Adient plc (NYSE:ADNT) Q2 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call reveals several concerns: a downward revision in sales outlook, adjusted EBITDA guidance at the lower end, and FX impacts on free cash flow. Although there are positive elements such as sustainability initiatives and new business wins, the Q&A section highlights uncertainties, including unclear responses about potential acquisitions and tariff impacts. These factors, combined with a small market cap, suggest a likely negative reaction in the stock price, falling between -2% to -8% over the next two weeks.

Key Financial Performance

EPS $0.69, up from $0.36 year-over-year, reflecting strong operational performance.

Adjusted EBITDA $233 million, up 3% year-over-year, with a margin expansion of 40 basis points to 6.5%, driven by improved business performance despite lower customer volumes.

Revenue $3.6 billion, down $139 million year-over-year, primarily due to lower customer volumes ($90 million) and FX headwinds ($49 million).

Free Cash Flow Outflow of $90 million, in line with expectations, reflecting normal seasonality and timing differences.

Cash Balance $754 million at quarter-end, contributing to total liquidity of $1.6 billion.

Goodwill Impairment $333 million non-cash impairment recorded due to a significant decline in market value and uncertainties surrounding vehicle production volumes.

Net Debt $1.6 billion, with a net leverage ratio of 1.9 times.

Interest Expense Expected to be slightly higher at $190 million due to recent refinancing.

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Operating Highlights

New Product Launches: Adient launched its first mechanical massage system with GAC’s Trumpchi’s new PHEV model M8, which is designed to relieve occupant fatigue more effectively than traditional systems.

Innovation in Automation: Adient expanded its China Technical Center in Chongqing to enhance its capabilities in electrification and smartification, focusing on developing innovative automotive seating solutions.

New Business Wins: Adient secured new business with FAW Hongqi H5 for a complete seat system, replacement seats for Kia K5, and replacement business on Ram 1500.

Market Positioning in EMEA: Adient is gaining momentum in EMEA, winning key programs with European customers and developing opportunities with China-based OEMs.

Operational Efficiency: Adient improved total company adjusted EBITDA margins by 40 basis points, achieving $233 million of adjusted EBITDA despite lower sales.

Cost Management: The company is targeting 100% cost offsets or recoveries with customers to mitigate tariff impacts.

Strategic Shift in Customer Engagement: Adient is actively working with customers to localize production and reduce tariff exposure, including sourcing components from different locations.

Focus on Profitable Business: Adient has made a conscious decision to focus on more profitable business and invest in innovation and automation.

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Risk or Challenges

Tariff Exposure: Adient has a gross monthly tariff exposure of approximately $12 million, with $9 million excluding purchases directed by customers. The company has resolved 75% of this exposure and is working to mitigate the remaining 25%.

Regulatory Risks: The company faces uncertainties surrounding tariff policies, which could impact volumes and lead to a fundamental reset in the industry.

Goodwill Impairment: Adient recorded a $333 million non-cash goodwill impairment due to a significant decline in share value and uncertainties regarding vehicle production volumes.

Supply Chain Challenges: Adient's supply chain is affected by lower customer production volumes, particularly in EMEA and Asia, leading to a $139 million decrease in revenue.

Economic Factors: The company is monitoring macroeconomic conditions, including consumer resilience and potential impacts on export volumes from Europe and Asia.

Foreign Exchange Risks: Adient has faced headwinds from cross-currency exposures, particularly related to the Polish złoty, impacting overall performance.

Volume Uncertainty: There is significant uncertainty around volumes in the second half of the fiscal year due to tariff policies and market conditions.

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Guidance & Outlook

Operational Excellence: Adient's ongoing operational excellence combined with innovative seat solutions are helping win significant new business across all regions.

New Business Wins: Adient has secured new business with FAW Hongqi H5, Kia K5, and Ram 1500, demonstrating growth with local OEMs.

Innovation and Automation: Investments in product innovation and automation, including a new mechanical massage system, are expected to strengthen growth momentum.

Tariff Mitigation Strategy: Adient is targeting 100% cost offsets or recoveries with customers to mitigate tariff impacts.

Global Footprint Utilization: Leveraging a global manufacturing footprint to reduce tariff exposure and support customer needs.

Fiscal Year 2025 Revenue Guidance: Adient is reaffirming its fiscal year 2025 revenue guidance, assuming no change to current tariff policies.

Adjusted EBITDA Guidance: The company is reaffirming its adjusted EBITDA outlook for fiscal year 2025, with expectations of offsetting tariff-related expenses.

Free Cash Flow Guidance: Free cash flow forecast adjusted to a range of $150 million to $170 million, down from $180 million.

Interest Expense Guidance: Interest expense expected to be slightly higher at $190 million due to recent refinancing.

Volume Expectations: Expectations for H2 performance to be similar to H1, assuming no significant impacts from tariffs.

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Shareholder Return Plan

Shareholder Return Plan: Adient has not announced a specific share buyback program or dividend program during this earnings call. However, they mentioned ongoing efforts to create shareholder value through strategic planning and optimizing their business portfolio.

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Key Q&A

Q:Can you hear me?

A:Hi, Joe. Yes.

Q:I guess just one quick one on tariffs. You’ve made good progress here, right? The resolved versus the 75%, roadmap 25%. I’m assuming resolved means you basically have agreements for price recoveries or that’s the majority of that. Is the roadmap portion more what you were talking about, about finding some cost offsets or resourcing or are there still some potential price negotiations involved in the roadmap portion as well?

A:Yeah. I’d say it’s a mix of both, Joe, from that standpoint. So, there’s still ongoing price negotiations. There are — certain customers have systems that require us to submit documentation given there still are things on boats coming over from China, bill ladings haven’t been delivered yet. So, we need to be in systems for recoveries without getting into too much minutia from that standpoint. So, there’s things that need to be submitted and negotiated and just need to be rolled through. So, it’s a mix of both, still resourcing that needs to occur and also negotiations that need to be concluded.

Q:Is there anything unusual in that that sort of drove the quarter a little bit better, especially relative to, maybe quarter-over-quarter?

A:Yeah. Joe, good question, good observation. I’d say one quarter does not make a trend, right? So, I wouldn’t take that number and annualize it. I’d say that we are encouraged because we are seeing, obviously, business performance turned positive over there. We’re getting the benefits of certain of the restructuring actions we’ve taken. But again, things are lumpy, especially as you think about commercial actions and recoveries with customers. So, again, that lumpiness, I wouldn’t peanut butter that 4% margin that we just printed across third quarter or fourth quarter, right? So, it’s going to be some variability as we go through the rest of the year.

Q:Is that still the case? So, if you, if you average the — you’re saying the first half is a little bit over 3%, should we expect it that it improves off that level from here?

A:Yeah. I wouldn’t say that, Joe. I’d say that, you’re right. 3% was the average over the first half of the year, right? If you just remember last year, I think we did about 3%, just over 3%. When we came into this year, we said, hey, listen, this year is going to be pretty much similar to that, right? You really don’t see that inflection point until we get into 2026, which is when we start to see certain of the underperforming metals business roll off. We see the new business roll on. So, I’d still frame it up in that piece.

Q:So, 95% of what you produce in Mexico and Canada is USMCA compliant. So, that stuff would technically have tariffs, but I guess for now USMCA parts are not being tariffed. And then when you mentioned the add-ins parts that are not listed in Annex 1, this would relate to what geography?

A:So, I think what we’ve said is roughly 95%, so don’t hold us to exactly 95%, is of our parts that we import or move across the border from Canada and Mexico into the U.S. are USMCA compliant. And so, under current policy, that’s correct, they’re not subject to the 25% tariff rule. And if that were to change, then obviously we’d have to deal with the issue. And then Annex 1, the way Annex 1 is scoped out, Annex 1 basically carves out those parts and says even if they are USMCA compliant, they are subject to a 25% tariff. However, we don’t have any parts that fall under that Annex 1 that we produce today, and we have very little controlled material that would fall under Annex 1. It’s almost all directed.

Q:Can you maybe just remind us how much more opportunity there is for some of these cost and efficiency actions and how do you think about, I guess, the self-help and the part that you control and timing of further benefits?

A:Yeah. So good question, Emmanuel. So we printed 6% last year total company. We said there’s going to be put and takes this year, right? We see America’s continuing to improve their margin profile. We just spoke about Europe for the next year or so, kind of in that, call it 3%, which we printed yesterday. And then obviously our APAC region continues to print double-digit margins. We expect that to continue. When we look at what we’re benchmarking, what we’re targeting, right, clearly we think there’s significant opportunity in front of us. We’ve said in the past, whether or not that’s 7.5%, 8%, that’s typically what people are looking at. That’s what we think we could achieve.

Q:Have you quantified the change in FX assumptions with your guidance and just what you are assuming for the market and just the implied core sales relative to your market assumptions?

A:Yeah. So good question, James. So, for FX, right, basically there’s been a lot of volatility around FX, obviously, over the last month, six weeks, et cetera. So what we did is we looked at our prior outlook, and I think for the euro, which is one of the bigger ones for us, we kept that constant somewhere in that $1.06 [ph], which is where we were last guide.

Q:Just wondering what the mindset is at this point, understanding that I think we all have a lot of macro uncertainty to navigate very near term.

A:Yeah. So, again, nothing has changed from our perspective just in terms of how we view capital allocation, right? We’re going to take a measured approach. Clearly, we’re going to continue to invest in the business, certain that capital is going to have to be allocated towards restructuring Europe.

Q:Just to follow up on that, there was about a month ago media reports that you were considering acquiring ZF Lifetec business, or at least a better. I mean, I don’t know what you could comment on that. Any comment on that would be welcome.

A:I mean, so we can’t comment, obviously, on ongoing M&A transactions.

Q:What does that mean for your parts? I think the slide says that you pay 145% on China. If you’re not in Annex 1, you — what kind of tariff are you then looking at for parts coming out of Mexico?

A:So with — this is really some of the detail that I think gets lost if you just read some of the high-level summaries. And I’m not — keep in mind, Colin, I’m not implying that the homework isn’t being done. I just think it’s some of the reports by some of the consulting firms necessarily aren’t at the level of detail they need to be.

Q:How easily can you make rotations? Is it just these mechanisms for recliners, headrests? What’s the sourcing opportunity elsewhere?

A:I mean, I would say if you break down our spend from China, there’s about, for better or worse, 40 part numbers that make up about 80% of that exposure.

Q:I just wanted to ask if you could provide an update on the European restructuring. It sounds like you’re getting some benefits. I think some time ago you had said, you were talking about net savings of $50 million a year. Is that still intact?

A:Yeah. Dan, I’ll start, and then, Jerome, you could jump in if needed. Do we think there’s opportunity to accelerate? We’re looking at it from a very prudent manner.

Q:Did you disclose what it is for the current quarter?

A:Yeah. We didn’t break it out, Edison, for the current quarter. We can get back to you.

Q:Review of Unclear Management Responses

A:Management avoided giving a direct answer regarding the potential acquisition of ZF Lifetec business, stating they cannot comment on ongoing M&A transactions. Additionally, there was a lack of clarity in the response about the specific impact of tariffs on parts coming from Mexico, with vague references to high-level summaries and consulting reports.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

ADNT Transcript

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The earnings call reveals strong operational performance with a net income of $38 million, alongside positive business developments such as the incremental Nissan business and optimistic guidance for 2026. While FX impacts and restructuring costs are challenges, the focus on operational excellence and strategic partnerships, like the potential reshoring opportunities, indicate a positive outlook. The market cap suggests moderate volatility, supporting a positive stock movement prediction.

Adient plc (NYSE:ADNT) Q2 2025 Earnings Call Transcript

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Adient plc (ADNT) Q2 2025 Earnings Call Transcript

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The earnings call reveals several negative factors: a significant goodwill impairment, reduced revenue, and cash flow challenges. Despite a slight EBITDA improvement, the company's guidance is weak, with lowered sales and free cash flow projections. The Q&A highlights ongoing uncertainties, competitive pressures, and lack of clarity on key issues like tariffs and restructuring benefits. With a market cap of $2.2 billion, these factors are likely to lead to a negative stock price movement of -2% to -8% over the next two weeks.

ADNT Report

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