Morningstar

Adient Earnings: Large Volume Recovery From Chip Shortage Finally Starting to Happen

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Securities In This Article
Adient PLC
(ADNT)

Adient’s ADNT fiscal 2023 third quarter saw it finally get the large volume rebound that auto suppliers have badly needed as the pandemic and chip shortage recede. Revenue increased year over year by 16.4%, which along with improvements in operation and less freight costs enabled Adient’s adjusted diluted EPS of $0.98 to obliterate the $0.46 Refinitiv consensus. We raised our fair value estimate to $73 per share from $68, due to about 2% more revenue modeled over our five-year explicit forecast, about 7% less capital expenditure modeled after CFO Jerome Dorlack said spending will be sub-$300 million to $330 million after fiscal 2023, and the time value of money. Management increased fiscal 2023 guidance for revenue, adjusted EBITDA, equity income, and free cash flow, with revenue now expected to be about $15.4 billion from $15 billion, adjusted EBITDA over 8% higher at about $920 million, and free cash flow 28% higher at $275 million.

Guidance does not include any damage from a possible strike at any of the Detroit Three that could start around mid-September. Dorlack stressed Adient’s diverse customer base, with automakers such as Toyota, and said a strike at all of the Detroit Three firms would cost Adient about $80 million-$100 million in weekly revenue. Adient’s notable 2024 debt maturity is only EUR 123 million, and the firm has about $1 billion in credit line availability plus $908 million of cash, so we think it would be in good shape to handle a long customer stoppage. However, we feel Adient is more at risk than some suppliers we cover because Stellantis, an automaker we think is most likely to have a strike this fall, was 12% of fiscal 2022 revenue.

It was great to see the Europe segment contribute half the adjusted EBITDA gain, excluding a $16 million insurance gain in the segment. Management’s efforts to reduce material waste plus improving freight costs drove most of the improvement, with volume the next largest contributor after this business performance.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

David Whiston, CFA, CPA, CFE

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist, AM Industrials, for Morningstar*. He covers stocks in the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007. He writes stock reports, ad hoc reports, stock analyst notes, and builds discounted cash flow models for each company covered. He also assesses their economic moat and makes frequent television and print media appearances in local, national, and international news outlets. Key stocks covered include GM, Ford, CarMax, and all six publicly traded franchise auto dealers, such as AutoNation and Penske Automotive Group.

Before joining Morningstar in 2007, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence, gaining experience around assessing an asset’s cash flow.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond’s Robins School of Business. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner.

In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011 .

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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