Business Overview

Adient plc (ADNT) is a global leader in the automotive seating industry, operating in 29 countries with over 70,000 employees. The company has a rich history, having been spun off from Johnson Controls in 2016 as an independent, publicly-traded entity. Adient's journey has been marked by both successes and challenges, as it navigates the dynamic automotive landscape.

Adient designs, manufactures, and markets a comprehensive range of seating solutions for passenger cars, commercial vehicles, and light trucks, including vans, pick-up trucks, and sport-utility vehicles. The company's proprietary technologies span across all aspects of automotive seating, including complete seating systems, frames, mechanisms, foam, head restraints, armrests, and trim covers. Adient's global footprint and vertical integration allow it to leverage its capabilities to drive growth in the automotive seating industry.

As an independent seat supplier with global scale, Adient has the capability to design, develop, engineer, manufacture, and deliver complete seat systems and components in every major automotive producing region worldwide. This comprehensive approach has enabled the company to maintain relationships with the largest global automotive original equipment manufacturers (OEMs).

In its early years as an independent entity, Adient faced challenges in establishing its own corporate functions and infrastructure separate from Johnson Controls. The company had to navigate external headwinds facing the automotive industry, including volatile commodity prices, currency fluctuations, and softening global vehicle production volumes. To address these challenges, Adient focused on driving operational efficiency, implementing cost reduction initiatives, and restructuring its global manufacturing footprint. These efforts allowed the company to establish a strong financial foundation and market position as a leading automotive seating supplier.

By 2021, Adient had overcome its early challenges and was generating solid financial results, with over $15 billion in annual revenue. The company continued to invest in innovation and expand its capabilities to meet the evolving needs of its customers. Adient's global operational excellence, vertical integration, and technology leadership have positioned it well to capitalize on growth opportunities in the automotive seating market.

The company operates in three reportable segments: Americas, Europe, Middle East, and Africa (EMEA), and Asia Pacific/China (Asia). In fiscal year 2024, the Americas segment accounted for 45% of Adient's total revenue, EMEA generated 37%, and Asia contributed 18%. Adient's diverse customer base includes the largest global automotive original equipment manufacturers (OEMs), with whom the company maintains long-standing relationships.

Navigating Industry Challenges

Adient has faced its fair share of challenges in recent years, including global supply chain disruptions, volatile commodity prices, and shifting consumer preferences towards electrification. In fiscal year 2024, the company reported revenue of $14.69 billion, a decrease of 4.5% compared to the prior year, primarily due to lower production volumes in EMEA and China, as well as unfavorable material economics recoveries and foreign currency headwinds.

Despite these headwinds, Adient has demonstrated resilience in its business model. The company's adjusted EBITDA margin in fiscal year 2024 was 5.7%, and it generated $277 million in free cash flow. Adient's management team has been proactive in implementing cost-saving initiatives, including restructuring actions and operational improvements, to mitigate the impact of external factors. In the first quarter of fiscal year 2025, the company reported adjusted EBITDA of $196 million, with a decremental margin of approximately 12% on a 5% year-over-year decline in revenue.

Financials

Adient's financial performance has been impacted by industry challenges, but the company has maintained a focus on operational efficiency and cost management. In fiscal year 2024, the company reported:

• Revenue: $14.69 billion

• Net income: $18 million
• Operating cash flow: $543 million
• Free cash flow: $277 million
• Adjusted EBITDA margin: 5.7%

For the first quarter of fiscal year 2025, Adient reported:

• Revenue: $3.5 billion (5% year-over-year decrease)

• Net income: $25 million
• Adjusted EBITDA: $196 million
• Free cash flow: $45 million

The year-over-year revenue decrease in Q1 2025 was primarily due to lower overall production volumes in EMEA and China, unfavorable material economics recoveries, and the unfavorable impact of foreign currencies, partially offset by favorable pricing.

Performance by Geographic Segments (Q1 2025):

• Americas: $1.61 billion in revenue (2% decrease year-over-year)

• EMEA: $1.13 billion in revenue (11% decrease year-over-year)
• Asia: $772 million in revenue (slight increase year-over-year)

In the Americas segment, the revenue decline was primarily driven by lower production volumes as customers de-stocked inventory levels, unfavorable material economics recoveries, and the unfavorable impact of foreign currencies, partially offset by favorable net pricing adjustments and operational improvements. Adjusted EBITDA for the Americas segment increased by 6% to $85 million.

The EMEA segment's revenue decrease was primarily due to lower production volumes resulting from weakening consumer demand for new vehicles and unfavorable product mix, partially offset by the favorable impact of foreign currencies and net favorable pricing adjustments. Adjusted EBITDA for the EMEA segment decreased by 51% to $22 million.

In the Asia segment, higher production volumes in Asia countries outside of China from new program launches were mostly offset by lower production volumes within China due to lower premium vehicle production and the cancellation of certain local OEM programs, as well as net unfavorable pricing adjustments. Adjusted EBITDA for the Asia segment decreased by 3% to $111 million.

Across all segments, Adient's gross profit decreased by 12% to $216 million, or 6.2% of net sales, primarily due to the lower production volumes, unfavorable material economics, net of recoveries, and higher restructuring related charges, partially offset by favorable operating performance, favorable supplier pricing adjustments, and the net favorable impact of foreign currencies.

Liquidity

Adient maintains a strong liquidity position, which provides financial flexibility to navigate industry challenges. As of December 31, 2024, the company reported:

• Cash and cash equivalents: $860 million

• Undrawn credit facility: $875 million (out of a $1.25 billion asset-based revolving credit facility)
• Net leverage ratio: 1.8x (within the targeted range of 1.5x to 2.0x)
• Debt/Equity ratio: 1.12
• Current ratio: 1.08
• Quick ratio: 0.86

Positioning for Long-Term Success

Looking ahead, Adient is focused on positioning itself for long-term success. The company's growth strategy centers around winning new business and executing successful product launches. In fiscal year 2024, the company won new and replacement business with approximately $1 billion in annual revenue, 90% of which was with local Chinese OEMs. These new program launches are expected to contribute to Adient's profitability in the coming years.

The company is also making significant investments in sustainability, with a focus on reducing its environmental impact. Adient has achieved a 38% reduction in global scope 1 and 2 greenhouse gas emissions from its 2020 baseline and has set ambitious targets for renewable energy usage and circular economy initiatives.

To address the softness in certain underlying markets and better align its resources with its overall strategies, Adient has committed to restructuring actions, known as the 2025 Plan. These actions resulted in $9 million of charges in the first quarter of fiscal 2025 and are expected to reduce Adient's annual operating costs by approximately $6 million, with around 60% resulting in net savings, once completed by fiscal year 2027.

Adient continues to monitor the financial results of its EMEA segment for implications on the recoverability of long-lived assets, including goodwill. While no impairment is deemed to have occurred as of December 31, 2024, if trends impacting the EMEA segment remain unfavorable, additional restructuring actions may be necessary and impairment of long-lived assets, including goodwill, may occur in future periods.

Guidance and Outlook

For the full fiscal year 2025, Adient has updated its guidance:

• Sales are expected to be approximately $13.9 billion, down from previous expectations due to an incremental $200 million headwind from a stronger U.S. dollar and $150 million in lower sales from lower production levels in Asia and EMEA.

• Despite these macro headwinds, Adient expects to mitigate the decremental margin and lower volume through strong business performance. As a result, the company is holding its adjusted EBITDA guidance to be near the low end of its range of approximately $850 million.
• Free cash flow is now expected to be closer to $180 million, also impacted by the translational FX impacts.
• Adient continues to expect its overall earnings to be weighted towards the second half of the fiscal year versus the first half.

Adient's strong market position, diversified customer base, and strategic initiatives position the company well to navigate the ongoing industry challenges and capitalize on future growth opportunities. While the near-term outlook remains uncertain, Adient's proven track record of operational excellence, financial discipline, and innovative capabilities suggest a promising long-term outlook for the company and its shareholders.