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Restructuring Costs Pushed Adient to Another Quarterly Loss

By John Rosevear – Aug 7, 2019 at 5:05AM

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But improvements are starting to show.

Auto-seat supplier Adient (ADNT 0.77%) said on Aug. 6 that it lost $321 million in the quarter that ended on June 30, on a series of one-time charges related to an ongoing restructuring effort.

Excluding one-time items, Adient earned $0.38 per share, down 74% from the year-ago period. Revenue of $4.219 billion was down 6% from a year ago. 

A close-up of the Adient logo on the side of a building.

Image source: Adient.

The raw numbers

Adient uses a fiscal year that begins on Oct. 1. The quarter that ended on June 30 was the third quarter of Adient's 2019 fiscal year.

Metric Q3 FY2019 Change vs. Q3 FY2018
Revenue $4.219 billion (6%)
EBIT $95 million  7%
Adjusted EBIT $129 million (37%)
Adjusted EBITDA $205 million (36%)
Net income (loss) ($321 million) $375 million lower
Adjusted net income $36 million (74%)
Adjusted earnings per share $0.38 (74%)

Data source: Adient. EBIT = earnings before interest and tax. EBITDA = earnings before interest, tax, depreciation, and amortization. "Adjusted" figures exclude the effects of one-time charges. Most of the $34 million EBIT adjustment is related to an ongoing restructuring effort. 

Why Adient posted a loss

Adient has been in restructuring mode since it was spun off from Johnson Controls in 2016. CEO Doug Del Grosso, who took the helm in October 2018, has accelerated the process, working to cut spending and streamline operations in a bid to boost sustainable profitability.

Those efforts have come at a cost. Adient booked $334 million in restructuring-related costs in the quarter, without which it would have posted a small ($36 million) net profit. Much of that hit, about $250 million, was made up of noncash charges for accounting adjustments to tax-related valuations.

How Adient's business segments performed in the quarter

Beginning last quarter, Adient changed the way it reports results by segment. In the past, it reported results for each of its three business lines: seating, seat structures and mechanisms, and interiors. It now reports results (for all three business lines) by region: Americas; Europe, Middle East, and Africa (EMEA); and Asia.

Results for all three regional segments were down from the year-ago period.

  • Americas reported adjusted EBITDA of $69 million, down from $99 million in the year-ago period -- but a $35 million improvement over the prior quarter. Sales volume and mix improved slightly year over year, but the gains were more than offset by higher material and operating costs.
  • EMEA reported adjusted EBITDA of $53 million, down from $97 million a year ago and $59 million in the prior quarter. Costs related to the launch of a new front seat architecture weighed, as did unfavorable exchange-rate movements.
  • Asia reported adjusted EBITDA of $110 million, down from $146 million a year ago and $123 million last quarter. An industrywide reduction in auto production in the quarter resulted in lower sales year over year, as well as lower income from Adient's joint ventures with Chinese suppliers.

An update on liquidity

As of June 30, Adient had $1.03 billion in cash and cash equivalents, up from $687 million as of Sept. 30, 2018, the end of Adient's fiscal 2018. Against that, it had $3.777 billion in total debt, versus $3.430 billion at the end of fiscal 2018, for net debt of $2.752 billion.

Looking ahead

Adient slightly modified the guidance for fiscal 2019 that it gave in February. While it maintained its previous outlook for revenue and adjusted EBITDA, it trimmed its estimated range for full-year capital expenditures.

For fiscal 2019, Adient now expects:

  • Revenue between $16.5 billion and $16.7 billion, unchanged from prior guidance. (Fiscal 2018 result: $17.44 billion.)
  • Capital expenditures between $500 million and $525 million. (Prior guidance: Between $500 million and $575 million. Fiscal 2018 result: $536 million.)
  • Higher adjusted EBITDA in the second half of the fiscal year than in the first half.

John Rosevear has no position in any of the stocks mentioned. The Motley Fool recommends Adient. The Motley Fool has a disclosure policy.

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