Adient plc — Q1 FY2021 Form 10-Q
Reporting period: Three months ended December 31, 2020; comparison is the three months ended December 31, 2019. Adient supplies automotive seating systems and components globally.
Financial results
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Net sales | $3.848 billion | $3.936 billion |
| Gross profit / margin | $341 million / 8.9% | $263 million / 6.7% |
| Operating income (loss), before interest and taxes | $282 million | $(42) million |
| Net income (loss) attributable to Adient | $150 million | $(167) million |
| Diluted EPS | $1.58 | $(1.78) |
| Operating cash flow | $231 million | $239 million |
| Capital expenditures | $71 million | $91 million |
Cash and cash equivalents were $1.820 billion at December 31, 2020, compared with $1.692 billion at September 30, 2020. Debt comprised $4.342 billion of net long-term debt, $11 million of short-term debt and $8 million of current long-term debt. The undrawn ABL facility had $930 million available, net of letters of credit. Working capital was $912 million. Net financing charges increased to $59 million from $48 million, mainly due to higher debt and average interest rates.
Performance and changes versus prior year
- Sales declined 2%, reflecting prior-year divestitures, lower Americas volumes tied to new-program launch timing, and lower Japan and Thailand exports; currency, commercial settlements and higher EMEA volumes partly offset the decline.
- Gross margin improved to 8.9% from 6.7%, as operational performance improved through lower launch inefficiencies, waste and freight costs, alongside favorable commercial settlements. Unfavorable material economics partially offset the gains.
- Adjusted EBITDA rose in the Americas to $132 million from $94 million and in EMEA to $114 million from $49 million; Asia declined to $151 million from $177 million. The filing attributes the Asia decline in part to lower equity income following the YFAI divestiture and lower regional volumes.
- The year-over-year earnings turnaround is not solely operational: prior-year results included a $216 million noncash YFAI impairment and $25 million of divestiture losses. Current-quarter other items included an $8 million Brazil indirect-tax recovery gain and a $5 million gain on a previously held YFAS affiliate interest.
Liquidity, outlook and risks
Management stated that, based on its actions and assumptions about COVID-19, current financial resources should cover liquidity requirements for at least the next 12 months. This is not a quantified earnings or sales forecast. Virtually all plants had resumed production by quarter-end, but the pandemic’s duration, demand effects and potential resurgence remained uncertain. The company was monitoring semiconductor supply disruptions and steel and chemical pricing.
Adient continued restructuring and cost-reduction programs. The fiscal 2021 plan was approximately $3 million gross, offset by $2 million of prior-year underspend, with actions expected to be substantially completed in FY2021. Across restructuring plans from FY2016–FY2021, approximately 12,000 of 17,000 targeted employee separations had occurred and 17 of 23 planned plant closures were complete.
Risks include automotive production and consumer demand, COVID-19 effects on operations and liquidity, supply constraints and input costs, execution of the turnaround and program launches, and debt service and capital-market access. The company reported compliance with the EIB loan’s 5.00x net leverage covenant and expected continued compliance for the foreseeable future. It reported $506 million of gross tax-effected unrecognized tax benefits. Environmental reserves were $10 million; management said pending litigation and claims were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether operating improvements and margin gains persist after favorable commercial settlements and other nonrecurring gains.
- How semiconductor shortages, material-cost changes and regional vehicle-production trends affect sales and profitability.
- Whether the stated 12-month liquidity assessment remains supportable, including ABL availability, debt maturities and financing costs.
- Progress and cash costs of restructuring, and the effects of the YFAI divestiture and remaining affiliate investments.
- Developments in the $506 million of unrecognized tax benefits and other legal, environmental or contingency matters.