Business context and reporting period
Adient plc is a global automotive seating supplier. This Form 10-Q covers the fiscal second quarter and six months ended March 31, 2024; comparisons are with the corresponding periods in 2023. Amounts are in U.S. dollars unless noted.
Financial performance and position
| Metric | Q2 FY2024 | Q2 FY2023 | Six months FY2024 | Six months FY2023 |
|---|---|---|---|---|
| Net sales | $3.750bn | $3.912bn | $7.410bn | $7.611bn |
| Gross profit / margin | $230m / 6.1% | $250m / 6.4% | $476m / 6.4% | $481m / 6.3% |
| Operating income (EBIT) | $8m | $96m | $119m | $210m |
| Net income (loss) attributable to Adient | $(70)m | $(15)m | $(50)m | $(3)m |
| Diluted EPS | $(0.77) | $(0.16) | $(0.55) | $(0.03) |
| Adjusted EBITDA | $227m | $215m | $443m | $427m |
Q2 sales declined 4.1%. Management attributed the decrease mainly to lower production in the Americas and EMEA, unfavorable foreign exchange and material-economics recoveries, partly offset by favorable pricing. Q2 adjusted EBITDA increased despite lower sales; the sharp decline in EBIT and higher net loss primarily reflected restructuring costs and currency impacts. SG&A fell to $115m from $141m, and equity income rose to $18m from $4m.
For the six months, operating cash flow was $122m, down from $170m; capital expenditures were $124m versus $117m. Investing cash outflow was $113m and financing cash outflow was $221m. Cash declined by $205m from September 30, 2023 to $905m. Working capital was $467m, down from $578m.
At March 31, cash was $905m and total current and long-term debt on the balance sheet was approximately $2.535bn. The company had $974m available under its $1.25bn asset-based revolver, net of letters of credit, with no borrowings outstanding. The remaining $133m of 3.50% euro notes is current and due in August 2024. The $635m Term Loan B was amended in the quarter: its margin fell from 3.25% to 2.75% and maturity was extended to January 2031.
Material changes versus the prior period
- Q2 restructuring and impairment costs rose to $125m from $17m; six-month costs were $136m versus $24m.
- Q2 net loss attributable to Adient widened to $70m from $15m; the six-month loss widened to $50m from $3m.
- Segment adjusted EBITDA improved in the Americas ($80m versus $72m) and EMEA ($57m versus $53m), but eased in Asia ($112m versus $113m) in Q2. For six months, Asia EBITDA fell to $226m from $251m.
- Adient repurchased $150m of shares in the first six months and had $385m remaining under its repurchase authorization.
Outlook, commentary, risks and unusual items
Management said current financial resources should be sufficient to meet liquidity requirements for at least the next 12 months. No specific full-year financial guidance is provided in the supplied filing text. The company noted ongoing inflation and input-cost volatility, higher interest rates, uneven consumer demand and softer EV adoption in some regions. Global light-vehicle production grew 0.9% in Q2, with regional variation.
The 2024 restructuring plan responds to structural changes in the European automotive market. Q2 charges were almost entirely European termination benefits; actions are expected mainly in fiscal 2025 and 2026 and substantially complete by fiscal 2027. Adient estimates approximately $80m in annual operating-cost reductions when complete, with about 70% expected to result in net savings. The charges are expected to result in future cash expenditures of a similar amount.
Other items include the November 2023 sale of a 51% interest in LFADNT in China, which resulted in an $8m loss, and a $10m gain on sale of a restructured facility in the six-month period. Management cited risks including vehicle production and launch levels, customer concentration and cancellations, labor and supply-chain disruption, commodity and currency volatility, customer recovery of input costs, geopolitical conditions, execution of restructuring, and debt-service requirements. Adient reported no material change to previously disclosed risk factors and said pending legal matters are not expected to materially affect its financial position, results or cash flows. It also reported effective disclosure controls.
Tax expense was $8m in Q2 and $28m for six months; Adient noted it generally cannot recognize tax benefits for losses in jurisdictions with valuation allowances. It said valuation-allowance releases at certain subsidiaries may become possible within 12 months, but are not assured. Gross tax-effected unrecognized tax benefits were $519m at March 31, 2024.
Important facts for investors to verify
- Whether the company refinances or repays the $133m euro notes due in August 2024 and maintains revolver availability.
- Whether the European restructuring is completed on schedule and delivers the estimated savings, net of implementation costs.
- Whether production volumes, launches, pricing and material-cost recoveries improve enough to support margins and cash generation.
- How continued share repurchases affect liquidity while cash has declined and operating cash flow is lower year over year.
- Potential tax-valuation changes, foreign-exchange exposure, and developments in automotive demand, labor, supply chains and geopolitical risks.