American Axle, BorgWarner Post Weaker Results on Automaker Cuts

By Jeff Bennett | Oct. 27 (Bloomberg) -- American Axle & Manufacturing Holdings Inc. reported a third-quarter loss and BorgWarner Inc. said earnings declined, as auto-parts suppliers struggle because of production cuts by General Motors Corp. and other carmakers.

The net loss at American Axle was $62.9 million, for its first unprofitable quarter since becoming a publicly traded company in 1999. BorgWarner, a maker of turbochargers and other engine parts, said earnings fell 36 percent to $39.2 million.

The results prompted BorgWarner to say it will expand in emerging markets such as India and China to counter falling demand in the U.S. American Axle said it will extend job cuts to salaried staff. GM, Ford Motor Co. and DaimlerChrysler AG's Chrysler will make 702,000 fewer vehicles in North America in 2006's second half, and production may not increase next year.

``The tough times could continue,'' said John Novak, a Morningstar Inc. analyst based in Chicago. ``We don't know where the bottom is for GM, Ford, and Chrysler, but further contraction is likely.''

Those automakers' cutbacks are squeezing U.S. auto-parts companies. Four major suppliers -- Delphi Corp., Dana Corp., Tower Automotive Inc. and Collins & Aikman Corp. -- are in bankruptcy protection. The automakers are building fewer vehicles in North America as they lose U.S. market share to Asian competitors such as Toyota Motor Corp. and Honda Motor Co.

Results at American Axle and BorgWarner lagged behind analysts' estimates. The shares of Detroit-based American Axle shares fell 50 cents, or 2.5 percent, to $19.57 at 12:17 p.m. in New York Stock Exchange composite trading. BorgWarner, based in Auburn Hills, Michigan, dropped $2.02, or 3.3 percent, to $59.29.

American Axle

American Axle said its net loss was $1.25 a share. A year earlier, the company had net income of $19.3 million, or 38 cents. Sales fell 17 percent to $701.2 million. The company relies on GM for about three-fourths of its revenue, and sales to the automaker fell 14 percent.

``Non-GM sales fell 26 percent, presumably led by Chrysler,'' said Himanshu Patel, a JP Morgan Securities analyst in New York with a ``neutral'' rating on American Axle. ``These declines were driven by production cuts, as well as a 3 percent decline in content per vehicle.''

Chief Executive Officer Richard E. Dauch told analysts on a conference call that he will eliminate jobs of some salaried employees, without giving details. American Axle in early October offered buyouts of as much as $100,000 to about 6,000 United Auto Workers members at five plants in Michigan and New York.

``It's far too early to tell how many will take the buyout offer,'' Dauch said.

American Axle will trim excess capacity by shifting machinery, he said, without saying whether any plants will close.

American Axle said it had costs of $93.1 million, or $1.17 a share, for post-employment benefits. Excluding those, the loss would have been 8 cents a share. The average estimate was a loss of 5 cents a share in a survey of 14 analysts by Thomson Financial, which doesn't provide the basis for its figures.

BorgWarner

BorgWarner said its profit declined to 68 cents a share, from $61.4 million, or $1.07, a year earlier. Sales rose less than 1 percent to $1.06 billion, including a 14 percent drop in the U.S. and a 13 percent gain outside the region.

To cope with the U.S. production cutbacks, BorgWarner said it will expand in growing markets such as South Korea, India and China.

The company said it expects to win $1.7 billion of new contracts from 2007 through 2009. About 73 percent will come from Asia and Europe, and most of the sales will be engine-related parts such as turbochargers and ignition systems.

`Well-Positioned'

``It was a tough quarter in North America, but it is encouraging to see the international results,'' said Morningstar's Novak. ``Longer-term, the company looks to be well- positioned.''

The company repeated its outlook for full-year 2006 profit to decline as much as 5.3 percent from 2005, excluding a 15-cent charge for job cuts. Efforts to trim expenses won't make up for a decline profit margin and higher costs for materials such as nickel, it said.

Excluding certain items that BorgWarner said were one-time costs, the company earned 81 cents a share in the third quarter. On that basis, BorgWarner lagged behind the 87-cents-a-share estimate in a Thomson Financial survey of 16 analysts.

GM, Ford and Chrysler combined will build about 702,000 fewer cars and trucks in the second half of the year. Each vehicle has an average of $12,550 in components, according to a Merrill Lynch report published in April. That translates into about $8.81 billion in lost revenue for auto-parts companies in the second half of the year.