either way, fixed income investors are in good hands with an investment in American Axle debt. CUSIP: 02406PBB5 Price: $89.56 Coupon: 5.000% Yield to Maturity: 7.6% Maturity Date: 10/1/2029 Credit Rating (Moody's/S&P): B2/B+ This article was written by Jeremy LaKosh 5.02K Follower s Follow About My Writing: I am currently focused on income investing through either common shares, preferred shares, or bonds. I will occasionally break away and write about the economy at large or a special situation involving a company I've been researching in. I target two articles per week for publication on Monday and Tuesday.About My Background: Bachelors in history/political science, Masters in Business Administration with a specialization in Finance and Economics. I enjoy numbers. I have been investing since 2000. Professionally, I am the CEO of an independent living retirement community in Illinois. Show more Show more Analyst's Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Like Share Print Comment Recommended For You Comments Recommended For You
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