Adient (ADNT) Q4 2025 Earnings Call Transcript

Image source: The Motley Fool.

DATE

Wednesday, November 5, 2025 at 8:30 a.m. ET

CALL PARTICIPANTS

Chief Executive Officer — Jerome J. Dorlack

Executive Vice President & Chief Financial Officer — Mark A. Oswald

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

Adient guided to a year-on-year net sales decline of approximately $480 million for FY2026, driven by projected $650 million revenue decreases in North America and Europe, partially offset by growth in China.

Mark A. Oswald stated, "attributing the likely earnings trough in Q1 FY2026 to F-150 and Nexperia production disruptions."

Adient expects margin compression in China in FY2026, forecasting "headwinds of roughly 100 basis points," according to Mark A. Oswald, from growth with domestic OEMs and lower luxury customer volumes.

Guidance anticipates free cash flow of approximately $90 million in FY2026, below prior levels, driven by lower adjusted EBITDA, higher CapEx for growth, tax settlement outflows, and the absence of favorable timing actions from FY2025.

TAKEAWAYS

Adjusted EBITDA Margin -- 6.1% for both the quarter and full year, with full-year adjusted EBITDA of $881 million for FY2025, essentially flat year over year despite unfavorable volumes and mix.

Free Cash Flow -- $204 million for fiscal year 2025 and $134 million in the quarter, meeting the high end of guidance due to operational execution and favorable timing of China JV dividends.

Sales -- $14.5 billion for the full year FY2025, down 1% year over year, impacted by lower customer volumes and mix, partially offset by foreign exchange tailwinds.

Share Repurchase -- $125 million returned to shareholders in FY2025, representing a 7% reduction in share count and 18% since program inception.

Americas Performance -- Margin in the Americas expanded by 40 basis points for the full year, with $41 million incremental business performance in the Americas and a $19 million volume/mix tailwind.

EMEA Performance -- $36 million negative volume/mix impact in EMEA, $17 million in business performance gains in EMEA, partially offset by a $12 million adverse FX effect.

Asia Performance -- $34 million business performance benefit in Asia, countered by a $33 million volume and mix headwind in Asia; FX contributed a $17 million tailwind.

Major Program Wins -- nearly 70% with domestic OEMs; conquest and replacement wins across Ford F-150, Mercedes GLE/GLS, and Asian OEM full-size SUVs.

Debt & Liquidity -- $1.8 billion liquidity at year-end FY2025, with $958 million cash and $814 million undrawn revolver at year-end; revolver maturity extended from 2027 to 2030 and size reduced by $250 million.

Capital Structure -- Net leverage at 1.6x, near the bottom of the 1.5-2x target range; total debt $2.4 billion and net debt $1.4 billion as of September 30, 2025.

China JV and Partnership -- New unconsolidated joint venture in China expected to close in Q1 FY2026, expanding operational footprint and engagement with leading local OEMs.

AI and Automation Investment -- Approximately $60 million targeted spend for FY2026, up from $25 million in the prior year, with expected run-rate savings of $40 million.

Guidance for Fiscal 2026 -- indicating higher decrementals from mix and margin pressures, and free cash flow expectation of $90 million.

Restructuring Spend -- Cash restructuring was $130 million in FY2025 and is expected to drop to $120 million in FY2026, with a normalized run rate of $50 million post-FY2026.

F-150 Assumptions -- Guidance includes only known production downtime through November 10, FY2025, with no assumptions for subsequent make-up volumes or additional overtime.

Business Performance Target -- Approximately $100 million of business performance realized in FY2025, with a similar target for FY2026; about $35 million earmarked for growth-related engineering and launch costs.

Share Repurchase Authorization -- $135 million remains available entering FY2026.

Equity Income and Interest Expense Guidance -- Equity income is expected at approximately $70 million for FY2026; interest expense anticipated at $185 million-$190 million.

SUMMARY

Adient plc (NYSE:ADNT) reported essentially flat adjusted EBITDA and a 10 basis point margin increase for FY2025, while guiding to revenue and margin declines in FY2026 due to production headwinds and mix challenges in North America and Europe. Management attributed high Q1 FY2026 decrementals primarily to abrupt F-150 and Nexperia-related disruptions, along with partial staffing and labor inefficiencies. The company grew new business wins, particularly in China, secured partnerships to drive future market share, and maintained double-digit margin expectations in China for FY2026 despite short-term compression. Substantial AI and automation investments are planned, with an anticipated two-year payback in operational savings. Free cash flow guidance for FY2026 highlights near-term tax settlements and elevated restructuring as temporary drags, with normal levels resuming after FY2026.

Management confirmed the Americas region’s mid-single-digit growth opportunity over market in 2027 and double-digit over-market expectations in China for 2027.

CEO Dorlack said, "in China we have a reasonable kind of line of sight" for growth, emphasizing a shift to domestic OEMs and improved launch cadence.

CFO Oswald linked the company's path to a 7%-7.5% adjusted EBITDA margin target in the medium term to execution on balance-in/balance-out programs, portfolio mix improvements, and operational launches, despite a 2026 transition year.

No specific magnitude is set for 2026 share repurchases, with activity to be "opportunistically" timed based on operational clarity and cash flow cadence, according to Mark A. Oswald.

INDUSTRY GLOSSARY

JIT (Just-in-Time): A manufacturing system where components are delivered or produced only as needed in the production process to minimize inventory costs and lead times.

OEM (Original Equipment Manufacturer): An automaker or company that purchases and installs components made by an external supplier for final vehicle assembly.

JV (Joint Venture): A business structure where two or more parties collaborate, sharing ownership, returns, risks, and governance for a specific business purpose or region.

Factoring: A financial transaction in which a business sells its accounts receivable to a third party at a discount, providing immediate liquidity.

Balance In/Balance Out: A process during portfolio restructuring in which declining or exiting programs ("balance out") are offset by new program wins or launches ("balance in") to stabilize or grow revenue and margins.

Trim: The seat upholstery and related decorative components, including fabric, leather, stitching, and paneling in auto seating systems.

Full Conference Call Transcript

Jerome J. Dorlack: Joining us to review our fourth quarter and full year fiscal 2025 results. We will also discuss our fiscal 2026 outlook and share additional information on how we are positioning ourselves for long-term success. Turning now to Slide four, which summarizes our fourth quarter and full year results. With business execution remained strong, we delivered an adjusted EBITDA margin of 6.1% and free cash flow of $134 million in the quarter. It's worth noting that full year free cash flow ended at $204 million versus the previous high end of our guidance range of $170 million, leaving us with ample liquidity when it comes to 2026 capital allocation, Mark will cover in his section.

This performance comes amidst challenging business conditions not just in the fourth quarter, but throughout the year including customer volume reductions and dynamic tariff policies. The Adient management team would like to recognize all of our employees for stepping up and meeting these challenges. By working together with both our customers through commercial negotiations and remapping value chains, and our suppliers through supply chain management we have successfully mitigated the lion's share of our tariff exposure this year. A full year basis, we generated $881 million of adjusted EBITDA and $14.5 billion in sales with an adjusted EBITDA margin of 6.1%. Customer volume reductions continue to be offset with strong business performance.

From a cash perspective, we were able to generate an additional $204 million of free cash flow this year net of funding our European restructuring program. Given our solid cash generation, we're able to return capital to our shareholders through $125 million of share buybacks which represented a 7% reduction of our beginning year share count and 18% since the start of the program. Mark will provide additional details in his section but we also want to highlight the amendment and extension of our ABL revolver. The team has worked diligently to optimize our debt structure and day-to-day cash needs over the last few years we have taken the opportunity to better align our liquidity needs and reduce interest expense.

Moving now to Slide five. Take a moment to emphasize some of our accomplishments this year. Our operational performance and focused execution have continued whether it's launching new business managing the uncontrollables such as tariffs or driving continuous improvement the Adient team has delivered over $100 million of business performance this year excluding the net impact of tariffs. We have actively pursued and won onshoring opportunities and will continue to do so as customer footprint strategies evolve. We have pursued in one important conquest and replacement business including replacement business on one of our largest platforms the F-150, which we will talk about on the next slide.

We have won $1.2 billion of new business in China with nearly 70% of those wins with domestic China OEMs as we aggressively work to confirm ourselves as the premier seeding supplier in China. We are winning new profitable business in Europe putting us on track to drive revenue and margin growth in the region in the out years. Adient is committed to driving long-term shareholder value by investing in innovation across every facet of our business. We are strategically integrating artificial intelligence into our operations, from manufacturing and engineering to support functions. To enhance safety efficiency, quality, and scalability.

To ensure we maximize the benefits of these technologies, we are proactively equipping our workforce with the skills needed to leverage AI and adapt to a rapidly evolving digital environment. These initiatives position Adient to capitalize on emerging opportunities strengthen our competitive advantage, and deliver sustainable growth for our investors. Turning now to Page six. We continue to prioritize winning new and conquest business while also successfully launching several new programs. As previously mentioned, we have secured the replacement of the jet and foam business on the Ford F-150. In addition, we were able to conquest incremental content and secure the Trim business as well. Which we will talk more about on the next slide.

In addition to the F-150, in The Americas, we have won Conquest JIT foam and trim business with an Asian OEM on a full-size SUV and another conquest win on metals content on the Mercedes GLE and GLS in The Americas and replacement on the S Class in EMEA. In Asia, we continue to grow with leading domestic China OEMs including BYD. We have also continued to penetrate new domestic OEMs such as Cherry with our recent complete seat win on their upcoming pickup truck.

We could not continue to win the new businesses like those just mentioned without delivering on our customers' expectations through successful launches These programs continue to showcase our high level of execution and our ability to meet the rigorous safety quality and on-time delivery standards of our customers reinforcing our supplier of choice status. We've just been talking about what we are doing to win new business but it's not just about our execution excellence and which programs we are winning, it's about how we are driving sustainable value for our customers. Which is the cornerstone of our future growth. Turning to Slide seven. Winning the F-150 business was not just about winning the jet and foam replacement business.

It was also about working with our customer to drive enhanced craftsmanship through design collaboration. By collaborating on design to optimize foam, trim and jet manufacturing, we have been able to improve overall quality, appearance and the customer experience. It is this kind of partnership that reinforces the value we bring to our customers every day and why we remain a supplier of choice. On the innovation front, we have continued to see more demand from our customers on enhanced safety features as consumer seating trends for comfort and autonomy drive additional requirements for occupant out of position protection.

Our joint development agreement with Autoliv, as announced earlier this month, we are providing our customers with enhanced safety solutions built around the principle of multidimensional collaborative protection. Adient's ZGuard is a dynamic safety system designed to protect occupants in the event of a collision when in deeply reclined positions. As electrification and smart technologies continue to evolve, the passenger experiences this will position Adient and Autoliv at the forefront of seating and safety solutions. Each of these items just mentioned are meaningful by themselves. But is the combination of them together with the execution excellence customer collaboration, and investments in innovation that will collectively drive our future growth.

When we look forward to 2027, Adient has line of sight to double-digit growth over market in China mid-single-digit growth over market in North America, and growth at market in Europe. As we turn to Slide eight, we would like to highlight our commitment to that growth through a new strategic partnership. Are pleased to announce that we have secured a partnership in China that builds on Adient's Longstanding Local Business Model And Strong Customer Relationships. This Agreement Expands Our Operational Footprint Which Accelerates And Deepens Our Engagement With China's leading OEMs to further strengthen our competitive position and support sustainable growth in this key market. The new unconsolidated JV is targeted to close in Q1 fiscal year 2026.

Moving to slide nine. It is clear that Adient's end-to-end innovation strategy is creating sustainable value for shareholders. Across every area of our business, we are focused on initiatives that strengthen our competitive position and drive long-term growth. Here are just a few examples that demonstrate this. First, automation by design. We're working closely with our customers on product design optimizing plant layouts for more efficient automation and enabling long-distance jet and modularity. We have recently launched our first long-distance jet operation in North America and are looking to expand this with other programs and customers in the region in the future.

This approach reduces cost, improves efficiency and offers greatest greater flexibility for our customers in the dynamic North American market an ever-shifting tariff landscape geopolitical landscape requires greater flexibility. When it comes to process automation, have introduced smart manufacturing technologies such as AI-driven relaxed ovens in partnership the University of Michigan. Improved quality enhance energy efficiency and optimize labor. On product innovation, we recently launched our deep recline mechanical massage seat sets a new standard for occupant comfort and fatigue relief. While maintaining industry-leading safety and durability. We already have two programs in production which more with more actively being quoted across multiple customers. Through design innovation, we are launching Sculpt the Trim in Q2 fiscal year 2026.

Which is the next generation of seat trim that delivers complex shapes that were previously unachievable with current cut and sew processes. This product offers greater design flexibility superior craftsmanship and continued labor optimization. Not only that, it leapfrogs automated sewing by replacing the sewing process. With this end-to-end innovation mindset, we will be able to capitalize on enhanced in-cabin customer experiences mobility trends and evolving customer requirements to drive value for all of our stakeholders. As we move to Slide 10, let's take a look at the key initiatives that each of our regions will focus on fiscal year 2026. In The Americas, the key driver will be what happens with production volumes.

Right now, the forecast is based on October's and P and that shows a decline. In 2025, we also expected volumes in the region to decline and they did not. If that repeats again in North America in 2026, our outlook would improve significantly. In the meantime, we will continue to drive business performance capture onshoring opportunities and invest in new and conquest business. Or EMEA the key drivers are successful launches business performance and continuing to make progress on our multiyear restructuring plan. Balance in balance out will begin but it is being impacted by changes in customer programming timing where program end of productions are being delayed.

Despite that, we expect margins to begin improving toward the mid-single digits beyond fiscal year 2026. In Asia, we are driving for growth especially with local China OEMs. We know that there will be some margin compression as we pursue this business but expect incremental growth to help offset this and sustain double-digit regional margins and strong cash flow generation. As we focus on fiscal year 2026, what Adient must deliver is clear. But it's also clear that the world will continue to be dynamic with many uncertainties. Tariff policies the geopolitical landscape, and ever-changing supply chains just to name a few.

With that said, the management team wants to assure you that Adient will continue to execute on what we can control and aggressively mitigate what we cannot control to maximize the results for our shareholders. Moving now to Slide 11. So what do we want to leave you with today? Adient is clearly focused on flawless execution and planting the seeds for our future growth. Both of which are needed to drive long-term sustainable value. We are investing in innovation and our people. We have created a team fully dedicated to automation to expand innovation across all of our plants globally.

We will continue to leverage our world-class footprint and our laser focused on our strategic objectives and delivering value all of our stakeholders. We will deliver on our European restructuring plan and if needed, we will pursue additional restructuring as customer requirements evolve. We will continue to be good stewards of capital and execute our balanced capital allocation strategy We are committed to being a supplier of choice for our customers are driving profitable new business, including onshoring opportunities as they arise and replacing legacy contracts that have weighed on our bottom line. For too long. These are the key drivers that make Adient well positioned for future growth cash flow generation and sustainable shareholder value.

With that, I'd like to hand it over to Mark to take you through our financials and our outlook.

Mark A. Oswald: Thanks, Jerome. Let's jump into the financials. Adhering to our typical format, Slides thirteen and fourteen, detail our reported results on the left side and our adjusted results on the right side. We will focus our commentary on the adjusted results which excludes special items, which we view as either one time in nature or otherwise skew important trends in underlying performance. Details of all adjustments are in the appendix of the presentation. High level for the quarter, sales of $3.7 billion were 4% better than fiscal year 2024 with adjusted EBITDA of $226 million adjusted EBITDA margin of 6.1%.

Adjusted EBITDA and adjusted EBITDA margin were both down year on year primarily due to the timing of commercial settlements and equity income reflecting the impact of modifications to our Kuiper joint venture agreement which are partially offset by favorable cost impacts in business performance for both The Americas and EMEA. In addition, equity income was also impacted by a few one-time non-recurring items within the JVs such as an income tax adjustment and timing of engineering expense and recovery. Ada reported adjusted net income of $42 million or $0.52 per share.

For the full year, as shown on Slide 14, sales came in at approximately $14.5 billion down 1% year over year due to lower customer volumes and unfavorable mix, which was partially offset by FX tailwinds. Adjusted EBITDA landed at $881 million essentially flat with 2024 despite the increase decrease in volume. Positive business performance offset the unfavorable volume mix headwinds as well as lower equity income year on year. For the year, we reported adjusted net income of $161 million or $1.93 per share, which represents a 5% improvement on adjusted EPS versus the prior year.

I'll go through the next few slides briefly as details of the results are in included on the slides, this should ensure we have sufficient time for Q and A. Digging deeper into the quarter and beginning with revenue on Slide 15, we reported consolidated sales of approximately $3.7 billion in Q4 was $126 million increase compared to Q4 fiscal year 2024. Primarily driven by FX tailwinds and favorable volume and pricing in the quarter. Shifting gears to the right side of the slide. Adient's consolidated sales were favorable to the broader markets in The Americas while sales in EMEA underperformed due to customer mix and intentional portfolio actions.

Sales in China trailed the market due to production declines from our traditional premium OEM customers while the rest of Asia outperformed due to customer launches in prior years ramping to full production this year. In Adient's unconsolidated revenue, year on year results declined approximately 4% adjusted for FX. Results were primarily affected by JV portfolio rationalization items in The Americas that were finalized in 2025. We saw growth in both EMEA and China unconsolidated businesses. Turning to slide 16, we provided a bridge of adjusted EBITDA to show the segment performance between periods. Adjusted EBITDA was $226 million during the quarter down $9 million year on year.

The primary drivers of the year on year performance include as mentioned earlier, the timing of commercial settlements which tends to be lumpy from quarter to quarter and was particularly impacted by certain actions pulled into our third quarter of this year. A year over year decline in equity income mentioned previously which was partially offset by positive business performance in The Americas and to a lesser extent in EMEA. FX and net commodities provided modest tailwinds in the quarter and overall business performance was favorable year on year. Despite a net $4 million tariff impact during the quarter. Moving to slide 17 and our full year results. Adient's adjusted EBITDA was $881 million essentially flat with the prior year.

Adient drove nearly $100 million in favorable business performance year on year, which included $17 million of net tariff expense. Our commitment to operational excellence drove additional efficiencies and lower launch expenses during the year which offset the $50 million of unfavorable volume and mix headwinds due to lower volumes in Europe and other customer mix headwinds in Asia. In addition, net commodities were a $28 million headwind year on year primarily resulting from the timing of recoveries. Despite the challenges presented in fiscal year 2025, the Adient team was able to expand margins by 10 basis points year on year. As in past quarters, we provided our detailed segment slides in the appendix of the presentation.

High level, for The Americas, we expanded margins by 40 basis points for the full year and drove $41 million of incremental favorable business performance through lower launch costs, commercial actions, and input costs year on year. Despite a $17 million net tariff impact during the year. Volume and mix was a $19 million tailwind for the year due prior year slowing ramp launches reaching full production volumes in 2025. Net commodities were a $28 million headwind for the year driven by the timing of contractual pass throughs. In EMEA, fiscal year 2025 results were influenced by volume mix which was a $36 million headwind during the year due to lower customer production volumes.

Positive business performance of $17 million during the year due to improved net material margin and improved operating performance partially offset by $12 million in unfavorable FX due to the transactional exposure to the zloty. And finally in Asia, business performance was a $34 million tailwind during the year due to improved net material margin lower launch costs and improved engineering and administrative expenses which offset the $33 million volume mix headwind during the year, due to lower sales in China and adverse customer mix in the region. FX was a $17 million tailwind in '25 due to the transactional impacts of Asian currencies and translational effects of versus the USD.

To sum up the regional performance in 2025, the team has done an outstanding job of demonstrating continued resiliency. Driving positive business performance in the face of macro challenges, I would just reinforce what Jerome has already highlighted. AAM team is doing what it needs to be done to control what's in our power and to control focusing on operational execution. Turning to Adient's cash flow now on Slide 18. For the full year, fiscal year 2025, the company generated $204 million of free cash flow which is defined as operating cash flow less CapEx. On the right side of the slide, we have highlighted the key drivers impacting the full year free cash flow.

During the year, we benefited from certain fiscal year 2024 dividends that were delayed and paid in fiscal year 2025 from certain of our China joint ventures. This favorable timing of dividends was more than offset by elevated cash restructuring in EMEA and the timing of customer tooling recoveries. In addition, cash flow was favorably impacted by approximately $30 million of items pulled ahead from '26. Excluding these actions, Adient would have been at the high end of its guidance range probably about $170 million These actions resulted from a combination of timing for customer payments and actions taken by the company to proactively mitigate the potential impact of timing from JLR related receivables due to their cyber event.

One last item to highlight on the slide, at September 30, 2025, we had approximately $185 million of factory receivables versus $170 million at the 2024. Edding continues to utilize various factoring programs as a low-cost source of liquidity. Moving to slide 19, our liquidity and capital structure. On the right side of the slide, you'll note that Adient ended the fiscal year with strong liquidity. Totaling $1.8 billion comprised of $958 million of cash on hand $814 million of undrawn capacity under our revolving line of credit.

During the fiscal year, the company returned a total of $125 million to its shareholders for full year 2025 retiring approximately 7% of its shares outstanding at the beginning of the fiscal year. In addition, Ed Inc. Continues to proactively manage our capital structure September, before the close of the fiscal year, we launched an amend and extend initiative on our ABL, which closed in mid-October. This action extended the maturity from 2027 to 2030.

As Jerome pointed out earlier, the team has optimized our cash needs over the past few years so we were able to reduce the revolver by $250 million and opportunistically reduce our annual interest expense on both drawn and undrawn capacity by approximately $2 million per year. Focusing now on our balance sheet, Badding's total debt and net debt position totaled $2.4 billion and $1.4 billion respectively at 09/30/2025. The company's net leverage ratio at September 30, was 1.6 times near the lower end of our target range of 1.5 to two times. As you could see, Adyen does not have any near-term debt maturities.

Moving now to Slide 21, we'll review some of the key underlying assumptions to our fiscal year 2026 outlook. As we typically do, we have based our outlook on a combination of the October S and P vehicle production forecast near-term EDI releases, any customer production announcements. In addition to volumes FX rates have also changed year on year with the euro moving most significantly. Tailwinds from the euro will essentially mask the volume pressure as we look at revenue. As you can see, Adient is expected to grow significantly above market in China however, face stiff headwinds in Europe and North America.

We will discuss further on the next slide, it should be noted that we have put in a Q1 adjustment for Ford not yet reflected in the October S and P production estimates which slightly skews the growth over market comparison negatively for North America. With that as a backdrop, let's turn to slide 22 to see the expected impact to Adient's fiscal year 2026 results. First, I would like to specifically address our assumptions around F-150 volumes which is Adient's second largest platform in The Americas.

When it comes to the F Series, and reflecting on the impact to their customer fire, we have reflected the downtime that has been announced to date which is currently through the week of November 10. Because Ford has not indicated the mix of F Series vehicles, that will be down specifically the mix between F-one and 50 and the Super Duty vehicles including cadence for recoveries we do not think it prudent for Adient to come up with our own forecast. Especially with regard to maintenance plans. Of course, we are actively monitoring the situation and will provide additional insights once we have more clarity from Ford.

In addition to the F-150 volumes, we are also proactively monitoring other current events such as the potential chip supply challenges from Nexperia. We view these events as more as production disruption issues, versus fundamental demand challenges. Given the underlying macro factors remain stable, especially in North America, we remain hopeful that volume stability will continue into 2026.

As we look beyond specific events basing our outlook on the current S and P assumptions, North America and Europe revenue are projected to be down by approximately $650 million year on year, but this will be partially offset by growth over market in China for a net decline year on year of approximately $480 million Typically, you would expect the adjusted EBITDA impact of this to be roughly $75 million but you could see we have a higher decremental mix. Impacted by continued mix headwinds in Europe and margin compression in China.

While we expect to maintain double-digit margins in China, the combination of growth with domestic China OEMs and volume headwinds from the luxury global OEMs in China is expected to compress overall margins as we are forecasting headwinds of roughly 100 basis points. While margins in China are forecast to compress with an offset of positive EBITDA from growth, do not expect the adverse impact to overall Adient margins. As we executed approximately $100 million of business performance in 2025, We are targeting a similar amount for fiscal year 2026.

However, as we are also focused on growth, about $35 million of that performance is expected to be invested in growth through launch costs and engineering for future programs resulting in a net impact of business performance at $75 million For illustrative purposes, if we were to hold volumes constant year on year, you can see that our financial look alike outlook would show approximately $14.8 billion in sales and $925 million of adjusted EBITDA resulting in adjusted EBITDA margin of about 6.3%. Turning to free cash flow on Slide 23. The year on year decline that is forecasted free cash flow is driven by three factors.

The offsetting impact of the favorable 30,000,000 bullet head actions previously mentioned in 2025 elevated cash tax fiscal year 2026 driven by approximately $20 million for a potential settlement associated with an ongoing tax audit within a specific jurisdiction. As well as lower adjusted EBITDA and higher CapEx reflecting our investment in future growth and innovation. The cumulative impact of these items results in free cash flow of approximately $90 million based on current volume assumptions. However, we would expect that to be closer to $170 million at constant volume. I do want to remind everyone that below free cash flow adding expects to have an additional dividend of approximately $85 million to our non-consolidated interest or NCI.

As Jerome mentioned in his section, we are committed to investing in future growth The investments we are making today are expected to drive double-digit growth overall market in China and single-digit growth overall market in North America. These investments are expected to drive volume, profitability and incremental cash flow in the out years. The combination of our execution excellence and our investment in future growth and innovation is why Adient expects to maintain strong sustained cash flow generation for 2027 and beyond as we ensure our investments today drive shareholder value the future. Turning now to our guidance on Slide 24. I've already walked through several key items on the slide, I won't read through those.

In addition to what we have discussed, I would add our guidance on equity income remains approximately $70 million Based on our current debt levels, our interest expense is expected to be approximately $185 million to $190 million As we have said throughout the presentation, our guidance reflects Adient's commitment to controlling what it can. Our business execution and commitment to continuous improvement will continue to drive strong business performance. We will manage through the volume challenges and continue to invest in the future as Adient is committed to driving long-term shareholder value. Turning to Slide 25 before going into Q and A.

In closing, I would like to reiterate that Adient is firmly committed to executing our balanced plan for capital allocation. Driven by our business performance we enter fiscal year 2026 from a position of strength with strong balance sheet and solid liquidity. We ended fiscal year 2025 $958 million of cash on the balance sheet well ahead of the roughly $800 million we need for ongoing operations. This provides Adient the opportunity to proactively manage its capital allocation whether it's through investment for future growth debt pay down, or continued share repurchases. As a reminder, Adient has $135 million of authorization remaining on its share repurchase program, leaving room for additional purchases as appropriate in fiscal year 2026.

By utilizing the levers I just mentioned, the Adient team is committed to prudent capital allocation and maximizing shareholder value. And with that, we can move to the question and answer portion of the call. Operator, can we have our first question please?

Operator: Thank you. We will now begin the question and answer session. Session. That is going to come from Colin Langan with Wells Fargo. Your line is open. Great. Thanks for taking my questions. Maybe if we could start with the 1% forecast underperformance versus S and P. Any color on the major puts and takes there? I think you mentioned

Colin M. Langan: the F-150. Did you say that you factored in the downtime that's expected but not the recovery that Ford has actually kind of indicated this recovery. And then any color maybe in particular on the wind down of unprofitable business in Europe? Is that Is that another big driver there that we should be considering in sort of the 1% drag?

Jerome J. Dorlack: Yes. So thanks Colin for the question. I'll take So on the F-150 in particular, we out of respect for our partner for the customer, we don't want to get ahead of them. And so what they've indicated on their call was F Series. And F Series is a mixture of F-150, F-250 and the entire Super Duty lineup. And they haven't officially made any announcements of where that recovery is going to come from and how all of the downtime will mix into that.

So what we have forecast in our guidance is the downtime that we know today, what we actually have in our EDI releases which takes us through the week of November 10 with a restart on November 17 with no recovery. So no makeup of any volume. In addition to that, what we don't know is what that recovery and makeup volume will look like. Will it come with significant overtime? Will it come with additional crews, additional makeup? Will it be kind of low calorie makeup type revenue? And what will that mix look like. So that's part of that 1%.

When S and P comes out with an updated kind of November number, I think we'll tie out closer to that because they will capture some of the F 150 downtime. So that's part of it. The other piece of it is the European picture. So we now have the full St. Louis, our plant in St. Louis, the exit of that business as that winds off. As well as a plant in Nova Mesto in Slovakia, the exit of that business as well. Winding down. Which would be below kind of S and P performance. So hopefully that answers your questions on that.

Colin M. Langan: Got it. I mean, those major contributors to that the 1% overall? Are those you combine still? Yes. I mean those would be the those would really capture the 1% overall, yes. Got it. Okay. That makes sense. And then if I just look at the walk on Slide 22, the volume mix drag is think something like a 26% decremental, which is seems pretty high. Any color on why such a high decremental for the lost volume?

Jerome J. Dorlack: Yes. I'll start and then Mark can add any color if he needs to. A couple of factors that go into that. First of all, we have things like F-150 you know, factored into that. You have to remember, that's not coming out at normal decremental because of the nature of how that F-150 downtime is coming in. It's coming in first at a very short notice. It's coming in initially, it was basically half shifts. So we were having the staff two full plants fully, but only getting half volume on it.

It ran like that for several weeks and now we're having to run it at full down weeks but still having to pay sub pay And given that is 6% of our total sales, that's a pretty severe decremental for us. For a very large portion of our Q1. In addition to that, in our Q1, we also have Nexperia downtime. And that Nexperia downtime is coming at it's been public announcements at one of our very large Japanese customers significantly impacting our North America operations. So when you think about Q1, it's going to have a very significant decremental in it because of those two factors, Nexperia and 150.

Very short notice partial shifts that are running either half or sub pay impacted. With very high decrementals associated with them. That we're not really able to manage given the short notice of them Those are two factors. The third factor in there is one that I would say we will monitor closely throughout the year, which goes a bit to why we've given our official guide and then if it were flat volumes the mix of what S and P is calling off. They have called off in their October release some of our platforms which are maybe higher contribution margin being down year over year and we'll see how that plays out throughout the year.

And then the fourth factor which is what Mark talked to, we're rolling on in our China business significant new business this year. As that business rolls on, it isn't rolling on in its first year of production at full kind of incremental margin. Right? We have significant launch costs going into it. We're rolling on with some of the China local OEs. As those roll on, they're not rolling on it kind of the regional contribution margin level. It takes us some time to bring those up to the standard margin level. And I'd say that's the fourth factor associated some of that volume mix. But the first two are very significant.

Just how some of those downtime that downtime is coming at us in Q1.

Colin M. Langan: Got it. That makes sense. All right. Thanks for taking my questions.

Jerome J. Dorlack: Yes. Thank you. Appreciate it. Thank you.

Operator: The next question comes from Emmanuel Rosner with Wolfe Research. Please go ahead.

Emmanuel Rosner: Great. Thank you. Good morning. First question is on the growth investments.

Jerome J. Dorlack: Dollars 85,000,000 investment for the future. Just comment a little bit more around how much of that is discretionary? How far out in terms of the future we're looking at for? This payback versus things that are nearer term and just needed because you have the launches coming up

Jerome J. Dorlack: Yes. I'll start and then I can turn it over to Mark for additional comments.

Emmanuel Rosner: Yes, I'd say

Jerome J. Dorlack: it's investment that's needed to really drive the growth. In my prepared comments, we kind of commented on what we see 2027 shaping up to be. Where we see North America being able to grow in the mid-single digits over kind of vehicle volume, especially when we take kind of the metals out of that, which said we want to wind down metals. And we see China and Asia growing at kind of double digits over market. And we have that line of sight and so we see that investment as needed. That's what I would call kind of the program growth and some of the engineering associated with it.

The other thing that I would point you to, Emmanuel, where we're really driving business performance aggressively is on the automation and AI side. If I look at 25 versus 26, in '25 we spent 20,000,000 just round numbers $25,000,000 on automation and AI in our plants and that yielded about $20,000,000 in savings. As we begin to ramp up these efforts, we have a facility in Mohr, Hungary that's dedicated to capital improvement, AI and automation. We have a mirror facility in Plymouth, Michigan that's dedicated to the same activities we will spend upwards of about $60,000,000 in AI and automation and on a run rate basis that will yield almost $40,000,000 in savings.

So the capital is roughly doubled, but the savings is more than doubled on a run rate basis. And that's factored into that total expense improvement or increase year over year. So I wouldn't necessarily label it as discretionary as much as it is driving business performance and improvement into the business year over year. Yes. And Emmanuel, the payback on that CapEx that Jerome was talking about on that innovation is typically about two years. Could be anywhere from one point five to two years. That's what we try and focus on there. And as Jerome indicated, the other call it $35,000,000 is really engineering and launch support for programs that are being launching with our customers.

So think of it in two buckets. Yes. And we'll see those launches Emmanuel, really start coming on and the '26, fiscal year. And then accelerating through 2027.

Emmanuel Rosner: Okay, great. Then I was also hoping for potential update on shoring. There wasn't as much discussion on this in the quarter than in the past. I think that you had obviously mentioned already previous wins, but it sounded like you were getting close to some potential additional wins there. So just curious where that's tracking? I guess what would be the timeline of it starting help the revenue? Yes. So in terms of helping the revenue, the one the one product that we announced with a Japanese customer. It's now and actually it's with Nissan on the road that's now in production. So that is in our kind of 26 figures.

That incremental volume that they have onshored back into The U. S. It's unfortunately being offset by some other production challenges. That we see just in terms of volume. The other Japanese customer we expect that to launch at the end of our fiscal year 2026. It will be running up to full volume. And then as far as other onshoring wins, we are I'd say in the final kind of last rounds of negotiation with a significantly large program round between 200,000 to 250,000 units that will move from Mexico into The U. S. It will would be incremental volume for us.

Utilizing existing footprint for us And I would anticipate we'll have more news on that in the next I'd call it three to four months or so.

Emmanuel Rosner: Great. Thank you.

Jerome J. Dorlack: Thank you for the questions.

Operator: Thank you. The next question is from Dan Levy with Barclays.

Dan Meir Levy: Please go ahead. Hi, good morning. Thanks for taking the questions. You gave some impressive growth over market targets for 2027. And I know that there's some mix issues here in 2026. Basically, you just walk us through what the line of sight? And I know that there's obviously the macro environment can move. But what is the line of sight of sort of secured businesses? It's a function just of launches coming out. And how do you factor in there is still some uncertainty on how automakers might be moving their plans, powertrain stuff moving around? What is the line of sight on that growth of market?

Jerome J. Dorlack: Yes. I'll start and then Mark can add comments. I'd say the line of sight Dan, if I just kind of go region by region, in China as we spoke kind of on the last earnings call, it really comes down to customers' ability to launch and execute. We were I'd say impacted last year and if you look at kind of half over half, we saw almost a I think it's a call it a what 50 basis point improvement sorry 500 basis point improvement half one to half two in terms of mix improvement or growth over market improvement. In China because our launch has finally started to accelerate there.

That's what really gives us confidence in our 26 and then moving into '27. Is one, our mix shift to the China OEMs, but then their ability to now launch and their launch cadence is finally picking up. So think in China we have a reasonable kind of line of sight Within The Americas, which is our other region now that we're starting to gain some significant traction. It's really dependent on the Japanese OEMs and their ability to I think rotate some of their powertrain and rotate some of their plants The what gives us confidence is you know, they generally do what they say they're going to do.

Their level of execution, their level of commitment their ability to plan, do and execute is at a high level. So I think we have generally a high level of confidence when we look at what happens in the 2026. That's when a lot of these launches kind of time in and cadence in thus the high level of engineering and elevated CapEx spend this year. And as that rolls into 2027. So I think generally we feel pretty good about what we see moving into '27 for the business.

And then the other key piece of that especially in The Americas is when we think about growth over market and we'll have more of this as we roll through 2026 and really into 2027 is, it's also the portfolio. We've talked about this as rolling off some of that third party metals business and then really looking at growing the jet trim and foam. And so it's that portfolio rotation that Walls help to accelerate growth over market in those markets we really want to play in.

That's why the F-150 business not just winning what we had, on the JIT and the Foam, but also conquesting that trim business getting more down the vertical integration stream and providing that value proposition with Ford co-developing with them a better end product for the end customer was really crucial.

Dan Meir Levy: Great. Thank you. As a follow-up, same vein, I know that the 26% on the margin side has some unique volume mix issues. But you've talked about this midterm 8% EBITDA margin target. There's a few different work streams in terms of balance in balance out Europe. Should we understand 26% just as a transition year, but the broader positive margin trajectory is still on track with each of these work streams and that 8% is still something that you're shooting for and is a realistic target over time?

Mark A. Oswald: Yes, Dan. I would say that nothing has fundamentally changed Obviously, six you know, significantly impacted by volume. That said, we continue to drive the positive business performance We're investing in the growth as Jerome just mentioned. We have a good line of sight in terms of where that growth is coming from in 2027 and 2028. That balance in, out story still holds, right, albeit certain of those programs have been extended in terms of their end of production life right So it's sort of muted the impact in 2026. But I think when you get into 2027, right, you've got your growth, you've got your balance in balance out, right? You've got your portfolio mix starting to change.

Those are all the elements that will continue to walk us from the current level of margin up to call it that 7%, 7.5% approaching that target.

Dan Meir Levy: Great. Thank you.

Operator: Thank you. And the next question comes from Nathan Jones with Stifel. Please go ahead. Good morning, everyone.

Mark A. Oswald: Good morning, Nathan. I guess I'll start

Nathan Jones: I guess I'll just start with a question bluntly on the first quarter. Given the disruption in the F-150 and your expectations there. So just if you could provide any more color on what you're expecting specifically for revenue margins in the 2026?

Mark A. Oswald: Yes. Nathan, we don't provide quarterly guidance, but I think as your model and you're fine tuning based on your production assumptions, we did call it $195 million of EBITDA last year in the first quarter. There was no production declines at that point last year. As Jerome indicated, this year we're facing not only F-100 but the on off shifts related to the Nexperia, chip shortages there. So is it possible that you're going to see a $15 million.20000000 dollars decline in overall EBITDA on year on year for the first quarter? Absolutely, right. And then you throw in there JLR, right. They just started to produce their units right at capacity.

So again, it's those macro factors that I think probably put Q1 at the trough for the year and then we start building on that as we get into Q2, Q3 and Q4 as F-150 comes back as you have the supply chain shortages worked out with an Xperia, right? You have JLR that's sort of the way I see the calendarization as I go through the year.

Nathan Jones: That's helpful. Thanks. And I guess my other one is on capital allocation. Lower free cash flow in 2026, but as you noted, you have more cash than you need to run the business. Any expectations for what share repurchase in 2020 is likely to be relative to 2025? Thanks.

Mark A. Oswald: Yes. So again, we'll opportunistically look balance that between the share repurchases debt paydown. As I indicated, we have $135 million left of repurchase on the current authorization. So we'll time the repurchases and the magnitude of repurchase in line with how we see clarity with production playing out this year as we see the cadence of our cash flow coming in this year, right? So without giving you a specific number, I'd just say that we'll balance taking the cash off the balance sheet, between debt pay down as well as the repurchases.

Nathan Jones: Thanks for taking the questions.

Mark A. Oswald: Thank you.

Operator: Thank you. The next question comes from Joe Spak with UBS. Please go ahead.

Joe Spak: Thanks. Good morning, everyone. Super helpful detail on the decrementals in your 26 guidance. I just want to maybe talk through one other element because I know you said you're not counting on some of that F-150 volume coming back. But if it does, it is it fair to assume that the incrementals on that volume actually don't come close to the decremental margins because of all the trapped labor and costs and some of inefficiencies you mentioned. So it'll help dollars but the overall decrementals will still look a little bit worse than we would normally expect. Is that fair?

Mark A. Oswald: Yes. That's right, Joe. I mean if you just think about how that volume comes back on as Jerome indicated, are they going be running over running weekends, right? So that goes into that equation.

Joe Spak: Okay. Any help any guidance on sort of what we could expect the incrementals on that volume to be if it does come back? Think it's too early to say still Joe. A lot of it's going to depend on how does it come back, what are some of the discussions we have with Board around the total recovery mechanism of it. Think it's too premature to engage in those types of forecasts.

And that's one of the reasons why again, out of respect for our partner Ford, we didn't want to put anything in here because we just we don't know the timing cadence If it's it's going to be run over let's say the Easter break, mean, that's going to be a lot of premium cost. It's just going be run over Saturdays and Sundays, that's a different model. So it's it's too early to say at time what that even looks like.

Joe Spak: Okay. Fair enough. The second question I guess is just on free cash flow and apologies if I missed this. I know you spoke about elevated restructuring in '26. I think it was about a $130 million $25 million Did you give an actual number for 26,000,000 And then talked about more normal levels beyond that, but I just want to get your sense of sort of what gives you confidence that continued restructuring, particularly in Europe, won't be needed that you're going to more right sized after 2026? Thanks.

Mark A. Oswald: Yes, Joe. Good question. So we did about $130 million of cash restructuring last year. I think that drops down to about $120 million this year, right? Normalized run rate for us, right, is probably going to be somewhere in that 50,000,000 right, plus or minus. Once we get through, I'd say, the elevated restructuring in Europe. Part of it, we've been very transparent. You and I have talked about this before, right? It's we do see that trending down, but in terms of the overall timing of that's going to be dependent on customer you know, program run offs, right, in what they decide to do with their facilities and where they're going to source certain of their programs.

So again, for modeling purposes, I'd assume a $50,000,000 run rate. So again, when you think about this year for 2026, right, a couple of the elements the calls for cash that are elevated, right, I'd say, my cash tax at $120,000,000 are elevated. Those typically would be in that 100,000,000 to $105,000,000 mark on a run rate basis. My restructuring dollars rather than 120,000,000 should be falling back to that $50,000,000 run rate then it's just a function of EBITDA, right? So if you were going to ask what's the normalized level of free cash flow, start with your EBITDA, let's just say we do 900,000,000 CapEx.

We've always said that will be running somewhere in that $280,000,000 to 300 especially with the growth investments and the automation that Jerome talked about cash interest, call that 185,000,000 190 cash taxes 100 and restructuring 50. So you'd get to a normalized level, call it somewhere around that $250,000,002 60 mark, at a $900,000,000 EBITDA. Right? So that's the way I think about free cash flow and what's normalized levels for us.

Joe Spak: Got it. Thank you. Okay.

Operator: Great. Thank you. The last question is it would be coming from Ed, at the bottom of the hour, so if you can move to wrap the call up, that would be great.

Jerome J. Dorlack: So in closing, I want to thank everyone once again for your interest in Adient. If you have any follow-up questions, please feel free to reach out to me. Also, I'd like to acknowledge we will be in New York City later this month participating in the Barclays Automotive and Mobility Conference and hope to see many of you then.

Operator: With that, operator, we can close out the call. Thank you. This does conclude today's call. We thank you for your participation. Have a wonderful day and you may disconnect your lines.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.