Adient plc — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2022; filed August 5, 2022. Adient supplies automotive seating systems and components to global automakers.
Financial results and liquidity
Amounts below are in millions of U.S. dollars, except per-share data and percentages.
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Net sales | $3,485 | $3,242 | $10,471 | $10,909 |
| Gross profit / gross margin | $173 / 5.0% | $150 / 4.6% | $524 / 5.0% | $789 / 7.2% |
| Operating income (EBIT) | $35 | $44 | $121 | $556 |
| Net income (loss) attributable to Adient | $(30) | $(71) | $(165) | $148 |
| Diluted earnings (loss) per share | $(0.32) | $(0.75) | $(1.74) | $1.55 |
| Operating cash flow | Not separately provided for quarter | Not separately provided for quarter | $38 | $362 |
| Capital expenditures | Not separately provided for quarter | Not separately provided for quarter | $170 | $186 |
At June 30, 2022, cash was $892, versus $1,521 at September 30, 2021. Current assets of $4,062 less current liabilities of $3,387 yielded working capital of $675, down from $1,575. Long-term debt was $2,707 and short-term debt was $9. The company reported $780 of availability under its $1.25 billion asset-based revolver, net of letters of credit, with no borrowings outstanding.
Nine-month investing cash flow was $539, including divestiture-related proceeds; financing cash flow was $(1,164), including $888 of long-term debt repayments and $153 paid to acquire a noncontrolling interest. Cash from operations fell substantially, which management attributed to the net loss, lower affiliate dividends and unfavorable working-capital movements, including higher receivables and inventory.
Changes versus comparable periods
- Quarterly sales rose 7%, reflecting higher Americas production, material-cost recoveries, commercial settlements and consolidation of China business CQADNT; foreign currency and supply interruptions partly offset those gains.
- Quarterly gross margin improved to 5.0% from 4.6%, but nine-month gross margin fell to 5.0% from 7.2%. Nine-month sales declined 4%, and Adient moved from prior-year nine-month net income to a $165 loss.
- Quarterly net loss narrowed to $30 from $71, aided by improved material economics, commercial settlements, CQADNT consolidation and lower financing charges. Equity income declined to $16 from $38 in the quarter and to $56 from $220 year to date, partly reflecting prior China joint-venture divestitures and lower production.
- Nine-month net financing charges declined to $172 from $256. Adient repurchased $508 of 9% notes and €177 million of 3.5% notes in February 2022, and repaid the remaining European Investment Bank loan at maturity.
- Comprehensive loss attributable to Adient was $172 for the quarter and $280 for the nine months, heavily affected by foreign-currency translation losses.
Outlook, commentary and risks
- No specific full-year revenue or earnings guidance is stated in the provided filing text. Management said challenging automotive operating conditions were expected to continue through the remainder of fiscal 2022 and into fiscal 2023, and that labor, freight and utility cost pressures were expected to persist in EMEA.
- Semiconductor shortages, unexpected customer production stoppages, COVID-19 lockdowns in China, the Russia/Ukraine conflict, raw-material constraints, inflation and currency movements affected production, costs and results. Management said its mitigation efforts and customer negotiations were expected to offset only part of the higher costs.
- Management stated that current financial resources were expected to fund liquidity needs for at least the next 12 months, while cautioning that ongoing supply-chain, geopolitical and pandemic effects remained uncertain.
- Adient determined to withdraw from Russia and completed the sale of its operation in July 2022 for one ruble, after quarter-end. It expected to record an additional $3 charge related to accumulated currency translation losses.
- A Yanfeng affiliate asserted a claim of approximately $46 against KEIPER; Adient and KEIPER dispute the claim. Payment could reduce Adient’s after-tax equity income from KEIPER by approximately $17.
- Gross tax-effected unrecognized tax benefits were $463, of which $124 would affect the effective tax rate if recognized. Adient recorded a $12 tax expense to establish a Canadian deferred-tax valuation allowance in the quarter.
- Adient reported $262 funded under receivables sale/discount programs, up from $126 at September 30, 2021. It also disclosed customary litigation and environmental matters, with environmental reserves of $6; management did not expect known matters to have a material adverse effect.
- Restructuring plans targeted approximately 15,000 employee separations and 29 plant closures; about 14,000 employees had been separated and 21 plants closed by June 30. The 2022 plan was expected to reduce annual operating costs by about $20, with approximately 20% expected to result in net savings.
Key facts for investors to verify
- Whether OEM production volumes, especially in EMEA and China, recover and whether Adient can pass through commodity, freight, labor and utility cost increases.
- Whether operating cash flow improves and working-capital needs, including receivables and inventory, remain manageable; assess the scale and terms of receivables financing programs.
- Debt repayment progress, revolver availability, refinancing and maturity risks, and compliance with debt covenants.
- Resolution and potential financial impact of the disputed KEIPER claim, the completed Russia sale and other China affiliate transactions.
- Changes in tax valuation allowances and the potential outcomes of the company’s unrecognized tax positions.