What happened
Reversing course from its 78% climb through April, shares of Adient (ADNT 3.36%) sank 25% last month, according to data from S&P Global Market Intelligence. In addition to the company's Q2 earnings report, continuing talk of tariffs and a bearish opinion from Wall Street moved investors to sell shares.
So what
Narrowly beating analysts' expectations by 0.7% on the top line, Adient reported sales of $4.23 billlion; however, the beat failed to make up for investors' disappointment regarding earnings. While analysts expected the company to report earnings per share of $0.39, adjusted for non-recurring items, Adient came up short, booking EPS of $0.31.
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Of greater concern, however, was management's commentary regarding the company's turnaround. On the conference call, Douglas Del Grosso, Adient's CEO, suggested that it would be several more years before the company transcends its challenges. Speaking on behalf of management, Del Gross said the company doesn't "expect full margin gap closure and optimal cash generations to take place before 2023."
Besides a mixed earnings report, the ongoing uncertainty regarding tariffs on goods from China and Mexico represented an additional source of concern. In fact, Del Grosso addressed the subject on the conference call, stating that the imposition of tariffs on goods from China alone could "significantly impact the industry and Adient." And it wasn't only Adient's shareholders who expressed concern. Fellow auto-parts peers Aptiv and Delphi Automotive sank 25% and 31%, respectively, through May.
Lastly, Wall Street added another bump in the road last month. Anthony Deem, an analyst at Longbow, downgraded Adient to "neutral" from "buy," according to Thefly.com. Sharing the skeptical sentiment, an analyst at RBC Capital raised his price target to $20 from $15, though he kept a "sector perform" rating on the stock, stating his belief that the market's enthusiasm may have "gotten ahead of the stock."
Now what
With Adient's remarkable rise through April, the pullback in May is understandable -- especially considering management's emphasis that the company's turnaround will take several years. In the days ahead, investors will certainly want to monitor developments regarding the trade dispute and how it affects the company. Wall Street's bearish sentiment, on the other hand, should be taken with a grain of salt. For example, Colin Langan an analyst at UBS, has a bullish outlook on the stock. Raising his price target to $32 from $23, the analyst also maintained a buy rating on the stock.
