Adient plc — Fiscal 2022 Second-Quarter 10-Q
Business context and reporting period. Adient supplies automotive seating systems and components globally. This filing covers the quarter and six months ended March 31, 2022; the comparable periods ended March 31, 2021. Results were affected by semiconductor-related production stoppages, inflation and freight costs, Russia-Ukraine disruption, and COVID-19 lockdowns in China.
Financial results
| Metric | Three months ended March 31 | Six months ended March 31 |
|---|---|---|
| Net sales | $3.506 billion, down 8.2% from $3.819 billion | $6.986 billion, down 8.9% from $7.667 billion |
| Gross profit / margin | $178 million / 5.1%, versus $298 million / 7.8% | $351 million / 5.0%, versus $639 million / 8.3% |
| Operating income (EBIT) | $46 million, versus $230 million | $86 million, versus $512 million |
| Net income (loss) attributable to Adient | $(81) million; diluted EPS $(0.85), versus income of $69 million and EPS $0.72 | $(135) million; diluted EPS $(1.43), versus income of $219 million and EPS $2.30 |
| Net financing charges | $83 million, versus $110 million | $133 million, versus $169 million |
| Cash from operations | Not separately stated for the quarter | $15 million, versus $140 million |
| Capital expenditures | Not separately stated for the quarter | $117 million, versus $126 million |
Quarterly sales fell primarily from production interruptions and supply-chain disruption ($355 million), unfavorable currency effects ($126 million), and lower commercial settlements ($41 million), partly offset by material recoveries ($78 million) and China consolidation effects ($131 million). Gross profit contracted as lower volumes, operating inefficiencies and premium freight, commodity costs, and weaker commercial settlements pressured margins.
Segment sales and adjusted EBITDA for the quarter were: Americas $1.596 billion and $46 million; EMEA $1.218 billion and $30 million; Asia $723 million and $105 million. EMEA sales declined 26% and adjusted EBITDA fell 79%; Americas sales declined 3% and adjusted EBITDA fell 28%. Asia sales rose 23%, principally reflecting consolidation of CQADNT and LFADNT, while adjusted EBITDA declined 13%.
Cash, debt and liquidity
- At March 31, 2022, cash was $1.118 billion, down from $1.521 billion at September 30, 2021. Current assets were $4.317 billion and current liabilities $3.658 billion; working capital declined to $659 million from $1.575 billion.
- Debt totaled approximately $2.936 billion, including $9 million short-term debt, $161 million current long-term debt and $2.766 billion long-term debt, compared with approximately $3.696 billion at September 30, 2021. The company repurchased $508 million of 9% notes and €177 million of 3.5% notes in February, paying premiums; these transactions contributed to financing charges.
- The $1.25 billion asset-based revolving facility was undrawn, with $816 million available after letters of credit. Management stated that current financial resources were expected to fund liquidity needs for at least the next 12 months.
- Six-month investing cash inflow was $599 million, mainly reflecting divestiture-related proceeds; financing cash outflow was $1.017 billion, including $744 million of debt repayments and $153 million paid to acquire CQADNT noncontrolling interests. Operating cash flow was weak amid losses and working-capital use, particularly higher receivables and inventory.
Changes, outlook and risks
- Compared with the prior year, sales, gross profit, EBIT and earnings deteriorated substantially. Equity income fell to $7 million for the quarter from $85 million, reflecting prior-year affiliate sales, the CQADNT control acquisition, lower affiliate volumes, and $9 million of noncash affiliate impairments. The prior-year comparison included a $33 million gain on the SJA sale.
- Management said the challenging operating environment was expected to continue through the remainder of fiscal 2022. It expected higher labor and freight costs to persist in the Americas, and higher freight, labor and utility costs to persist in EMEA. China lockdowns continued into the start of the third fiscal quarter and were expected to negatively affect results for the foreseeable future. The filing provides no specific consolidated revenue or earnings guidance.
- Adient cited continuing semiconductor shortages and unplanned customer shutdowns, COVID-19 restrictions in China, Russia-Ukraine-related supply and commodity disruption, inflation in steel, freight, labor and utilities, and possible incomplete recovery of increased costs from customers. Global light-vehicle production fell 7.7% year over year in the first half of fiscal 2022.
- Following Russia’s invasion of Ukraine, Adient was considering withdrawal from Russia. It recorded a $3 million charge in the quarter and estimated a further approximately $5 million charge upon final withdrawal, related to accumulated currency translation losses.
- A Yanfeng affiliate asserted a claim of approximately $46 million against KEIPER. Adient disputes the claim; payment by KEIPER could reduce Adient’s after-tax equity income by approximately $17 million. Adient also reported $486 million of gross tax-effected unrecognized tax benefits, of which $129 million would affect the effective tax rate if recognized.
- Adient reported that ordinary-course lawsuits and claims were not expected by management to have a material adverse effect. Environmental reserves were $7 million. Restructuring plans targeted approximately 15,000 employee reductions and 26 plant closures; approximately 14,000 employees had separated and 20 plants had closed by quarter-end.
Important facts for investors to verify
- Whether production interruptions, China lockdowns and regional vehicle volumes continue to constrain sales and operating efficiency.
- Whether material-cost and freight recovery from customers offsets ongoing inflation, and whether margins stabilize.
- Operating cash conversion, working-capital trends, cash balances, debt reduction and upcoming debt maturities.
- The earnings and cash-flow contribution of acquired China operations versus the effects of affiliate divestitures and lower equity income.
- Developments in the possible Russia withdrawal, the KEIPER-related claim, and significant tax uncertainties.