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Adient's Profit Dropped 7%, but It Could Have Been Worse

By John Rosevear - Nov 7, 2019 at 4:59PM

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Cost improvements helped the company beat Wall Street's expectations.

Auto-seat supplier Adient (ADNT -4.00%) said on Nov. 7 that its adjusted operating income in the quarter that ended Sept. 30 fell 7% from a year ago, to $138 million, on weaker sales in the U.S. and China.

That result was better than investors had expected, thanks largely to cost improvements. Adient's adjusted earnings per share of $0.63 beat Wall Street's average estimate of $0.26 per share as reported by Thomson Reuters. Revenue of $3.92 billion was roughly in line with the analysts' average estimate of $4.0 billion.

The raw numbers

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

Metric Q4 2019 Change (YOY)
Revenue $3.92 billion (5%)
EBIT $102 million $1.146 billion higher
Adjusted EBIT $138 million (7%)
Adjusted EBIT margin 3.5% (0.1 pp)
Adjusted EBITDA $215 million (14%)
Net income (loss) ($4 million) Decline of $2.645 million
Adjusted net income $59 million (52%)
Adjusted earnings per share $0.63 (52%)

Data source: Adient. "Adjusted" figures exclude the effects of one-time charges; most of the $36 million EBIT adjustment is related to an ongoing restructuring effort. EBIT = earnings before interest and tax; EBITDA = earnings before interest, tax, depreciation, and amortization; pp = percentage points.

How Adient's business segments performed in the quarter

Beginning in the second quarter of fiscal 2019, Adient changed the way it reports results by business segment. In the past, it reported global results for each of 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 segments were down from the year-ago quarter:

  • Americas reported adjusted EBITDA of $64 million, down from $70 million a year ago. This was on lower sales volumes, driven in part by the 40-day strike that idled General Motors' U.S. factories, but offset somewhat by cost reductions. Adjusted EBITDA margin of 3.3% was down 0.2 percentage points from a year ago.
  • EMEA reported adjusted EBITDA of $47 million, down from $55 million a year ago. This was on higher manufacturing costs, somewhat offset by more favorable commodity prices. Adjusted EBITDA margin of 3.1% was down 0.4 percentage points from the same period last year.
  • Asia reported adjusted EBITDA of $126 million, down from $146 million a year ago. The story here is simple: China's auto market is in a slump, and Adient's direct sales fell, as did equity income from its Chinese joint ventures. But lower operating costs helped offset the drop: Excluding equity income, Asia's adjusted EBITDA margin rose to 10.2% from 9.2% in the year-ago quarter.
The Adient logo, projected onto the side of a building

Image source: Adient.

An update on liquidity

As of Sept. 30, Adient had $924 million in cash and cash equivalents, down from $1.03 billion in cash and equivalents as of June 30. Against that, it had $3.738 billion in total debt, versus $3.777 billion as of June 30, for net debt of $2.814 billion.

Looking ahead

For the fiscal year that will end on Sept. 30, 2020, Adient expects:

  • Revenue between $15.6 billion and $15.8 billion. (Fiscal 2019 result: $16.53 billion.)
  • Capital expenditures between $465 million and $485 million. (Fiscal 2019: $468 million.)
  • Adjusted EBITDA between $820 million and $860 million. (Fiscal 2019: $787 million.)

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