Adient plc — Q1 FY2024 Form 10-Q
Reporting period: Three months ended December 31, 2023, compared with the three months ended December 31, 2022, unless otherwise noted. Adient supplies automotive seating systems and components globally. Dollar figures are in millions except per-share data.
Financial performance
| Metric | Q1 FY2024 | Q1 FY2023 |
|---|---|---|
| Net sales | $3,660 | $3,699 |
| Gross profit / margin | $246 / 6.7% | $231 / 6.2% |
| Earnings before interest and taxes | $111 | $114 |
| Net income attributable to Adient | $20 | $12 |
| Diluted earnings per share | $0.21 | $0.13 |
| Operating cash flow | $41 | $44 |
| Capital expenditures | $55 | $61 |
- Sales fell 1.1%, while gross profit rose 6%; gross margin improved by 0.5 percentage points. Management attributed improved gross profit to business performance and pricing, partly offset by lower volumes and unfavorable material economics.
- Net income attributable to Adient increased by $8, primarily reflecting stronger business performance, favorable pricing, lower pension expense and lower tax expense. Offsets included lower volumes, higher SG&A and financing costs, restructuring costs, reduced equity income and higher income attributable to noncontrolling interests.
- Cash and cash equivalents were $990 at December 31, down from $1,110 at September 30, 2023. The quarter’s net cash decrease was $120. Working capital was $526, down from $578.
- Total debt was approximately $2,547, including $7 of short-term debt; cash was $990. Adient reported $938 of availability under its undrawn $1.25 billion asset-based revolving credit facility, net of letters of credit. Management said available financial resources should cover liquidity needs for at least the next 12 months.
Segments and changes versus prior year
- Americas: Sales declined 4% to $1,647, mainly from UAW strike-related customer disruptions and lower material recoveries. Adjusted EBITDA rose 16% to $80, helped by pricing and cost performance.
- EMEA: Sales increased 7% to $1,268 and adjusted EBITDA rose 61% to $45, reflecting currency, volume, pricing and operating improvements.
- Asia: Sales declined 6% to $770 and adjusted EBITDA fell 17% to $114, with lower volumes, pricing adjustments and unfavorable currency among the factors.
- Global light-vehicle production increased 9.8% year over year, but Adient’s sales declined because of lower production in the Americas and Asia, partly offset by Europe, favorable currency and pricing. Management cited UAW disruptions, Asia program changes and lower volumes on foreign OEM platforms in China.
Outlook, risks and unusual items
- The filing gives no quantified full-year earnings or revenue guidance. Management described the remainder of FY2024 as challenging, citing supply-chain disruptions, inflation and volatile input costs, higher interest rates and uncertain consumer demand.
- Adient recorded $11 of restructuring charges for a new plan focused mainly on workforce reductions in EMEA and the Americas, expected to be substantially completed by FY2025. Across its restructuring plans, approximately 11,000 of about 13,000 planned employee separations and 22 of 26 plant closures were completed by quarter-end.
- The company reported an $8 loss on the sale of 51% of its China-based LFADNT interest, deconsolidating the business. Other notable items included a $10 gain on sale of a restructured facility and a $5 adjustment to stock-based compensation for a retired executive’s prior-period awards.
- In January 2024, the Term Loan B margin was reduced from 3.25% to 2.75%, and its maturity was extended to January 31, 2031. The remaining €123 million ($136) of 3.50% notes is classified as current debt and due in August 2024.
- Gross tax-effected unrecognized tax benefits were $537, of which $168 would affect the effective tax rate if recognized. Adient noted that a future release of some valuation allowances could produce a material tax benefit, but timing and amount are uncertain.
- Adient cited risks including vehicle production and customer concentration, work stoppages, input-cost recovery, supply availability, currency and interest-rate volatility, geopolitical events, restructuring execution and debt service. Management said existing litigation and environmental matters were not expected to materially affect results; environmental reserves were $4.
- Disclosure controls were deemed effective. The filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether pricing and cost improvements can offset weaker volumes, material-cost volatility and customer recovery shortfalls—particularly in Asia and the Americas.
- Whether restructuring actions deliver the expected savings and are completed on schedule, and how one-time items affect underlying profitability.
- Cash conversion, working-capital movements and the use of receivable-sale programs; $85 was funded under those programs at quarter-end, versus $170 at September 30, 2023.
- Debt-service capacity and refinancing or repayment plans for the 2024 notes, alongside the effect of the amended Term Loan B terms.
- Developments in tax positions and valuation allowances, and any changes in the outlook for uncertain tax benefits.
- Execution and financial effects of the LFADNT divestiture and the planned phased China ERP rollout.