Company Reports

Adient posted good fiscal 2024 second-quarter results with adjusted diluted EPS of $0.54 up 69% year over year, beating the $0.42 LSEG consensus. The result is encouraging, too, despite revenue down 4%. Adient's ongoing restructuring efforts have focused on cost control and the company saw relief there with lower material, freight, engineering, and overhead costs down $47 million plus another $20 million benefit from lower commodities. Unfortunately, the stock fell over 8% during May 3 trading because management reduced fiscal 2024 revenue and adjusted EBITDA guidance, with the latter now at the midpoint of about $910 million from $985 million previously. We have not changed our long-term profit margin expectations, but we are reducing our fair value estimate by $3 to $68 per share due to modeling 6.5% less revenue over our five-year explicit forecast period and lowering fiscal 2024 earnings.

Adient is the automotive seating business of Johnson Controls that was spun off to JCI shareholders in a taxable transaction Oct. 31, 2016. Adient leads the seating market with about 33% share globally. It is common for a spinoff to be ignored or misunderstood, but we think ignoring Adient just because it is an auto-parts supplier is shortsighted. Seating is one of the stickiest parts of the supplier sector since it is very difficult to take out an incumbent on a vehicle program, and automakers need suppliers that can consistently deliver high-quality seats in a just-in-time system all over the world. Automakers have global platforms and are willing to pay for the right supplier rather than the supplier simply with the lowest price. We think the seating sector can benefit from autonomous and electric vehicles rather than be hurt by the change because AVs and EVs open up new seating configurations and possibly more electronics content in seats.

Adient’s fiscal 2024 first-quarter adjusted diluted EPS down 8.8% year over year to $0.29 was, per management, in line with its expectation. However, it also missed the LSEG consensus of $0.47 and sent the stock down by over 7% in Feb. 7 trading. We don’t see a reason to change our thesis or fair value estimate on the results, and management maintained its fiscal 2024 outlook after adjusting for $125 million in lost revenue and $25 million in lost EBITDA from the UAW strike. Fiscal 2024 revenue is now guided at about $15.4 billion to $15.5 billion while adjusted EBITDA is now expected to be about $985 million. We like that management spent about $100 million on share repurchases in the quarter instead of waiting for the second half of the fiscal year when results are expected to be better on more revenue plus improvement in China as launches pickup. The buyback plan has remaining authorization of $435 million, and we think Adient will continue to use it while possibly also reducing debt beyond the EUR 123 million 3.5% notes maturing in August.

Adient is the automotive seating business of Johnson Controls that was spun off to JCI shareholders in a taxable transaction Oct. 31, 2016. Adient leads the seating market with about 33% share globally. It is common for a spinoff to be ignored or misunderstood, but we think ignoring Adient just because it is an auto-parts supplier is shortsighted. Seating is one of the stickiest parts of the supplier sector since it is very difficult to take out an incumbent on a vehicle program, and automakers need suppliers that can consistently deliver high-quality seats in a just-in-time system all over the world. Automakers have global platforms and are willing to pay for the right supplier rather than the supplier simply with the lowest price. We think the seating sector can benefit from autonomous and electric vehicles rather than be hurt by the change because AVs and EVs open up new seating configurations and possibly more electronics content in seats.

Adient announced fiscal 2024 revenue and adjusted EBITDA on Jan. 22 in advance of its normal full earnings release that is still scheduled for the morning of Feb. 7. Revenue will be about $3.7 billion, roughly flat year over year, while adjusted EBITDA will be about $215 million, versus $212 million in the prior year’s quarter. New CEO and president Jerome Dorlack (was CFO) said in the Jan. 22 press release that the year is off to a solid start and he still expects improved earnings and profit margin for the full year versus fiscal 2023. The Jan. 22 numbers were in line with Refinitiv consensus for revenue and about $10 million below consensus for EBITDA. The stock rose by over 5% on the morning of Jan. 22, which we think is either due to continued optimism for full-year results or perhaps a debt restructuring announcement that may come on or before Feb. 7. We see no reason to change our fair value estimate on this news and will wait until full results come out on Feb. 7 to consider any fair value estimate change from fiscal first-quarter earnings.

Adient is the automotive seating business of Johnson Controls that was spun off to JCI shareholders in a taxable transaction Oct. 31, 2016. Adient leads the seating market with about 33% share globally. It is common for a spinoff to be ignored or misunderstood, but we think ignoring Adient just because it is an auto-parts supplier is shortsighted. Seating is one of the stickiest parts of the supplier sector since it is very difficult to take out an incumbent on a vehicle program, and automakers need suppliers that can consistently deliver high-quality seats in a just-in-time system all over the world. Automakers have global platforms and are willing to pay for the right supplier rather than the supplier simply with the lowest price. We think the seating sector can benefit from autonomous and electric vehicles rather than be hurt by the change because AVs and EVs open up new seating configurations and possibly more electronics content in seats.

Adient's stock fell by over 11% during Nov. 8 trading following fiscal 2024 fourth-quarter adjusted EPS of $0.51, missing the $0.58 Refinitiv consensus, somewhat disappointing fiscal 2024 guidance, and news that CEO Doug Del Grosso, 62, is retiring from the company and the board on Dec. 31. Although guidance of adjusted EBITDA around $985 million, including a $25 million hit from the UAW strike, is below the $1.1 billion we were modeling, we feel the sell-off is too punitive given Adient's attractive long-term prospects. Fiscal 2024 guidance is a headwind to our thesis, but not enough to change our mind that the stock is significantly undervalued. We will reassess all model inputs after the 10-K. For the quarter, the UAW strike took about $30 million in revenue and less than $5 million in adjusted EBITDA. The fiscal 2024 revenue impact from the strike through Nov. 3 is estimated at about $125 million.

Adient’s fiscal 2023 third quarter saw it finally get the large volume rebound that auto suppliers have badly needed as the pandemic and chip shortage recede. Revenue increased year over year by 16.4%, which along with improvements in operation and less freight costs enabled Adient’s adjusted diluted EPS of $0.98 to obliterate the $0.46 Refinitiv consensus. We raised our fair value estimate to $73 per share from $68, due to about 2% more revenue modeled over our five-year explicit forecast, about 7% less capital expenditure modeled after CFO Jerome Dorlack said spending will be sub-$300 million to $330 million after fiscal 2023, and the time value of money. Management increased fiscal 2023 guidance for revenue, adjusted EBITDA, equity income, and free cash flow, with revenue now expected to be about $15.4 billion from $15 billion, adjusted EBITDA over 8% higher at about $920 million, and free cash flow 28% higher at $275 million.

Adient is the automotive seating business of Johnson Controls that was spun off to JCI shareholders in a taxable transaction Oct. 31, 2016. Adient leads the seating market with about 33% share globally. It is common for a spinoff to be ignored or misunderstood, but we think ignoring Adient just because it is an auto-parts supplier is shortsighted. Seating is one of the stickiest parts of the supplier sector since it is very difficult to take out an incumbent on a vehicle program, and automakers need suppliers that can consistently deliver high-quality seats in a just-in-time system all over the world. Automakers have global platforms and are willing to pay for the right supplier rather than the supplier simply with the lowest price. We think the seating sector can benefit from autonomous and electric vehicles rather than be hurt by the change because AVs and EVs open up new seating configurations and possibly more electronics content in seats.

Adient’s fiscal 2023 second-quarter adjusted diluted EPS of $0.32 missed the Refinitiv consensus of $0.43. On the fiscal first-quarter call, management said to expect second-quarter adjusted EBITDA to decline from first quarter’s $212 million, but the actual figure came in at $215 million, including a one-time $8 million insurance recovery, with margin up 100 basis points year over year to 5.5%. On the May 3 call, management said to expect third-quarter adjusted EBITDA to be about flat with second quarter excluding the insurance benefit. Looking at Refinitiv EPS for fiscal third and fourth quarters, it appears the market was expecting sequential EPS growth in the second half of fiscal 2023. This growth is now not likely to happen, at least not for third quarter, so we think that, along with perhaps fiscal 2023 adjusted EBITDA guidance unchanged rather than increased, explains Adient stock’s May 3 decline. We see no reason to change our fair value estimate, however, because we believe continued cost reduction actions and eventually improving macroeconomic conditions will enable Adient to at least reach profitability parity with rival Lear’s seating business, as has always been Adient’s plan. Still, we may reduce our fiscal 2023 EPS estimate by at least about 30%.

Adient’s fiscal 2023 first-quarter results showed good year-over-year improvement, but challenges remain in China and Europe. Adjusted diluted EPS of $0.34 came in far higher than the $0.38 loss a year ago but still missed the $0.38 Refinitiv consensus. We are leaving our fair value estimate in place. Adjusted EBITDA rose 45% year over year as improvements in volume, mix, and overhead costs more than offset headwinds from commodities and the strong dollar (mostly against Asian currencies) of about $18 million and $7 million, respectively. The Americas segment led the way in profit growth thanks to volume, mix, and $20 million in manufacturing efficiency improvements from less waste and improved launch costs. Free cash flow improved to a $17 million burn from a $74 million burn as higher EBITDA helped offset less working capital contribution. Freight costs remain a headwind, mostly in the Americas and Europe, and management called out labor inflation costs throughout the earnings call. Customer recoveries from higher materials costs last year are flowing through, which helps, but recoveries for higher labor costs is a slower negotiation with automakers. Traditionally they have not helped suppliers with labor, but Adient says talks are making progress.

Adient is the automotive seating business of Johnson Controls that was spun off to JCI shareholders in a taxable transaction Oct. 31, 2016. Adient leads the seating market with about 33% share globally. It is common for a spinoff to be ignored or misunderstood, but we think ignoring Adient just because it is an auto-parts supplier is shortsighted. Seating is one of the stickiest parts of the supplier sector since it is very difficult to take out an incumbent on a vehicle program, and automakers need suppliers that can consistently deliver high-quality seats in a just-in-time system all over the world. Automakers have global platforms and are willing to pay for the right supplier rather than the supplier simply with the lowest price. We think the seating sector can benefit from autonomous and electric vehicles rather than be hurt by the change because AVs and EVs open up new seating configurations and possibly more electronics content in seats.

Adient reported fiscal 2022 fourth-quarter results that sent the stock up 14.2% on Nov. 4. Adjusted diluted EPS of $0.53 improved from a $0.24 loss in the prior year's quarter and beat the $0.51 Refinitiv consensus. The stock also likely rose because of the company announcing a $600 million share repurchase plan with no expiration. We are leaving our fair value estimate in place but will reassess all valuation inputs later this month when the 10-K is filed. Outgoing CFO Jeff Stafeil said the fiscal first quarter will be more like the company's normal prepandemic free cash flow cadence, which was generally negative, so buybacks will likely not start until at least fiscal second quarter. Stafeil is resigning on Nov. 30 to become Tenneco's CFO, should that firm's sale to private equity close later this month. Adient's Americas leader Jerome Dorlack will become CFO, and we expect a smooth transition.

Adient’s fiscal third-quarter results gave us no reason to change our thesis so we are leaving our fair value estimate in place. Adjusted diluted EPS of $0.08 beat the Refinitiv consensus of a loss of $0.07. Revenue barely beat consensus, growing 7.5% year over year (only up 1.8% on a pro forma basis) despite a $172 million currency headwind from the strengthening dollar against the euro and other currencies. The $172 million offset most of a $232 million tailwind from volume and pricing improvements. The consolidated China business saw a 27.8% top-line decline from the recent coronavirus lockdowns in Shanghai but the worst of that slowdown appears to be finished. Management is having success in gaining materials cost reimbursement from customers to offset soaring steel and chemicals prices. These recoveries contributed $15 million in adjusted EBITDA for the quarter.

Adient’s fiscal 2022 second quarter adjusted EPS of a loss of $0.13 fell short of the Refinitiv consensus of a loss of $0.06. Management lowered fiscal 2022 guidance given expectation of industry improvements for the second half of fiscal 2022 are now diminished. We are substantially lowering our fiscal 2022 profit modeled due to the lower guidance, which means a $2 fair value estimate reduction to $64. One positive, however, is that through negotiations with customers, management now only sees a net steel and chemical commodity cost year-over-year headwind of less than $15 million for fiscal 2022, versus February guidance of about $95 million. Management reports it is getting shorter lag times for pricing resets or reimbursements from customers for steel costs; however, other costs, such as ocean freight and utilities costs in Europe, are increasing due to supply chain shortages and the war in Ukraine. Total adjusted EBITDA headwinds from various challenges in fiscal 2022 are guided to about $600 million, with about $475 million of that from issues we and management see as transitory, such as customer production stoppages from supply chain delays, COVID-19 lockdowns in China, and higher commodity costs. The remaining roughly $125 million, which management describes as sticky, is for utility costs in Europe, higher freight cost, and labor cost inflation.

Adient is the automotive seating business of Johnson Controls that was spun off to JCI shareholders in a taxable transaction Oct. 31, 2016. Adient leads the seating market with about 33% share globally. It is common for a spinoff to be ignored or misunderstood, but we think ignoring Adient just because it is an auto-parts supplier is shortsighted. Seating is one of the stickiest parts of the supplier sector since it is very difficult to take out an incumbent on a vehicle program, and automakers need suppliers that can consistently deliver high-quality seats in a just-in-time system all over the world. Automakers have global platforms and are willing to pay for the right supplier rather than the supplier simply with the lowest price. We think the seating sector can benefit from autonomous and electric vehicles rather than be hurt by the change because AVs and EVs open up new seating configurations and possibly more electronics content in seats.

Adient’s fiscal 2022 first quarter started the year with an adjusted diluted EPS loss of $0.38 that fell short of the Refinitiv consensus loss of $0.24. We see no reason to change our fair value estimate at this time because we believe constant work stoppages by customers due to the chip shortage and COVID-19 absences will abate throughout fiscal 2022 and Adient’s balance sheet health is improving. We are focused on guidance this earnings season due to commodity inflation and supply chain headwinds, but Adient held its fiscal 2022 adjusted EBITDA guidance unchanged at “modestly lower” than fiscal 2021’s pro-forma figure of $810 million. Management is understandably still not comfortable giving free cash flow guidance or more specific adjusted EBITDA guidance due to the lack of visibility from supply chain problems. Free cash flow for the quarter was a $74 million burn, down from positive $160 million in the prior year’s quarter, as lower earnings and a 70% decline in working capital inflow pulled down the aggregate figure.

Adient is the automotive seating business of Johnson Controls that was spun off to JCI shareholders in a taxable transaction Oct. 31, 2016. Adient leads the seating market with about 33% share globally. It is common for a spin-off to be ignored or misunderstood, but we think ignoring Adient just because it is an auto-parts supplier is shortsighted. Seating is one of the stickiest parts of the supplier sector since it is very difficult to take out an incumbent on a vehicle program, and automakers need suppliers that can consistently deliver high-quality seats in a just-in-time system all over the world. Automakers have global platforms and are willing to pay for the right supplier rather than the supplier simply with the lowest price. We think the seating sector can benefit from autonomous and electric vehicles rather than be hurt by the change because AVs and EVs open up new seating configurations and possibly more electronics content in seats.

Adient finished fiscal 2021 with a quarter marred by supply chain issues beyond its control. We are leaving our fair value estimate unchanged, but as always, we’ll reassess all modeling inputs once the 10-K is filed. We continue to see more upside potential in the stock than risk of permanent investment loss, but high steel prices and the chip shortage will continue to be problems in fiscal 2022. For full-year fiscal 2021, the semiconductor shortage cost Adient about $1.9 billion in lost sales and around $450 million in adjusted EBITDA.

Higher commodity costs and lost automaker production from the semiconductor shortage badly hurt Adient’s fiscal 2021 third-quarter results, causing management to lower fiscal 2021 guidance. Adjusted diluted EPS of negative $0.53 missed the Refinitiv consensus of $0.17, but we leave our fair value estimate in place as the time value of money offsets the lower guidance. We still see the firm’s operational and balance sheet turnarounds on track, and we believe the stock will go higher long term as Adient reduces debt.