Adient plc — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2023. Unless stated otherwise, amounts are in U.S. dollars; financial figures are in millions.
Business context and performance
Adient is a global automotive seating supplier operating through the Americas, EMEA, and Asia segments. Results reflect higher vehicle production and commercial settlements, alongside continuing cost inflation, foreign-exchange effects, and uneven regional production.
| Metric | Quarter ended March 31, 2023 | Comparable 2022 quarter | Six months ended March 31, 2023 | Comparable 2022 period |
|---|---|---|---|---|
| Net sales | $3,912 | $3,506 | $7,611 | $6,986 |
| Gross profit / margin | $250 / 6.4% | $178 / 5.1% | $481 / 6.3% | $351 / 5.0% |
| EBIT | $96 | $46 | $210 | $86 |
| Net income (loss) attributable to Adient | $(15) | $(81) | $(3) | $(135) |
| Diluted loss per share | $(0.16) | $(0.85) | $(0.03) | $(1.43) |
| Operating cash flow | Not separately presented for the quarter | Not separately presented for the quarter | $170 | $15 |
| Capital expenditures | Not separately presented for the quarter | Not separately presented for the quarter | $117 | $117 |
Financial position, liquidity, and cash flow
- At March 31, cash and cash equivalents were $826, compared with $947 at September 30, 2022. Current assets were $4,269 and current liabilities $3,671; reported working capital was $598.
- Reported debt comprised $2,531 of net long-term debt and $1 of short-term debt. The company had $973 of available capacity under its $1.25 billion asset-based revolving credit facility, net of letters of credit, and had not drawn on it.
- Six-month cash flow was $170 from operations, $(111) from investing, and $(218) from financing. Cash declined by $121 to $826. Investing cash flow benefited from prior-year divestiture proceeds, making the year-over-year comparison notably different.
- In the quarter, Adient issued $500 of 7.0% secured notes due 2028 and $500 of 8.25% unsecured notes due 2031. Proceeds and cash on hand funded a $350 term-loan prepayment and repurchase of €700 million ($743) of 3.50% notes due 2024. The remaining balance of those 2024 notes was $134.
Changes versus the prior comparable period
- Quarterly sales rose 11.6%; management attributed the increase principally to higher production volumes and commercial settlements, partly offset by unfavorable currency effects and material economics recoveries. For the six-month period, sales rose 9%.
- Quarterly gross profit increased by $72 and gross margin expanded 1.3 percentage points. Higher volume and settlements helped, while utilities, labor, freight, commodities, and unfavorable material economics weighed on results. Management also cited non-recurring net benefits, largely associated with insurance recoveries, in quarterly gross profit.
- Quarterly net loss attributable to Adient narrowed by $66. Lower financing charges and better operating performance contributed; higher input costs, restructuring expense, lower equity income, pension expense, and currency effects partly offset the improvement.
- Quarterly segment Adjusted EBITDA was $72 in the Americas, $53 in EMEA, and $113 in Asia, compared with $46, $30, and $105, respectively. For the six months, segment Adjusted EBITDA was $141, $81, and $251, respectively.
- Six-month operating cash flow improved to $170 from $15, mainly due to improved earnings and working-capital changes. Cash used in financing was lower than in the prior-year period, which included substantial debt repayments and a payment to acquire a noncontrolling interest.
Outlook, risks, contingencies, and unusual items
- The filing provides no specific full-year revenue or earnings guidance. Management says current financial resources are expected to meet liquidity requirements for at least the next 12 months.
- Management expects the automotive operating environment to remain challenging through the rest of fiscal 2023. Risks cited include supply-chain disruption, inflation and volatile commodity/input prices, higher interest rates, consumer-demand volatility, vehicle production schedules, customer cost-recovery timing, foreign exchange, and the Ukraine conflict. Global light-vehicle production increased 4.9% in the first six months, while China production declined 6.5%.
- A fiscal 2023 restructuring plan incurred $24 of charges, primarily for EMEA workforce reductions, with actions expected to be substantially complete by fiscal 2026. Management estimates approximately $11 of annual operating-cost reductions upon completion. Across restructuring plans, about 12,000 of approximately 14,000 targeted employee separations and 22 of 27 planned plant closures were complete at March 31.
- The six-month period included an $8 pension curtailment loss related to employee termination plans. The company also recorded $7 of non-recurring impairment of investments in partially owned affiliates during the quarter.
- Income-tax expense was $25 for the quarter and $56 for the six months; reported effective rates were 71% and 57%, respectively. The filing attributes elevated rates mainly to inability to recognize tax benefits for losses in jurisdictions with valuation allowances and to foreign tax-rate differences. Gross tax-effected unrecognized tax benefits were $522; $125 would affect the effective tax rate if recognized.
- Adient reported $5 of environmental reserves. Management does not expect the disclosed lawsuits, claims, or known environmental matters to materially adversely affect financial position, results, or cash flows, while noting outcomes cannot be predicted with certainty.
- The company repurchased and retired 759,601 shares for $30 during the quarter under a $600 authorization; $570 remained available at March 31. The filing also reports $206 funded through receivables-sale/discount programs, compared with $269 at September 30.
Key facts for investors to verify
- Whether production volumes and commercial settlements continue to support sales and margin improvement, and whether material, labor, freight, and utility costs are recovered from customers.
- Progress on restructuring, including realization of the estimated annual savings and the timing and cash costs of remaining actions.
- Debt-service capacity and refinancing terms, including the cost of newly issued notes, remaining 2024 notes, and facility covenant requirements.
- Cash conversion and working-capital trends, including the extent to which receivables-financing programs affect reported receivables and operating cash flow.
- Developments in tax valuation allowances and the $522 of unrecognized tax benefits, as well as any changes in litigation or environmental exposures.
- Adient states that disclosure controls were effective and that there were no material changes in internal control over financial reporting during the quarter.