American Axle & Manufacturing Holdings Inc (AXL) 2018 Q1 法說會逐字稿

Good morning.

My name is Tabitha, and I will be your conference facilitator today.

At this time, I would like to welcome everyone to the AAM's First Quarter 2018 Earnings Conference Call.

(Operator Instructions) As a reminder today's call is being recorded.

I would now like to turn the call over to Mr. Jason Parsons, Director of Investor Relations.

Please go ahead, Mr. Parsons.

Thank you, Tabitha, and good morning.

I would like to welcome everyone who is joining us on AAM's first quarter earnings call.

Earlier this morning, we released our first quarter of 2018 earnings announcement.

You can access this announcement on the Investor Relations page of our website, www.aam.com, and through the PR Newswire services.

You can also find supplemental slides for this conference call on the investor page of our website as well.

To listen to a replay of this call, you can dial 1 (855) 859-2056, reservation number 3190139.

This replay will be available beginning at 1:00 p.m.

today through 11:59 p.m.

Eastern Time, May 11.

Before we begin, I would like to remind everyone that the matters discussed in this call may contain comments and forward-looking statements subject to risks and uncertainties, which cannot be predicted or quantified, and which may cause future activities and results of operations to differ materially from those discussed.

For additional information, we ask that you refer to our filings with the Securities and Exchange Commission.

Also during this call, we may refer to certain non-GAAP financial measures.

Information regarding these non-GAAP measures as well as a reconciliation of these non-GAAP measures to GAAP financial information is available on our website.

Over the next couple months, we expect to participate in the following conferences: The RBC Capital Markets Canadian Automotive, Industrials and Transportation Conference on May 14; the Barclays High-yield Bond and Syndicated Loan Conference on May 22; and the 2018 Keybanc Capital Markets Industrial, Automotive and Transportation Conference on May 30.

We will also be hosting an Investor Day in New York City on June 14.

In addition, we are always happy to host investors at any of our facilities.

Please feel free to contact me to schedule a visit.

With that, let me turn things over to AAM's Chairman and CEO, David Dauch.

Thank you, Jason, and good morning to everyone.

Thank you for joining us today to discuss AAM's financial results for the first quarter of 2018.

Joining me on the call today are Mike Simonte, AAM's President; and Chris May, AAM Vice President and Chief Financial Officer.

To begin my comments today, I'll review the highlights of our first quarter 2018 financial performance.

Then I will comment on the performance of AAM's business units and provide an update on our synergy attainment and integration activities.

Lastly, I will review a few notable recent business developments as well as AAM's 2018 financial outlook.

After Chris covers the details of our financial results, we will open up the call for any questions that you may have.

Our first quarter financial performance was highlighted by continued strength in our end markets, realization of our new business backlog and operational excellence on a global basis.

AAM's first quarter of 2018 sales were $1.86 billion, another quarterly record for the company and significantly higher compared to $1.05 billion in the first quarter of 2017.

Most of this increase reflects the impact of our MPG acquisition, which did not close until early in the second quarter of 2017.

We also benefited significantly from the realization of our new business backlog, which more than offset the year-over-year decrease in production volumes related to the GM full-size and Ram heavy-duty truck programs as they prepare for upcoming launch activities later in 2018.

AAM's adjusted EBITDA in the first quarter of 2018 was $317 million or 17.1% of sales.

This compares to $183.6 million in the first quarter of 2017 or 17.5% of sales.

AAM's adjusted EPS in the first quarter of 2018 was $0.98 per share, compared to $1.03 in the first quarter of 2017.

This quarter, the power of our new business backlog and accelerated business diversification was on full display.

Despite planned customer downtime in our 2 largest programs, we were able to grow revenues to record levels and maintain very strong operating margins.

Chris will provide additional information regarding the details of our financial results in a few minutes.

Let's look a little deeper into the segment results for the first quarter.

The driveline business unit sales of $1.07 billion in the first quarter of 2018, which translated to $170 million of segment adjusted EBITDA.

And as we anticipate and previously communicated, the driveline business unit ran at slightly lower margins than usual in the first quarter of 2018 due to the year-over-year declines in full-size truck production as well as elevated project expense as we prepared for the upcoming launches.

However, our operations are running very well, and we are laser-focused on supporting our customers through a critical launch period over the next several quarters.

The metal forming business unit recorded sales of $397 million and segment adjusted EBITDA of $75.3 million in the first quarter of 2018, running at 19% adjusted EBITDA margins and continuing their strong operating performance.

The powertrain business unit recorded sales of $291.9 million and segment adjusted EBITDA of $50.1 million.

Our powertrain business unit experienced sequential margin improvement due to higher sales and solid operating performance.

And the casting business unit recorded sales of $239 million and segment adjusted EBITDA of $21.6 million.

This represents an increase in margin performance of 330 basis points from 5.7% in the fourth quarter of 2017 to 9% in the first quarter of 2018, and reflects further improvements in the performance of our casting operations.

We expect to see this trend continue as we target double-digit EBITDA margins in the second quarter of 2018.

Let me now provide a quick update on our synergy attainment progress.

As of the end of March, we were running at an annual cost reduction synergy rate of $85 million, right in line with our updated synergy target for the first full year after the MPG acquisition.

Our progress over the last 12 months has us on track of achieving our $120 million of synergy achievement by the end of the first quarter of 2019, and we continue to look for potential ways to go above and beyond that target.

Switching gears, I'd like to cover a couple recent developments.

First, I'd like to cover our newly signed joint venture agreement with Liuzhou Wuling, a Chinese manufacturer of axles, chassis, engines, stamping and welding products and special purpose vehicles.

This joint venture will begin production later this year and will start by providing independent rear axles and drive heads to SAIC-GM-Wuling for use in sport-utility and multipurpose vehicles.

After initial launch of this 50-50 joint venture, we expect the entity to generate about $25 million of annual revenue.

However, the potential of this partnership goes well beyond that and presents -- and represents an excellent opportunity for AAM to grow both our traditional driveline as well as our electric driveline products in China, the largest automotive market in the world.

This region has considerable growth opportunities for us as a company, not only with the new joint venture, but across our driveline, powertrain and metal forming segments.

Second, as we disclosed in our press release this morning, in April of 2018, we sold our aftermarket business associated with our powertrain business unit.

Cash proceeds from the sale of these noncore assets were approximately $50 million, and we plan to use these funds to make further debt payments in the second quarter of 2018.

This was an excellent opportunity for AAM to optimize its portfolio and receive solid return on our investment.

While we have not specifically identified any additional parts of our business as noncore, we will continue to analyze our assets and align them with our future business strategies.

And lastly, for the second straight year, AAM was recognized as one of its Supplier of the Year recipients from General Motors.

This award is awarded to suppliers who have consistently exceeded GM's expectations, created outstanding value or brought new innovations to the company.

While we continue to focus on further customer diversification, we greatly value our strategic relationship and partnership with our largest customer.

We are honored by this award and the recognition from GM, and we look forward to continuing our mission to provide value to all of our customers.

Before I turn it over to Chris, let me provide some quick comments on AAM's 2018 full year financial outlook.

Today, we are reaffirming the targets we previously shared with you in our last earnings call.

AAM is targeting full year sales of approximately $7 billion in 2018, and this assumes a U.S. SAAR of 16.8 million to 17 million units, right in line with what we were experiencing in the first few months of sales activity this year.

For the full year 2018, AAM is targeting adjusted EBITDA margins in the range of 17.5% to 18% of sales and AAM is targeting adjusted free cash flow in the range of 5% of sales for the full year 2018.

We're off to a great start in achieving 2018 financial targets, while continuing to focus on critical launch and acquisition integration activities during the year.

This year is shaping up to be a very exciting one for AAM.

As we look forward to major milestones during the year, we have major issues such as the launch of the new generation full-size truck programs for GM and FCA, our first electric drive P4 solution for a battery electric all-wheel drive crossover vehicle, greater expansion and growth in both China and Europe, and we would expect another record financial year from a performance standpoint.

We look forward to providing another business update to all of you at our investor event in June.

That is all of my prepared remarks here today.

I thank each and every one of you for your attention today, and appreciate your continued interest in AAM.

Let me now turn the call over to our Vice President and Chief Financial Officer, Chris May.

Chris?

Thank you, David, and good morning to everyone.

I will cover the financial details of our first quarter of 2018 results with you today.

I will also refer to the earnings slide deck as part of my prepared comments.

So let's go ahead and get started with sales.

In the first quarter of 2018, AAM's sales increased 77% on a year-over-year basis to $1.86 billion.

This increase is attributed to the MPG acquisition, launches of new business and higher metal market pass-throughs and foreign currency.

On a pro forma basis, for the MPG acquisition, revenues were up over $80 million.

Slide 8 shows a walk down of pro forma first quarter 2017 sales to first quarter 2018 sales.

AAM's sales were impacted by lower year-over-year production of General Motors full-size trucks and Ram heavy-duty trucks as our customers prepared for upcoming new model launch activity.

We had initially indicated that first quarter sales would be impacted by this customer downtime, and they were.

However, we did see some higher than initially expected volumes in the first quarter related to the Ram heavy-duty trucks as some of the downtime was retimed into the first few weeks of the second quarter.

The great news for us was that the decrease in sales for these 2 important platforms was more than offset by increased revenues as a result of our new business backlog across many vehicle types and other positive volume and mix factors.

We also saw increases in sales related to metal market pass-throughs and FX, mainly related to the euro, renminbi and Thai baht.

And lastly, we incurred a small impact related to normal customer price down activity.

So the bottom line, even when you back out FX and metal market impacts, we still grew our sales organically year-over-year despite lower K2XX and Ram heavy-duty volumes.

Now, let's move on to profitability.

In the first quarter of 2018, AAM continued to deliver strong operating profit metrics.

Gross profit was $316.3 million or 17% of sales in the first quarter of 2018.

Adjusted EBITDA or earnings before interest expense, income taxes and depreciation and amortization, excluding the impact of restructuring and acquisition-related costs and debt refinancing and redemption costs was $317 million in the first quarter of 2018 or 17.1% of sales.

You can see a year-over-year walk down of adjusted EBITDA on Slide 9. Again, we calculated the first quarter of 2017 pro forma adjusted EBITDA by combining AAM's adjusted EBITDA with MPG's estimated EBITDA from last year.

Adjusted EBITDA grew $11 million as a result of our organic growth with the favorable impact of our new business backlog realization more than offsetting the unfavorable impact of the year-over-year production declines of our full-size truck programs.

We continue to see the benefit of our integration activities as cost reduction synergies improved our performance by $20 million in the quarter.

As we have discussed previously, we are incurring expenses related to our significant launches of new and replacement programs.

We experience these costs every year, but they are magnified in this time period due to the size and scope of our launches in 2018.

As we also mentioned previously, we anticipated these expenses to be more weighted towards the first half of 2018 and that is still our expectation.

The last thing I wanted to point out as it relates to margins is the impact of metal market pass-throughs and FX.

As it relates to metal market, we saw our sales increase $27 million as a result of increasing metal market indices.

As we have discussed many times, we pass-through to our customers approximately 90% of the impact related to these index-driven metal market changes.

So there's usually a small impact to profitability dollars in a period of rising metal market prices and a mathematical impact on margin.

And we saw that dynamic again in the first quarter of 2018 as we experienced a small $2 million unfavorable impact.

However, when you remove yourself from the margin math, these pass-throughs are very effective in protecting AAM from significant changes in certain metal market index-related costs.

On a year-over-year basis, we have also been impacted by FX with a weaker U.S. dollar, our revenues and profits denominated in euro, renminbi and Thai baht, as well as some other currencies, translated higher in the first quarter 2018.

However, most of this profit benefit was offset by the unfavorable impact of the stronger Mexican peso in Q1 of 2018 versus prior year.

So just to summarize, while these 2 factors did not have a significant impact on our operating profit or cash flow dollars in the quarter, it did create a headwind as it relates to margin, approximately 50 basis points when comparing the first quarter of 2018 to the same period in 2017.

As it relates to restructuring and acquisition-related costs, in the first quarter 2018, we incurred $18.3 million of restructuring and acquisition-related costs, most of which related to investments in integration and synergy implementation.

We continue to expect these expenses will be approximately $50 million to $75 million for the full year of 2018.

Let me now cover SG&A.

SG&A expense including R&D in the first quarter of 2018 was $97.3 million or 5.2% of sales.

This compares to $81.2 million in the first quarter of 2017 or 7.7% of sales.

AAM's R&D spending in the first quarter of 2018 was $38.5 million compared to $41 million in the first quarter of 2017.

Lower SG&A as a percent of sales is clearly reflecting the benefits of a portion of synergy attainment from our acquisitions.

Amortization of intangible assets for the first quarter of 2018 was $24.9 million as compared to $1.6 million in the first quarter of 2017, with the increase solely related to the significant amount of intangible assets recorded to our balance sheet in 2017 as part of our acquisition activity.

Starting in the second quarter of 2018, this line item will be much more comparable.

So let's move on to interest and taxes.

Net interest expense was $52.7 million in the first quarter of 2018 compared to $25 million in the first quarter of 2017.

This increase reflects the impact of the additional debt required to fund the MPG acquisition.

In the first quarter of 2018, we reported income tax expense of $17.9 million compared to $7.5 million in the first quarter of 2017.

Our effective tax rate in the first quarter of 2018 was 16.7%.

When you adjust for the restructuring and integration charges in the quarter, our effective tax rate is right around 17.6%, basically splitting the [upgrades] of our guidance of 15% to 20% for 2018.

Taking all these sales and cost drivers into account, GAAP net income was $89.5 million or $0.78 per share in the first quarter of 2018 compared to $78.4 million or $0.99 per share in the first quarter of 2017.

Adjusted earnings per share excludes the impact of restructuring and acquisition-related costs, debt refinancing and redemption costs and nonrecurring items.

Adjusted EPS for the first quarter of 2018 was $0.98 per share, compared to $1.03 per share for the first quarter of 2017.

Let's now move on to cash flow and the balance sheet.

We define cash flow to be net cash provided by operating activities less capital expenditures net of proceeds from the sale of property, plant and equipment.

AAM defines adjusted free cash flow to be free cash flow excluding the impact of cash payments for restructuring and acquisition-related costs and settlement of preexisting accounts payable balances.

Net cash provided by operating activities in the first quarter of 2018 was $66.9 million.

Capital expenditures net of proceeds from the sale of property and equipment for the first quarter of 2018 was $130.4 million.

Cash payments for restructuring and acquisition-related activity for the first quarter of 2018 were $21.8 million.

Reflecting the impact of this activity, AAM had a seasonal use of adjusted free cash flow of $41.7 million in the first quarter of 2018.

It is not uncommon for us to have a free cash flow outflow in the first quarter of the year, as working capital typically is a significant use as we are increasing production, inventory and accounts receivable off year-end holiday shutdowns.

Of our last 5 years, all of which were positive free cash flow years, 4 of them experienced free cash flow use in the first quarter.

From a debt leverage perspective, we ended the net quarter -- ended the quarter with a net debt to LTM-adjusted EBITDA or net leverage ratio of 2.97x at the end of March.

This calculation takes our total debt minus our available cash balances divided by the last 12 months of adjusted EBITDA.

As it relates to cash flow, we are right where we thought we would be at the end of the first quarter, maybe even a little better.

We are confident in our ability to generate adjusted free cash flow of approximately 5% of sales this year.

I also wanted to touch on a few other recent actions since the last earnings call.

First, we refinanced $400 million of our 6 1/4% senior notes that were previously due in 2021 and were able to extend the maturity out to 2026.

As we analyzed a rising interest rate environment, this was a great opportunity to improve an already healthy debt maturity profile and lock in an attractive interest rate for the company.

At the end of the quarter, the average maturity life of our outstanding debt is now in excess of 6 years.

Second, as David mentioned, we closed on the sale of the aftermarket business of our powertrain segment in early April for approximately $50 million.

While relatively small in nature, this was a great opportunity for us to divest of noncore assets.

This action aligns perfectly with our objective to maintain focus at our core operations and also strengthen our balance sheet.

To that effect, as we announced our earnings release today, we have also issued a notice of redemption for $100 million of our 6 5/8% senior notes due in 2022.

We will use cash on hand including proceeds from the sale of our powertrain aftermarket sale to fund this gross debt paydown.

We are confident in our ability to generate free cash flow in 2018 and we will continue to look for ways to utilize this cash flow as we work towards our goal of reducing leverage and enhancing our financial position.

As it relates to liquidity, AAM had over $1.3 billion as of March 31, consisting of available cash and borrowing capacity on AAM's global credit facilities.

And before we move into Q&A, let me end with a few closing comments.

AAM's financial performance continues to benefit from strong end markets and customer demand for the products we support.

We have a healthy backlog of new and incremental business, including the launch of our electric drive units going on right now.

Business diversification from a customer, geographic, product portfolio and end markets perspective continues to strengthen.

Our synergy attainment and acquisition integration activities are on track.

Operational excellence across the world in our key technologies on electrification, light weighting and fuel efficiency and lastly, we have industry-leading profit margins and cash flow generating power.

AAM's first quarter performance sets a strong foundation for the full year and achievement of our key 2018 objectives.

We are confident in our 2018 financial targets and we'll continue to monitor positive trends in the industry that drive consumer demand and mix that favors our products.

Thank you for your time and participation on the call today.

I'm going to stop here and turn the call back over to Jason so we can start the Q&A session.

Thank you, Chris and David.

We have reserved some time to take questions.

(Operator Instructions) So at this time, please feel free to proceed with any questions you may have.

(Operator Instructions) And your first question comes from Jason Spak (sic) [Joseph Spak] with RBC Capital Markets.

It's Joe.

The first question is as you pointed out, without the FX and commodity headwinds, some really strong margins here, looks like the backlog came through pretty nicely.

I'm assuming you sort of mark-to-market the FX and commodity assumptions for your guidance.

So is the right interpretation that the underlying EBITDA was actually -- EBITDA margin guidance was actually raised considering you -- I know you held it constant, but I guess I'm trying to get at the underlying level of the business.

Joe, this is Chris.

From a metal market perspective, the rates we experienced in the first quarter, very similar to what we experienced sort of the latter part of last year.

So those are essentially already assumed into all our guidance.

What you see here is really a comparison to the first quarter of the previous year where they were starting to upswing.

So I don't know if that makes sense for you.

And then on an FX basis, we did see some strengthening a little bit in the currencies that I've mentioned.

Keep in mind, 80% of our revenues are U.S. dollar denominated.

I don't see that as a major swing in either direction on a go-forward basis.

Okay.

And then appreciate the commentary on the Ram schedules and some of that being pushed, it sounds like into second quarter on the downtime.

Can you just comment on your view of how the GM truck changeover is going, is it as planned?

Any more or less downtime than you expected?

Joe, this is David.

Everything is on schedule as originally planned by General Motors, both for them and for us.

So we feel like we're in solid shape for that upcoming launch.

And your next question comes from the line of Emmanuel Rosner with Guggenheim.

So looking at performance by segment, it looks like revenues and margins were outside of driveline, looked a lot better quarter-over-quarter.

Can you go maybe over what was driving that versus, let's say, a fourth quarter run rate?

Is there some sort of seasonality in the acquired metal line business that makes 1Q revenue or margins stronger than the rest of the year?

Emmanuel, this is Chris.

From a seasonality perspective, in particular as it relates to revenue, certainly there is more production days in the first quarter as it relates to the fourth quarter.

So you do experience some lift just mechanically associated with that, especially in those 3 segments outside of driveline.

However, we do continue to see nice backlog, especially in our powertrain business and our casting business, the demand on the industrial and commercial side continues to remain strong.

Each one from a margin perspective has grown.

For example, the metal forming has been a solid margin performing unit for the past several quarters, that continued.

The powertrain, you saw sort of dip a little bit in the third quarter last year as they were going through some launch activity, and that's been uptick and improving, which is sort of on track.

And then castings, which we have articulated many times in the past few quarters, obviously had troughed out middle of last year, and we continue to rebuild that back and that is on track for that continued enhancing performance.

Okay, that's very helpful color.

And then just I guess follow up on sort of like cadence for some of these metrics over the rest of the year.

Obviously, you're off to a fairly strong start in the first quarter from a revenue point of view, despite some downtime at GM.

So how do we think about the cadence from here?

And any upside risk to the $7 billion figure?

Yes, in terms of cadence, Emmanuel, as I mentioned in my prepared remarks, some of the Ram downtime was pushed to the first part of the second quarter.

That's now done and behind us from a quarterly cadence perspective.

We'll have a little bit of remaining downtime in some of the other full-size truck plants for GM as they convert out.

But then the new truck launch, and as I [well] articulated, as we start to rebalance that production between us and General Motors in the second half of the year, that will take hold.

From a backlog cadence perspective, pretty flat, pretty consistent on a quarter-over-quarter basis throughout the year.

Where last year, we saw that sort of ramp-up through the year, this year, it's somewhat flat.

And then, of course, you're subject to the normal dynamic of production days in each quarter.

And your next question comes from the line of Ryan Brinkman with JPMorgan.

When you first announced the MPG acquisition in November of 2016, levering up to 3.4x from 1.5x, you targeted getting back down to 2x, I think it was by the end of 2019.

So back in November of '16, 2019, it was a lot further away, and I think it seemed a lot further still.

So since then, you've exceeded most investors' estimates for cash generation and EBITDA.

Now with these latest aftermarket proceeds, chipping away at the debt, it no longer seems like hugely premature to ask, what are your priorities for use of free cash, once you get down to the targeted leverage ratio?

I think with MPG having gone so well, that makes me think that maybe you've got appetite for more acquisitions.

But then again you've had a recently instituted share repurchase program before the acquisition and your shares are lower now than they were at the time of the announcement of the acquisition.

So that almost makes me think that maybe you'd be more inclined to purchase the shares.

Have you started to give thought to this, given that it's not so far away now that you might be within your range?

Well, Ryan, first and foremost, this is David.

I mean we're obviously committed first to supporting the organic growth business that we have.

As you mentioned, we're totally committed to paying down our debt, and we're clearly on track and actually taken actions to try to pull that ahead or at minimum deliver it by the end of 2019 period of time, which we committed to doing earlier.

With respect to the other uses of cash, I mean, clearly, the opportunity for inorganic growth or strategic growth, or some of the shareholder-friendly activities like you said, I mean, clearly, we like the investment community to value us to where we think we belong.

But we will evaluate that as we go forward here.

But most importantly right now, the proceeds of our cash or our operating performance are going to go towards organic growth and debt management.

And then we'll balance that with the other priorities going forward and the opportunities that present themselves by quarter.

Okay.

And then the last question is, I know you don't guide by quarter, but is there any way you can help us dimension what you think the impact of the partial roll off of some of the K2XX business will be in the back half of the year?

I think you were seen as having passed that test in the third quarter of last year when K2XX production was off, I think it was like 26%.

In this quarter, GM was telling us that 1Q, seasonal low for them for pickup truck production.

What is the challenging quarter for you in the back half here?

Is it 3Q or 4Q, when GM is going through more of their transition or more of your product is kind of rolling off?

And after your experience with some of these pickup truck production declines when you actually came through with flying colors, I think, on the margin side, what can you tell investors to prepare them for what the results might look like in one of those quarters?

Anything to keep in mind in terms of cadence or whatnot?

First, as you pointed out at the start of your question, Ryan, we do not provide quarterly guidance.

The conversion to the next-gen truck will happen predominately starting in the third quarter, but keep in mind, we're launching significant backlog activity outside of just the full-size truck program this year.

And as we've articulated previously, we're hitting the higher end of our margin range that we would anticipate on that new business backlog, so that will offset and mitigate a lot of that transition effect on us.

So our full year guide remains at 17.5 to 18.

You saw us the start the first quarter at 17.1.

Obviously, we're going to build from there to hit our full numbers for the full year.

At the same time, GM's continuing to build strong on the K2XX, the existing model and the (inaudible) coming onboard is only going to get stronger.

And your next question comes from the line of Itay Michaeli.

Just on Slides 8 and 9, I was hoping you can actually dimension the decremental margin on the $72 million from the K2 and the Ram.

And then the incremental on the $108 million from the backlog volume mix, and just how that relates to the $11 million overall EBITDA impact from the combination of those factors?

Yes.

As a rule of thumb, what I would tell you when it relates to the K2 and the Ram, we're using a 30%-ish contribution margin as we've articulated in the past.

Generally, the backlog in all other bucket or the $108 million, we'd use 25%, 20% to 25%.

We've experienced a little bit at the higher end of that range, which then when you do that math, gets you to the $11 million.

Okay, so it sounds like (inaudible) higher end on the backlog portion and pretty consistent to the expectations on the K2 portion, would that be fair?

I'm sorry, can you repeat the last part of your question?

I guess first on your prior indications, you're in line on the decremental, maybe a little bit better than you thought on the incremental side of it?

Yes, correct.

Perfect.

And then just a quick follow-up on the -- I apologize if I missed this, but the metal market impact on EBITDA for the full year, and then anything else we should think of in terms of just the margin cadence as we go through the rest of '18?

Yes, as it relates to metal, we pass through about 90% of any industry-related changes either in the form of price reductions or price increases.

You saw here in the first quarter, we passed through at least on a year-over-year basis, approximately $27 million associated with that, with the profit impact of $2 million.

So call that 7%, pretty close to the kind of 90-10 ratio we described.

That dynamic will play out all year.

So effectively, we risk manage this and only pass through about 90%, retain 10%.

And your next question comes from the line of John Murphy with Bank of America.

I just wanted to follow up on the sale of the aftermarket powertrain business.

Just thinking about sort of the sales and profit impact going forward, I think it'll probably be relatively small, but also, David, as you kind of think about the portfolio of businesses that you have at this point, you mentioned you might consider other sales.

I mean, what is the process for assessing what you're selling?

Is it just sort of underperforming?

Or is it noncore business?

How do you think about identifying those assets?

John, as you said, I mean first and foremost, I mean, American Axle in the past hasn't traditionally been in the aftermarket business, so when we assessed the MPG business and we brought it in, it was clear to us that the aftermarket business and our powertrain business unit wasn't something that we wanted to be in longer term, and it was a good source of cash for us to support accelerating some of the breakdown, although small, at the $50 million that we referenced in the prepared remarks earlier.

As you know, we've said all along that we want to be a consolidator in the driveline and metal forming space, and with the MPG acquisition, we created the powertrain and the casting business.

We consider both those businesses to be core at this time, and we clearly, on the casting side, we got some improvement that we need to do and we're demonstrating that we're on track to deliver what we said we'd deliver from a financial standpoint there.

But yes, the bigger thing that we have to understand is just manage, like you said, the performance of the businesses, are they meeting our financial hurdles as an overall organization as it relates to delivering cash?

Are we a leader in regards to the different segments that we serve, the products that we serve?

And if not, then we have to really make a decision is that the best place for us to be.

And clearly, there's going to be demands that are going to be greater than our funding ability on the business going forward, and what we're going to need to do is figure out how we can be very meaningful in certain spaces and then get out of some of the other spaces so that we can redirect that cash in paying down debt and/or growing in the other areas.

So nothing more to announce right now in regards to noncore assets, but what I would say to you is that we are actively reviewing that.

So our priority the first year that the acquisition was really, to focus on the integration activity and the synergy attainment, which we clearly are on track to accomplish.

And what we need to do is just make sure that we're staying focused on the mega trends in the industry.

And that was part of the reason why we went after MPG to begin with, because of where they are in high-speed transmissions, where there are on downsized engines.

It's complementary to what we do in regards to light weighting, mass optimization and fuel economy.

So we think we're right in the sweet spot of the mega trends.

We're right in the sweet spot of the vehicles segments, trucks, SUVs and crossovers.

But at the same time, there's still work to be done as it relates to optimizing our portfolio.

That's very helpful.

And just a sales and profit number for that, is it sort of de minimis in our thought process on forward estimates?

John, this is Chris.

Sales were approximately $30 million a year for this unit and from an EBITDA margin perspective, very, very close to our corporate average.

Okay, that's very helpful.

And then just a second question.

If you look at Slide 5 and the synergies, obviously, you're tracking fairly well.

It does seem like there's some potential real upside.

And if we think of the 3 buckets there, David, overhead, purchasing and other cost savings and maybe particularly plant loading optimization, it sounds like there might be a real opportunity there, where do you think the most upside is?

And as we think about this sort of in dollar terms and a time frame, could there be more upside [than this] $120 million by the first quarter of '19?

Or should we think about this as sort of an ongoing effort that might be materially higher beyond that time frame?

It's the latter part of your comments there.

Yes, I mean we're right on track in regards to what we said we wanted to do as it relates to the run rate from a synergy attainment standpoint.

We had originally committed $100 million to $120 million to The Street, we raised debt to the high-end of the range, the $120 million.

We're well on our way as it relates to the overhead and the purchasing activity.

Where the upside is, John, which we communicated earlier, was we think in the other, which is really the manufacturing area, plant loading, product loading.

A lot of work's being done in that space right now.

We are on track to deliver the $120 million by the first quarter of '19.

However, we do think there is some potential upside.

We're not ready today to announce that, hopefully some time in the near future, but it's clearly associated with the manufacturing side of the business.

But it'll be post that first quarter '19 period of time that we'll be able to realize those types of things.

Your last question comes from the line of Armintas Sinkevicius with Morgan Stanley.

Was just hoping to get more color on the competitive dynamics for the e-drive.

You have a launch coming up this year.

How are you seeing your bookings in that area and the competitive dynamics?

Well, obviously, we're very excited about the e-drive activity.

The 2 major programs that we went after on e-drive, we booked both those programs.

One of those programs launching here, a P4 solution for a crossover [bev].

We're already, really ourselves in the launch mode.

The customer is ramping up with respect to that, but we feel very good about where we are in regards to that and we're hopeful that there'll be incremental buy in or derivatives off that program in the future.

The second program that we won, as we told you, the P3 solution that the 2020 launch, and they'll ramp up from there.

And that's associated with a high-performance passenger car, again with a luxury automaker out of Europe.

We're spending a lot of time right now positioning our product portfolio to really be able to satisfy the various markets of the world.

Clearly, it's launching in Europe first for us, but we expect rapid growth of the whole market in China.

We positioned our product portfolio appropriately, and we're dealing with multiple Chinese OEMs at this point in time, both domestic as well as global OEMs with respect to new opportunities.

So don't really want to get into where we are with respect to all those at this point in time, but it's going to become a greater part of our emerging opportunities and hopefully, a greater part of our backlog going forward.

And as we've already said in the backlog, this business will grow over to $150 million for us by that 2021-plus period of time.

Okay.

And then the joint venture in China, what is your contribution from a dollar perspective that we should be thinking of?

And you said $25 million of revenues, but what does that translate to as far as equity income?

Yes, it won't be a sizeable equity income on the P&L.

That really won't start to take place until 2019.

But from a contribution basis, think around $10 million, not very significant.

And thank you, gentlemen, your final question comes from the line of Brian Johnson.

It seems he's dropped from the queue, sir.

Okay, thanks, Tabitha.

We'd like to thank you, all for participating on the call today and appreciate your interest in AAM.

We certainly look forward to talking with you in the future.