Adient plc — Q1 FY2023 Form 10-Q
Reporting period: Three months ended December 31, 2022; comparative period is the three months ended December 31, 2021. Adient supplies automotive seating systems and components globally.
Financial performance and liquidity
- Revenue: $3.699 billion, up 6.3% from $3.480 billion. Higher production volumes, settlements and material-cost recoveries were partly offset by $211 million of unfavorable foreign-currency effects.
- Profitability: Gross profit was $231 million, or 6.2% of sales, versus $173 million, or 5.0%. Earnings before interest and taxes were $114 million versus $40 million. Net income attributable to Adient was $12 million ($0.13 diluted EPS), compared with a $54 million loss ($0.57 loss per share). Results benefited from higher volumes, commercial settlements, lower SG&A and lower financing charges; higher labor, freight and utility costs, lower affiliate income, pension expense and currency effects were offsets.
- Cash flow: Operating cash flow was $44 million, compared with cash use of $14 million. Capital expenditures were $61 million. Investing activities used $50 million, versus $652 million of cash provided in the prior-year quarter, which included substantial divestiture proceeds. Financing activities used $69 million.
- Liquidity: Cash was $901 million at quarter-end, down from $947 million at September 30, 2022. Working capital was $669 million, compared with $662 million. The company said existing financial resources should meet liquidity needs for at least the next 12 months.
- Debt: Short-term debt was $2 million and current maturities of long-term debt were $11 million; net long-term debt was $2.627 billion. The $1.25 billion asset-based revolving facility was undrawn, with $971 million available, net of letters of credit. The facility was extended to November 2027, subject to springing maturity provisions.
- Other: Total assets were $9.273 billion and total shareholders’ equity was $2.509 billion. Net financing charges declined to $41 million from $50 million. The effective tax rate was 48%; management cited valuation allowances on losses in certain jurisdictions and foreign tax rate differentials.
Material changes and segment results
- Sales increased 6.3%, while gross margin rose 1.2 percentage points. SG&A fell 15% to $138 million. Equity income declined to $28 million from $33 million.
- Americas: Sales increased 15% to $1.724 billion; adjusted EBITDA rose to $69 million from $9 million, supported by volume and commercial settlements.
- EMEA: Sales declined 4% to $1.182 billion and adjusted EBITDA fell 35% to $28 million. Currency, higher operating costs and unfavorable material economics weighed on results.
- Asia: Sales increased 5% to $821 million and adjusted EBITDA rose 21% to $138 million, primarily on volume and mix and commercial settlements.
- Prior-year investing cash flow included proceeds from the Yanfeng transaction and other divestitures; those proceeds did not recur in the current quarter.
Outlook, risks and unusual items
- The filing provides no specific full-year revenue or earnings guidance. Management described the remainder of FY2023 as challenging, citing ongoing supply-chain disruption, inflation in labor, freight and utilities, changing COVID-19 rules in China, higher interest rates and softer consumer demand. It noted global light-vehicle production rose 5.4% year over year in the quarter, with declines in EMEA and China.
- Management said higher overall operating costs than the prior year are expected to persist through the rest of FY2023; EMEA utility costs had shown signs of stabilization. Customer recovery of higher input costs remains uncertain.
- An $8 million pension curtailment loss related to employee termination plans was recorded. The quarter also included $7 million of restructuring charges; the new plan consists primarily of EMEA workforce reductions and is expected to be substantially completed by FY2026.
- Restructuring plans overall cover approximately 14,000 employee separations and 27 plant closures; approximately 12,000 employees had been separated and 21 plants closed by quarter-end. The FY2023 plan is estimated to reduce annual operating costs by approximately $4 million; the filing says approximately 10% will result in net savings.
- The board authorized up to $600 million of share repurchases with no expiration date; no shares were repurchased in the quarter. Debt agreements contain customary covenants and default provisions.
- Gross tax-effected unrecognized tax benefits were $522 million, of which $122 million would affect the effective tax rate if recognized; accrued interest was approximately $25 million. Adient reported $5 million of environmental reserves and said pending legal matters are not expected to have a material adverse effect, while acknowledging outcomes are uncertain.
- Principal risks include vehicle production and demand, supply interruptions and work stoppages, input costs and customer recoveries, currency movements, China conditions, new-program launches, debt service and execution of the turnaround plan. The company reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether production, commercial settlements and customer recoveries can offset persistent labor, freight, utility and other input-cost pressures.
- Whether operating cash generation and working capital remain adequate, including the use and availability of the revolving facility and supply-chain financing programs ($181 million funded at quarter-end).
- Debt maturities, floating-rate exposure, covenant compliance and the ability to manage the 2024 notes maturity.
- Whether EMEA profitability stabilizes and Asia results remain supported as conditions and settlements change.
- The realization and timing of restructuring savings, and any effects of tax uncertainties, legal matters or environmental obligations.