Adient plc — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2023; comparable periods ended June 30, 2022. Adient supplies automotive seating systems and components globally through its Americas, EMEA, and Asia segments. Figures are in U.S. dollars; millions unless noted.
Financial performance
| Metric | Q3 FY2023 | Q3 FY2022 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Net sales | $4,055 | $3,485 | $11,666 | $10,471 |
| Gross profit / margin | $302 / 7.4% | $173 / 5.0% | $783 / 6.7% | $524 / 5.0% |
| EBIT | $173 | $35 | $383 | $121 |
| Net income (loss) attributable to Adient | $73 | $(30) | $70 | $(165) |
| Diluted EPS | $0.77 | $(0.32) | $0.73 | $(1.74) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $373 | $38 |
| Capital expenditures | Not provided for quarter | Not provided for quarter | $177 | $170 |
Q3 sales rose 16.4%, primarily on higher production volumes and favorable pricing, partly offset by unfavorable currency and material-economics effects. Gross margin improved 2.4 percentage points. Management cited higher volumes, pricing, insurance recoveries, and business performance as profit drivers; unfavorable material economics and higher financing charges were offsets. Nine-month sales grew 11.4%, and Adient returned to attributable profitability from a prior-year loss.
By segment, Q3 sales were $1,900 million in Americas, $1,438 million in EMEA, and $742 million in Asia, before eliminations. Adjusted EBITDA was $95 million, $103 million, and $100 million, respectively; corporate-related costs were $22 million. EMEA’s adjusted EBITDA increase was especially strong, while all three segments improved year over year.
Balance sheet, debt, and liquidity
- At June 30, 2023, cash was $908 million; working capital was $686 million, versus $662 million at September 30, 2022. Current assets were $4,406 million and current liabilities $3,720 million.
- Long-term debt, net of issuance costs, was $2,532 million, with $1 million current debt and $1 million short-term debt. Approximate debt less cash was $1.63 billion.
- The undrawn ABL revolving facility had $1,008 million of availability, net of $16 million of letters of credit. Management stated that available financial resources should meet liquidity needs for at least 12 months.
- Nine-month operating cash flow was $373 million, compared with $38 million a year earlier. Operating cash flow less capital expenditures was approximately $196 million; this simple calculation is not a company-reported free-cash-flow measure.
Material changes and notable items
- Adient issued $500 million of 7.0% secured notes due 2028 and $500 million of 8.25% unsecured notes due 2031. Proceeds and cash on hand funded a $350 million Term Loan B prepayment and repurchase of €700 million of 3.5% notes due 2024. The remaining 2024 notes were $134 million at quarter-end.
- Q3 net financing charges increased 26% to $49 million, primarily due to higher interest rates on recently issued debt. Nine-month financing charges fell to $149 million from $172 million, partly reflecting higher prior-year debt-repurchase premiums.
- Operating cash flow improved substantially year over year, while investing cash flow shifted to a $164 million use from $539 million provided, largely because the prior year included significant divestiture proceeds.
- Adient repurchased and retired 997,176 shares during Q3 at an average $35.10 per share. The remaining authorization was $535 million of a $600 million program.
- The YFAT acquisition in China closed in April 2023 for $23 million cash consideration; its results were included from May. Preliminary goodwill recorded was $13 million.
Outlook, risks, and contingencies
The filing gives no specific full-year revenue or earnings guidance. Management described the remainder of FY2023 as challenging amid ongoing supply-chain recovery, inflation and commodity-price volatility, higher interest rates, and uncertain consumer demand. Global light-vehicle production increased 8.8% in the first nine months, but management cautioned interim results may not indicate full-year performance.
The FY2023 restructuring plan carried $26 million in charges; Adient estimated approximately $12 million of annual operating-cost reductions upon completion, primarily from lower employee costs, with actions expected to be substantially complete by FY2026. Across its restructuring plans, approximately 12,000 of 14,000 targeted employees had been separated and 23 of 27 planned plant closures completed by June 30.
Key risks include production levels and schedules, supply availability and work stoppages, recovery of input-cost increases from customers, commodity and labor costs, foreign exchange, customer concentration, launching new business profitably, debt service, and execution of the turnaround plan. Management said it did not expect existing litigation or known environmental matters to materially affect results; environmental reserves were $5 million. Gross tax-effected unrecognized tax benefits were $523 million, of which $126 million would affect the effective tax rate if recognized. A U.S. deferred-tax-asset valuation allowance was established in Q3 without material financial-statement impact. Management noted that a future valuation-allowance release could produce a material tax benefit.
Important facts for investors to verify
- Whether improved volumes, margins, and operating cash flow persist after the benefit of insurance recoveries and other nonrecurring items.
- How much of increased input costs can be recovered through customer pricing, particularly given unfavorable material economics in the period.
- Debt refinancing costs, interest-rate exposure, remaining 2024 maturities, and compliance with debt covenants.
- Cash-flow sustainability and working-capital movements, including the use of receivables financing programs ($150 million funded at June 30, down from $269 million at September 30).
- Tax valuation allowances and uncertain tax positions, including the potential for material future adjustments.
- The filing text contains a difference in its MD&A discussion of Q3 income attributable to noncontrolling interests ($28 million in one table); the consolidated income statement reports $22 million. Verify against the filed financial statements and XBRL data.