Adient (ADNT) Q3 FY26 earnings call: guidance and Q&A

Clarification on the $32 million in temporary operating costs, specifically how much is related to the Middle East conflict (freight, resin) and how much to customer-driven inefficiencies, and when recoveries for commodity costs are expected.

Mark Oswald explained that approximately $20 million of the $32 million was due to Middle East conflict-related costs (higher freight, fuel, resin for foaming operations), with about 90% of resin costs having pass-throughs on a 2-quarter lag. The remaining $10 million to $12 million was from customer-driven inefficient operating patterns. He expects these costs to subside in Q4, with full-year Middle East costs around $35 million to $40 million.

“So, for full year, call those Middle East costs somewhere in that $35 million to $40 million from where we are today. The other, call it, $10 million or $12 million that make up that $32 million that we called out this quarter is really the customer-driven costs, right?”

asked by Joseph Spak · answered by Mark Oswald

Inquiry about the updated FY26 restructuring number (previously $120 million, currently $77 million YTD) and the potential cost of closing a facility in Europe, given concerns about customer restructuring.

Mark Oswald confirmed the FY26 restructuring outlook remains around $120 million. For FY27, he stated that restructuring is a 'big wildcard' due to customer platform changes, with a single facility closure potentially costing $30 million or more. He noted that the Americas region has been successful in 'self-funding' closures through asset sales, which could offset future costs.

“So, for the full year, we have not changed our outlook. So call that somewhere in that $120 million range, right? As I look into '27, that's one of the elements that we said we still need to get clarity on. We're working with customers as they look at their platforms, they look at their end of production, where they're going to move production to. That's the big wildcard, Joe.”

asked by Joseph Spak · answered by Mark Oswald

Question on Adient's exposure to exports from China to other regions and the expected direction of Asia margins, particularly China, for FY27.

Jerome Dorlack stated that Adient is 'under-indexed' to total export volume in China, focusing more on domestic production. Mark Oswald reiterated the expectation of approximately 100 basis points of margin compression in China for FY26, which is considered 'very manageable' due to top-line growth and mitigation efforts. For FY27, it's too early to give a precise number, but the team is working to contain compression through automation and operational improvements.

“As far as our export exposure in China directly, we are below what the total market export rate is today. A lot of that is driven by our historical joint ventures that we were engaged in when we wound those down.”

asked by Emmanuel Rosner · answered by Jerome Dorlack

Follow-up on the previously discussed normalized free cash flow for FY27, specifically if other buckets besides restructuring are still on track to improve.

Jerome Dorlack confirmed that the long-term objective of normalized and distributable cash flow remains. He noted that capital expenditures are anticipated to increase in FY27 due to growth in Americas and China and automation investments. Interest expense will remain prudent, and taxes are expected to normalize to a lower level after a one-time payment in FY26. The FY25 pull-ahead actions of $30 million will not recur.

“Long term, that is still our clear objective and where we clearly view that we can get to. I think as you begin to size up '27 and kind of turning back to what Joe's question was, restructuring will be an unknown that we'll sort through. On the capital expenditure side, which will be another large bucket, would anticipate an uptick in capital expenditure given just the growth that we're going to see that we talked about earlier in the Americas, in China and also our drive for automation.”

asked by Emmanuel Rosner · answered by Jerome Dorlack

Question on why Europe is not expected to outperform in FY27, unlike Americas and Asia, and the size of the metals business expected to roll off.

Mark Oswald stated that the primary driver for Europe's performance is the roll-off of the metals business, with approximately $90 million expected to roll off in FY27, and a larger chunk in FY28. Jerome Dorlack added that it's a mix of targeted deprioritization/exits of certain platforms and exposure to idled vehicle assembly plants, not solely a customer mix issue. He expects margin expansion in Europe next year due to metals roll-off, other projects, and restructuring benefits.

“So that is primarily the driver next year. I'd say next year, you're probably talking about $90 million of it rolling off followed by '28, another chunk of it, probably a little bit bigger in '28 rolling off versus '27.”

asked by Colin Langan · answered by Mark Oswald

Inquiry about the strong Q3 Americas outperformance, the expectation for above-market growth in FY27, and the incremental margins expected given the roll-off of low-margin business.

Jerome Dorlack clarified that above-market growth is expected in high-return product lines (JIT, trim, foam) in the Americas, driven by onshoring wins, with full integration by FY28. The overall regional revenue growth might be slightly above market to flat due to the metals business wind-off. Mark Oswald stated that incremental margins are typically in the 16% to 17% range and expects this to continue in FY27, as the company moves past Middle East and customer-driven costs and low-margin metals business rolls off.

“I think what we've typically said is somewhere in that 16%, 17% range is what I would look at for my incremental. And I wouldn't think that next year would be any different from that.”

asked by Dan Levy · answered by Mark Oswald