Adient plc — Q1 FY2022 Form 10-Q
Business context and period. Adient supplies automotive seating systems and components globally. This quarter covers the three months ended December 31, 2021; comparisons are with the three months ended December 31, 2020. Results reflect continuing automotive production disruptions, particularly semiconductor shortages, and the consolidation of Chinese businesses acquired in the 2021 Yanfeng transaction.
Key financial results
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Net sales | $3.480 billion | $3.848 billion |
| Gross profit; gross margin | $173 million; 5.0% | $341 million; 8.9% |
| Operating income (EBIT) | $40 million | $282 million |
| Net income (loss) attributable to Adient | $(54) million; $(0.57) per diluted share | $150 million; $1.58 per diluted share |
| Operating cash flow | $(14) million | $231 million |
| Capital expenditures | $60 million | $71 million |
Cash, debt and liquidity. Cash and cash equivalents were $2.080 billion at December 31, 2021, up from $1.521 billion at September 30, 2021. The increase largely reflected divestiture-related proceeds. Investing cash flow was $652 million, including $651 million related to the 2021 Yanfeng transaction, as well as proceeds from the Turkey asset sale and deferred YFAI proceeds. Financing cash flow was $(79) million. Total reported debt was approximately $3.656 billion, including short-term debt and the current portion of long-term debt; cash exceeded operating cash generation in the quarter. Working capital was $1.349 billion, compared with $1.575 billion at September 30. The $1.25 billion asset-based revolving facility was undrawn, with $880 million available net of letters of credit. Management stated that current financial resources should fund liquidity needs for at least the next 12 months.
Changes and operating drivers
- Sales declined 10%, primarily due to production stoppages and supply-chain issues ($462 million adverse), foreign exchange ($73 million adverse) and lower commercial settlements ($26 million adverse). Material recoveries and the China consolidation partly offset the decline.
- Gross profit fell 49%. Lower volumes, production inefficiencies and premium freight, commodity costs and commercial settlements weighed on profitability; gross margin contracted 3.9 percentage points.
- Equity income fell to $33 million from $97 million, reflecting prior-year affiliate divestitures, the acquisition of control of CQADNT and disruption at affiliates.
- Segment adjusted EBITDA was $9 million in Americas (prior year $132 million), $43 million in EMEA ($114 million), and $114 million in Asia ($151 million). Asia sales rose 42%, largely due to consolidating CQADNT and LFADNT; Asia adjusted EBITDA nevertheless declined.
- Net financing charges decreased to $50 million from $59 million, mainly due to lower debt, partly offset by a $3 million Yanfeng-transaction derivative loss. SG&A rose 9% to $162 million.
Outlook, risks and notable items
- Management expected the challenging operating environment to continue well into fiscal 2022. The filing provides no specific revenue or earnings guidance.
- Key pressures include semiconductor-related customer shutdowns, commodity and shipping costs, labor availability and wage inflation, and COVID-19 and its variants. Management said mitigation actions and customer and supplier negotiations were expected to offset only part of higher costs.
- Adient cited global light-vehicle production down 13.2% year over year in the quarter, including declines of 14.7% in North America and 24.0% in EMEA. It warned that further adverse automotive developments could affect liquidity, cause impairments or require additional restructuring.
- The company received $691 million of deferred YFAS sale proceeds in the quarter. After quarter-end, it completed the Boxun equity purchase; related payments were approximately $200 million in total, with $170 million paid in January 2022 and $15 million expected after the fiscal 2022 second-quarter audit.
- Adient commenced January 2022 cash tender offers for up to €177 million of 3.50% notes due 2024 and for its 9.00% notes due 2025.
- First-quarter restructuring and impairment costs were $4 million. The fiscal 2022 plan is expected to reduce annual operating costs by about $6 million, with approximately 40% expected to become net savings. Across restructuring plans, about 14,000 of approximately 15,000 planned employee separations and 20 of 25 planned plant closures had been completed.
- Management said pending lawsuits and claims were not expected to have a material adverse effect; environmental reserves were $8 million. The filing identifies vaccination mandates as a risk that could raise costs or affect workforce availability.
Investor verification points
- Whether semiconductor-related production interruptions, premium freight and inflation ease, and how much cost recovery Adient achieves.
- Whether operating cash flow and working capital improve without further reliance on transaction proceeds.
- The final cost, timing and integration benefits of the Yanfeng-related acquisitions and Boxun purchase, including the remaining payment.
- Debt tender-offer outcomes, upcoming maturities, covenant compliance and continued access to the undrawn revolving facility.
- Progress and realized net savings from restructuring, and any further plant, workforce or impairment actions.