Adient posts fiscal Q1 improvements despite ‘choppy' operating environment

Automotive seating supplier Adient saw sales and earnings improve in the first quarter, though executives say production disruptions are lingering longer than expected and hurting profitability.

The company swung to a $12 million net profit from a $54 million loss during the same quarter last year.

Adient said it posted an adjusted EBITDA of $212 million for the quarter, up 45 percent year-over-year on $3.7 billion in revenue, a 6 percent improvement from sales the same time last year, according to financial results released Tuesday.

While commercial recoveries and commodity cost declines helped improve margins to 5 percent from 3.8 percent the previous quarter, production problems continue to weigh on profitability.

The company, domiciled in Ireland with a base in Plymouth, Mich., said it expects to hit full year sales of $15 billion in 2023, reaffirming its previous outlook, but it slashed its equity income projection by more than 20 percent to $70 million.

"We're still far from ideal," CFO Jerome Dorlack said on a call with investors. "We still have a lot of stop-start that's occurring within our production environment. We are not running at what I would call optimized efficiencies."

Adient (NYSE: ADNT) saw its stock value dip 3 percent to $44.33 per share Tuesday morning but it bounced back by noon.

Dorlack said the "overall operating environment remains choppy," but he expects it to be "much improved" in the back half of 2023. Like many other suppliers, Adient executives say they can see improvement on the horizon, though it has not arrived as quickly as anticipated.

Certain types of microchip shortages continue to ruin production schedules — a key problem cited by competitor Lear Corp. and Aptiv plc last week.

The price of steel and other commodities has fallen back to earth in recent months, and energy costs have even softened some, but labor costs remain elevated and are not likely to go back down, Dorlack said.

"We don't see things like labor improving," he said. "Labor is not going to trend backwards. We need to redouble some of our efforts with those recovery discussions with our customers."

CEO Doug DelGrosso said the company has been able to exit "ugly contracts" and take on new business with more favorable terms. The supply chain tangle in the wake of the COVID-19 pandemic gave suppliers more leverage to renegotiate with OEMs, and it would appear suppliers are not ready to give up ground.

"We've been able to push back on commercial issues and support that with really outstanding performance with our customers and such that we can have thoughtful discussions on where we go and kind of have a reasonable expectation on recoveries and not at the expense of the backlog," he said. "With regard to the wins, not all customers are created equal … We clearly will walk away from business that we think financially doesn't make sense …"