Adient (NYSE: ADNT) recently disclosed updated financial guidance for FY 2024, ending on September 30, in conjunction with its Q2 earnings release. The company revised its full-year revenue guidance down by 4%, from $15.45 billion to $14.85 billion.
Additionally, Adient lowered its normalized EBITDA guidance for FY 2024 by 8%, from $985 million to $910 million (mid-point of guidance). This adjustment indicates a projected 4% revenue contraction and a 3% decline in non-GAAP adjusted EBITDA for the current fiscal year.
The company attributed the downward revision to “slower launch ramps” and “softer electric vehicle production,” as highlighted in its Q2 FY 2024 results presentation. These challenges align with disclosures from Adient’s significant clients, Volkswagen Group and Stellantis N.V., each contributing more than 10% of its sales.
Key Client Performance
Stellantis reported a 20% year-over-year decrease in North American shipments for Q1 2024, citing “portfolio transitions” as a drag on its North American business.
Similarly, Volkswagen noted a muted demand for battery electric vehicles in Europe and North America at the start of the year. Specifically, Volkswagen’s battery electric vehicle deliveries in the US and European markets declined by 16% and 25% year-over-year, respectively, in Q1 2024.
Given these reports from key clients, Adient’s revised FY 2024 guidance appears realistic. Weaker demand for electric vehicles and a slower pace of new vehicle introductions are expected to impact Adient’s performance this year.
Share Buyback Program
Adient’s share repurchase program has provided support for its share price. Following the conclusion of the UAW strike in late 2023, Adient spent $100 million on share buybacks in Q1 FY 2024 and an additional $50 million in Q2 FY 2024.
Adient has indicated that it will continue to allocate excess capital to share repurchases. At the recent Q2 FY 2024 results briefing, the company mentioned that it expects the pace of future share repurchases to remain consistent.
With a net leverage metric (net debt divided by EBITDA for the past 12 months) of 1.71 times as of the end of Q2 FY 2024, Adient is within its target range of 1.50 to 2.00 times. This indicates no immediate pressure to allocate more capital for deleveraging.
Adient anticipates generating $250 million in free cash flow for the current fiscal year. The company also maintains financial liquidity, with over $1.8 billion available, including $905 million in cash and a $974 million available credit line as of March 31, 2024.
Assuming Adient continues to buy back $50 million worth of shares each quarter, the stock’s forward buyback yield (repurchases divided by market capitalization) would be an attractive 7.6%.
Valuation and Final Thoughts
Adient’s current trading price reflects a trailing twelve months’ EV/EBITDA of 6.2 times (source: S&P Capital IQ), which aligns with its consensus FY 2023-2027 EBITDA compound annual growth rate (CAGR) of 7.0%. This valuation is considered reasonable, given both its EBITDA multiple and expected EBITDA growth rate at mid-to-high single digits.
An expansion of Adient’s EV/EBITDA valuation multiple in the short term is unlikely due to the company’s unfavorable full-year FY 2024 financial outlook. However, a significant de-rating of Adient’s EV/EBITDA ratio is also improbable, supported by its meaningful share repurchases.
Although Adient faces challenges with slower revenue growth and reduced EBITDA guidance, its strong share repurchase program provides a cushion for its stock price. The current valuation is reasonable, balancing the company’s near-term financial headwinds with the support provided by ongoing share buybacks.
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I’m Jackson Hartwell, a writer who specializes in dissecting current business events. I’m dedicated to providing you with clear and concise insights into the world of politics, making it easier to understand the latest news and developments.
