Adient Q1 2025 Earnings Report

Adient EPS Results

• Actual EPS: $0.27
• Consensus EPS: $0.32
• Beat/Miss: Missed by -$0.05
• One Year Ago EPS: $0.31

Adient Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $3.44 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Adient Announcement Details

• Quarter: Q1 2025
• Date: 1/28/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, January 28, 2025
• Conference Call Time: 8:00AM ET

Adient (NYSE:ADNT) engages in the design, development, manufacture, and market of seating systems and components for passenger cars, commercial vehicles, and light trucks. The company's automotive seating solutions include complete seating systems, frames, mechanisms, foams, head restraints, armrests, and trim covers. It serves automotive original equipment manufacturers in North America and South America; Europe, Middle East, and Africa; and the Asia Pacific/China. Adient plc was incorporated in 2016 and is based in Dublin, Ireland.

Adient Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Welcome and thank you for standing by. At this time, all participants are in a listen only mode. Today's conference is being recorded. If you have any objections, you may disconnect. I will now turn the conference over to Mike Heifler.

[Operator]

Thank you. You may begin.

[Mike Heifler, Vice President of Investor Relations at Adient]

Thank you, Denise. Good morning, everyone, and thank you for joining us. The press release and presentation slides for our call today have been posted to the Investors section of our website at adient.com. This morning, I'm joined by Jerome Dorlak, Adient's President and Chief Executive Officer and Mark Oswald, our Executive Vice President and Chief Financial Officer. On today's call, Jerome will provide an update on the business.

[Mike Heifler, Vice President of Investor Relations at Adient]

Mark will then review our Q1 financial results and provide insights on our outlook for the rest of fiscal 2025. After our prepared remarks, we will open the call to your questions. Before I turn the call over to Jerome and Mark, there are a few items I'd like to cover. First, today's conference call will include forward looking statements. These statements are based on the environment as we see it today and therefore involve risks and uncertainties.

[Mike Heifler, Vice President of Investor Relations at Adient]

I would caution you that our actual results could differ materially from those forward looking statements made on the call. Please refer to Slide 2 of the presentation for our complete Safe Harbor statement. In addition to the financial results presented on a GAAP basis, we will be discussing non GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non GAAP measures to the closest GAAP equivalent can be found in the appendix of our full earnings release. And with that, it's my pleasure to turn the call over to Jerome.

[Jerome Dorlack, President & CEO at Adient]

Thanks, Mike. Good morning, everyone, and thank you for joining us today. Today, we will review our Q1 results and share additional insights into the industry landscape and how we see fiscal 2025 shaping up. In addition, we will give you a high level overview of current business developments and then turn it over to Mark to review the financials and our full year outlook. Turning now to Slide 4.

[Jerome Dorlack, President & CEO at Adient]

We are off to a solid start in fiscal 2025 with improved business performance versus a year ago, allowing us to mitigate ongoing customer volume and mix headwinds. As a result, we were able to contain decremental margins to approximately 12% below our typical 18% on a 5% year over year decline in revenue. We achieved $196,000,000 of adjusted EBITDA and generated $45,000,000 in free cash flow. As we signaled on our Q4 call, we anticipated significant headwinds in our fiscal Q1, owing to inventory destocking at our major Detroit based customers in the Americas and ongoing European customer production mix headwinds. In Asia, we experienced soft demand from our core customer base in China, including luxury and Japanese OEMs.

[Jerome Dorlack, President & CEO at Adient]

In this market, we also saw a promising new startup cease operations. I'll discuss the industry dynamics in China in the next two slides. All things considered, the quarter was in line with our internal expectations. We also continued to allocate capital in a disciplined manner and bought back another $25,000,000 of stock in Q1, bringing total share repurchases so far in fiscal 2025,000,000 to $300,000,000 Our balance sheet remains strong with ample liquidity, including 8 $60,000,000 of cash on hand at the end of Q1. I'm also proud to share that we have released our 2024 sustainability report where we have highlighted several notable accomplishments, which I will go over shortly.

[Jerome Dorlack, President & CEO at Adient]

We have received excellent customer feedback from many of our investors and our customers on our ongoing sustainability focus. Moving to Slide 5. Let me walk you through some of the regional dynamics we have been observing and navigating through. 1st, in the Americas, as expected, we saw customers successfully reduce inventories, particularly in the full size pickup truck segment. The industry is in a far better position entering calendar year 2025 with an improving SAAR and healthier stock levels.

[Jerome Dorlack, President & CEO at Adient]

In fact, December auto sales of $16,800,000 were the highest seasonally adjusted annual pace since May of 2021. With normalized inventories, current selling rates appear to support forecasted production schedules in calendar year 2025. As we mentioned last quarter, key customer launches that were slow to ramp during most of fiscal year 2024 have been producing at full run rates giving us a tailwind this year. Last point on the Americas, we continue to evaluate potential tariffs and have been developing plans to mitigate impacts if imposed. Turning now to EMEA.

[Jerome Dorlack, President & CEO at Adient]

Industry conditions remain challenging with strong production headwinds and program delays from economic and political uncertainty around electrification policies. Lower exports and increasing competition from Chinese imports in entry level segments despite new tariffs. Our multi year restructuring plan in Europe remains on track with activities ongoing. As a reminder, we expect savings from these actions to continue to ramp up through 2027 and we anticipate about a third of these savings to be realized in fiscal year 2025. Lastly, we continue to monitor customer restructuring developments and will align our production and capacity accordingly.

[Jerome Dorlack, President & CEO at Adient]

We are actively shaping our European footprint for a smaller market and future localization of new players. Looking at Asia, macro conditions remain challenging. Despite a tough backdrop, the region continues to generate double digit margins and strong free cash flow. In the quarter, our China sales underperformed the overall market. I will get into more details on that in the next slide.

[Jerome Dorlack, President & CEO at Adient]

Although sales were softer, our China operating performance remained strong and the team was mostly able to offset lower contribution margin. Additionally, in Asia outside of China, we significantly outperformed the overall market due to new program launches ramping up. Turning to the next slide, let's dive deeper into what's going on in China. Based on current outlook, we see China revenue flat to slightly declining in fiscal year 2025, primarily driven from unfavorable production mix from increasing export and local OEM volume. Challenging market conditions that emerged in late calendar year 2024 have continued into calendar year 2025 with underlying auto demand continuing to soften outside of short term scrappage schemes.

[Jerome Dorlack, President & CEO at Adient]

Government stimulus has been modestly effective, but mostly in entry level segments where Adient has minimal content. Additionally, competitive pressures have intensified, leading our traditional European luxury and Japanese based customers to reduce their fiscal year 'twenty five production targets. We have seen several OEMs cancel programs and one of our targeted new entrants has ceased operations potentially signaling the early stages of industry consolidation. Market share gains by BYD and growth of exports have bolstered the overall China production outlook. S and P's China production forecast for calendar year 2025 calls for 3% year on year growth.

[Jerome Dorlack, President & CEO at Adient]

However, digging a bit deeper into that, excluding BYD and exports where we have less consolidated entity content, production is expected to be down about 5%. It is worth noting, however, that we have significant component business with BYD through our Kuyper joint venture. We are also supplying components for BYD in Thailand and our commercial teams are bidding on significant new business with BYD in China and elsewhere throughout the world. While near term macro headwinds and customer mix pressures exist, adding it remains a supplier of choice with both domestic and Western OEs. We are continuing to leverage our technical capabilities, leading product innovations and high content expertise, coupled with our domestic and global footprint and local knowledge to win new business with local OEMs, driving profitable growth in the next 2 to 3 years.

[Jerome Dorlack, President & CEO at Adient]

As a proof point, in fiscal 2024, we won new and replacement business with about $1,000,000,000 of annual revenue. 90% of this business is with local OEMs, much of which launches in fiscal year 'twenty six and 'twenty seven. Approximately half of this is all new revenue. In addition, given the challenging backdrop this year, the Adient business model is proving resilient and the team is mitigating loss contribution margin on lower consolidated sales by executing profit improvement actions such as cost reductions and commercial initiatives. Bottom line is that we are taking actions to grow rapidly with local China OEMs even with pressure from declining foreign OEM customers, our China business remains highly profitable and cash generative.

[Jerome Dorlack, President & CEO at Adient]

Our Asia segment of which China is a key market achieved greater than 14% adjusted EBITDA margins in Q1. Moving on now to Slide 7, we are prioritizing winning the right business and executing successful launches. Our business awards this quarter demonstrate further growth with China local OEMs and enhancements to our global customer relationships. It is worth highlighting the new business relationships. It is worth highlighting the new business with Mercedes on the E Class platform.

[Jerome Dorlack, President & CEO at Adient]

You were successfully able to conquest this business from a global incumbent. It includes the front seat and rear seat jet, rear seat frames, armrests, headrests, foam, trim and other functional parts, an excellent win for our China team. In Asia, we are launching a high level of new programs. In Q1 alone, we had 16 programs launched in the region and then we have more than 70 programs launching in the balance of the year. We have a healthy flow of upcoming launches beyond fiscal 2025.

[Jerome Dorlack, President & CEO at Adient]

We see strong momentum in the region, which resulted in part from our innovative capabilities to drive an outstanding customer experience, while also maintaining a competitive business case.

[Jerome Dorlack, President & CEO at Adient]

As you can see on

[Jerome Dorlack, President & CEO at Adient]

the chart, these wins are vertically integrated complete seat systems that are comprised of jet, trim, foam and in some cases metals where it's accretive to the business case. This is a key enabler to improving margins. Underpinning our new business wins is our high level of execution on multiple launches. We continue to perform on safety, quality and on time metrics for our customers. Moving on now to Slide 8, we are focused on driving sustainable growth into our business and reducing our impact on climate change.

[Jerome Dorlack, President & CEO at Adient]

We strive for responsible use of natural resources by improving energy efficiency in our operations and reducing the carbon footprint of our finished products and developing processes that protect our planet's natural resources. Adient is pursuing the use of sustainable materials, products and circular economy by identifying materials and manufacturing methods that minimize our environmental impact and promote a circular approach to product development. I want to recognize the Adient team for their accomplishments in 2024, including a 38% reduction in Scope 1 and Scope 2 greenhouse gas emissions from our base year, 29% utilization of renewable electricity and a strong commitment to a diverse supply base and an inclusive workplace. Finally, now moving on to our key takeaways on Slide 9. The company continues to drive higher levels and improved business performance, which has helped to mitigate some of the macro pressures.

[Jerome Dorlack, President & CEO at Adient]

The Adient operating model is enabling the company to maintain its earnings and free cash flow guidance, which Mark will get to in a minute, despite incremental FX headwinds and softer customer production volumes in China and EMEA. The Americas continues to expand margins. The Asia region continues to have strong margins and free cash flow and continues to win new business with local China OEMs, while EMEA continues to execute on its multiyear restructuring plan. And finally, management is committed to generating cash and creating value for Adient's stakeholders. Now I'd like to turn it over to Mark to take you through our financials and outlook.

[Mark Oswald, Executive VP & CFO at Adient]

Thanks, Jerome. Let's jump in with financials on Slide 11. Adhering to our typical format, the page shows 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 exclude special items that we view as either one time in nature or otherwise skew important trends in underlying performance. Details of all adjustments for the quarter are in the appendix of the presentation.

[Mark Oswald, Executive VP & CFO at Adient]

High level for the quarter, adjusted EBITDA was $196,000,000 down 9% year on year. Our decremental performance on $165,000,000 decrease in revenue from a year ago was about 12%, which reflects our resilience and ability to drive business performance to mitigate external pressures. Worth noting that our underlying equity income remains quite strong despite this quarter's results being impacted by a one time $12,000,000 retroactive change to our Kuiper JV agreement, adding reported adjusted net income of $23,000,000 or $0.27 per share. I'll cover the next slides rather quickly since details of the results are included on the slides. This should ensure we have adequate time for Q and A.

[Mark Oswald, Executive VP & CFO at Adient]

Starting with revenue on Slide 12, we reported consolidated sales of approximately $3,500,000,000 a decrease of $165,000,000 compared with Q1 fiscal year 'twenty four. The primary driver of the year on year decrease was lower volumes and pricing of $160,000,000 resulting from lower customer production. FX was a slight headwind, call it $5,000,000 in the quarter. Focusing on the right hand side of the slide, Adient's consolidated sales were lower in Americas and EMEA, while sales in Asia were flat year on year. In the Americas, lower sales, mostly in line with the market, were driven by lower volumes from inventory destocking actions at certain U.

[Mark Oswald, Executive VP & CFO at Adient]

S.-based customers, particularly in the key full size truck programs. In Europe, we were negatively impacted by overall weaker market demand, sales were in line with the market. And in our APAC region, sales in China underperformed the industry production, primarily due to key customers' platforms not benefiting from scrappage or trade in incentives aimed at the low entry level products, growth in exports where we have little to no content and resulting production declines from our traditional European luxury and Japanese OEM customers. Asia outside of China was 1600 basis points better than the overall market due to growth with customers mainly in Japan and Korea resulting from new program launches ramping up. Regarding Adient's unconsolidated Seating revenue, year on year results were slightly down, call it 2% adjusted for FX.

[Mark Oswald, Executive VP & CFO at Adient]

Results were affected by lower production volumes in the Americas and Asia regions. Moving to Slide 13, we provided a bridge of adjusted EBITDA to show the performance of our segments between the periods. Adjusted EBITDA, as mentioned, was down 9% at $196,000,000 The primary drivers of the year on year comparison are detailed on the page. The Eddy and team drove improved business performance of $28,000,000 primarily resulting from better net material margin and reduced operating costs, including lower launch costs. The improved business performance partially offset volume and mix, which was a $39,000,000 headwind, driven by lower customer vehicle production in EMEA and unfavorable product mix in Asia.

[Mark Oswald, Executive VP & CFO at Adient]

We incurred a net commodity headwind of about $8,000,000 in Q1, primarily resulting from the timing of recoveries. As in past quarters, we've provided our detailed segment performance slides in the appendix of the presentation. High level for the Americas, improved business performance of $8,000,000 in Q1 was primarily driven by favorable freight costs and lower launch costs. The volume and mix swung to a tailwind this quarter of $5,000,000 benefiting from stronger production of high content profitable programs such as the GM Traverse, Acadia and Enclave during the quarter despite destocking activity at large pickup trucks. Commodities were a $9,000,000 headwind driven by the timing of contractual pass throughs.

[Mark Oswald, Executive VP & CFO at Adient]

In EMEA, year over year results were influenced by weak volume and mix, which negatively impacted the quarter by $26,000,000 from lower customer production. Business performance, which was a positive $2,000,000 in Q1, was driven by better net material margin and operating performance, including restructuring actions. As we have previously articulated, we are taking steps to adjust our costs in Europe. We continue to assess additional efficiency actions in the region. We continue to expect cash restructuring costs in the neighborhood of $100,000,000 in fiscal year 2025, primarily related to European restructuring charges taken in fiscal year 2024.

[Mark Oswald, Executive VP & CFO at Adient]

In the quarter, we incurred $35,000,000 of cash restructuring. In EMEA, as previously mentioned, we are focused on driving additional operating efficiencies, restructuring and executing on our plan, which includes the roll off of lower performing metals business and the start of production of better margin new business, which we believe will inflect positively in 2026. Moving on to Asia, we generated positive business performance of $14,000,000 from improved net material margin and lower launch costs. Volume and mix negatively impacted the quarter by $18,000,000 In summary, the company continues to drive improved business performance across all regions, which we expect to continue throughout 2025. Let me now shift to our cash, liquidity and capital structure on Slides 1415.

[Mark Oswald, Executive VP & CFO at Adient]

Starting with cash on Slide 14. For the quarter, free cash flow defined as operating cash flow less CapEx was $45,000,000 Key drivers of the year on year comparison included the benefits associated with typical month to month working capital movements and timing associated with capitalized engineering recoveries. These benefits were partially offset by increased cash restructuring and lower earnings. We continue to expect solid free cash conversion in fiscal 2025. One last point and is called out on the slide.

[Mark Oswald, Executive VP & CFO at Adient]

Eddyne continues to utilize various factoring programs as a low cost source of liquidity. At December 31, 2024, we had $172,000,000 of factored receivables versus $170,000,000 at fiscal year end 2024. Flipping to slide 15. As noted on the right hand side of the slide, the company returned $25,000,000 to shareholders in Q1 through share repurchases. Adient is committed to being good stewards of capital, while maintaining a strong balance sheet, ensuring efficient allocation of resources and ample liquidity.

[Mark Oswald, Executive VP & CFO at Adient]

Turning to our balance sheet. Adient's debt and net debt position totaled about $2,400,000,000 $1,500,000,000 dollars respectively at December 31, 2024. The company's net leverage at December 31 was 1.8 times within the targeted range of 1.5 to 2 times. Total liquidity for the company was approximately $1,700,000,000 at December 31, comprised of $860,000,000 of cash and $875,000,000 of undrawn capacity under Adient's revolving line of credit. Moving to Slide 16, let's review our current expectations around our fiscal 2025 outlook.

[Mark Oswald, Executive VP & CFO at Adient]

For the full year, we now expect sales to be approximately $13,900,000,000 down from our previous expectations. The largest driver of this revision is FX translation owing to a stronger U. S. Dollar. This is about $200,000,000 incremental headwind on the top line and roughly $15,000,000 impact to EBITDA and free cash flow.

[Mark Oswald, Executive VP & CFO at Adient]

We also are incorporating lower production levels in Asia and EMEA, approximately $150,000,000 in lower sales. We expect to be able to mitigate these macro headwinds and offset decremental margin and lower volume through strong performance. Consequently, we are holding our guidance expecting adjusted EBITDA to be near the low end of our guidance range of approximately $850,000,000 We do anticipate our free cash flow to be closer to $180,000,000 as a result of translational FX impacts. We remain laser focused on cash generation, including driving additional efficiencies in capital spending and working capital. With regard to tax expense for the year, for modeling purposes, you can assume around $115,000,000 of adjusted tax expense for the fiscal year.

[Mark Oswald, Executive VP & CFO at Adient]

One last point with regard to our outlook. We continue to expect our overall earnings will be weighted towards H2 versus H1. Although we don't provide quarterly guidance, I think it's a good reminder that our 2nd quarter results are seasonally impacted by the China New Year. In addition, certain of our customers have had their production schedules adversely impacted by severe weather across North America entering our 2nd quarter. Based on those factors, it's likely Adient's Q2 results will look a lot like Q1.

[Mark Oswald, Executive VP & CFO at Adient]

To sum it up, we remain focused on managing the business controllables, such as delivering excellent results for our customers, lowering costs and generating strong free cash flow for the owners of our business, while maintaining a strong balance sheet with ample liquidity. With that, let's move to the question and answer portion of the call. Denise, can we please have our first question?

[Operator]

Thank you. Our first question comes from Dan Levy with Barclays. Your line is open.

[Dan Lévy, Senior Equity Research Analyst at Barclays]

Hi, good morning. Thank you for taking the questions. First, maybe if we could just start with a bit of a housekeeping question. Perhaps you could just give us a sense of what you were assuming now on the different end markets? I know you trimmed your outlook on China and EMEA.

[Dan Lévy, Senior Equity Research Analyst at Barclays]

Are you in line with the 3rd party data forecasters? And maybe you could just comment a bit more on some of the customer mix dynamics within your guidance?

[Mark Oswald, Executive VP & CFO at Adient]

Yes, Dan, and good morning. Yes, I'd say that the current outlook does reflect latest outlook for production based on S and P. Obviously, we do tweak it here and there based on what we know from the customers. But yes, all in all, I'd say it's generally in line. When I think about mix and we mentioned mix over in China, for example, certain of the EVs that are coming to market tend to be at a lower margin versus the outgoing product.

[Mark Oswald, Executive VP & CFO at Adient]

And so that's the negative mix that you're seeing over in that region.

[Jerome Dorlack, President & CEO at Adient]

Yes. The only just maybe to build on what Mark said, given the nature of our business and the proximity to our customers, just in time aspect of it, we do run on, call it, EDIs or customer releases for the nearest quarter. So we do build what would be kind of our quarter we're in right now where our Q2 is basically EDI based and then Q3 and Q4 would be S and P based from that standpoint.

[Dan Lévy, Senior Equity Research Analyst at Barclays]

Got it. Thank you. As a follow-up, if we could maybe double click on the business performance. And I know in the past you've sort of laid out a few different line items. So maybe just in the Q1, what was driving that?

[Dan Lévy, Senior Equity Research Analyst at Barclays]

And I believe that was a bit more outsized in Asia. How much of this is just continuous improvement versus customer recoveries? And then what levers do you have to accelerate the business performance if some of the macro headwinds remain challenging?

[Mark Oswald, Executive VP & CFO at Adient]

Yes. So I'll start there. So when I think about business performance, Dan, and there's quite a few items within that bucket, right? But what we called out obviously for Q1, launch costs were down in certain other regions. When I look at ops waste, freight costs, right, those are all contributors to positive business performance.

[Mark Oswald, Executive VP & CFO at Adient]

Net material margin, our ability to basically get pricing for the customers, etcetera, right? Those are all things that I would say that are in that bucket that we basically are driving to Ford. And obviously, that offsets certain of the other, what I would say, headwinds that you may get, whether it's labor inflation, etcetera, right? So those are the buckets. When I think about our ability to pull things forward, we're continuously working with the customers.

[Mark Oswald, Executive VP & CFO at Adient]

We're continuously looking to see what type of automation we could add to the plants to make it more efficient. So I'd say we've got the playbook. We'll continue to execute that. I think if you looked at our results in 2024 on the business performance line and again what we're expecting now for 2025, shown good results in terms of what the company is going to be able to do in terms of driving that forward.

[Jerome Dorlack, President & CEO at Adient]

And just to kind of build on what Mark said when you asked about our ability to accelerate, I think 2024 was a very good proof point of that. I mean, as we saw the some of the macro headwinds really building, especially in the back half of the year, we saw in the Americas, in particular, a lot of the inventory destocking taking place. We saw a lot of the large pickup truck segments that we were on starting to face a lot of headwinds. I mean, you really saw us ramp up business performance. You saw us taking what would be a normal decremental for the company at the 17% to 18% range.

[Jerome Dorlack, President & CEO at Adient]

And we were really able to hold that throughout the back half of the year closer to kind of that 11% to 12% and that's really through incremental business performance. And I mean that's what we're able to do through additional whether it'd be customer recoveries, whether it's through additional operational belt tightening. We drove a lot of, I'd call it automation opportunities in the back half of last year taking out both direct and indirect labor through operations. That's actually starting to pay benefits now in fiscal year 2025 being able to hold some of those decrementals. So I mean it is a resilient business model, the adding operating model we like to call it and that's what's allowing us to manage through some of these short term macros that we see.

[Dan Lévy, Senior Equity Research Analyst at Barclays]

Great. Thank you.

[Jerome Dorlack, President & CEO at Adient]

Thanks, Sam.

[Operator]

Thank you. The next question comes from James Picariello from BNP. Your line is open.

[Jake Scholl, Equity Research Associate at BNP Paribas]

Hey guys, this is Jake on for James. So just first, can you help us think about potential impact of any North America tariffs on your business, especially on some of your initiatives to move more of the value add portion of the manufacturing component to Mexico? Thank you.

[Jerome Dorlack, President & CEO at Adient]

Yes. So what we would say is, I mean, we have not unlike our competitors in the space or other Tier 1s, whether you go across the safety space and the electronic space, anyone in automotive, a significant Mexico footprint, certainly with our cut and sew operations, we've talked about that in the past. Certainly, some of our metal operations that we have localized down into Mexico as a result of the China tariffs. We moved that into Mexico. We now ship some of that north of the border.

[Jerome Dorlack, President & CEO at Adient]

So it's not an insignificant amount of business that then transits its way into the U. S. I think what's important is we have action plans established by each one of our customers. We have now begun engaging in meaningful dialogue with those customers. The customers have a level of understanding of what the impact is.

[Jerome Dorlack, President & CEO at Adient]

We've made it clear to them that this is not at a 25% level or even at a 10% level, a burden that Adient is prepared to take on to our P and L on an ongoing basis. And there will be a need for recovery that has to then be passed through the value chain. There's defined timetables for us to move through these processes with them and we'll manage through this depending on what the administration enacts come February 1. And so we're working through that in a very timely and I'd say almost hourly basis in some cases.

[Jake Scholl, Equity Research Associate at BNP Paribas]

Thank you. And then I think we're all impressed with the 7% base decrementals on the lower volume in Asia and Europe. But how should we think about incremental and decrementals for further shifts in production this year? Thank you.

[Mark Oswald, Executive VP & CFO at Adient]

Yes. I'd say that the typical incremental margins for us are decremental is call it 17%, 18%. As we showed in the Q1, we are able to minimize that and get that down quite low, call it 12% or so. If we have a line of sight in terms of when that production is coming out, it affords us and allows us to basically make some changes from the operating patterns, which allows us to basically take those costs out and to contain those. It's really when you get the sudden shifts in production or the short notices of production coming out that hampers our ability to basically minimize those.

[Mark Oswald, Executive VP & CFO at Adient]

So as we go through the rest of this year, we'll continue to work hard to keep those decrementals lower. I think our guidance is predicated on the fact that we will be successful in doing that. So we'll continue to run the playbook that we demonstrated in 2024 as well as in Q1.

[Jerome Dorlack, President & CEO at Adient]

Thanks, Jake.

[Operator]

Thanks, guys.

[Jake Scholl, Equity Research Associate at BNP Paribas]

Thanks, guys.

[Operator]

Thank you. The next question comes from Colin Langan with Wells Fargo. Your line is open.

[Kosta Tasoulis, Equity Research Analyst at Wells Fargo Securities]

Hey, guys. This is Kosta Tassoulis filling in for Colin. I just wanted to build off the tariff playbook again. Would you be able to maybe describe how your tariff playbook is better today relative to how you guys handled it in 2017?

[Jerome Dorlack, President & CEO at Adient]

In order to let's question of if it's better or worse, I think if you look at 2017, I think we were very effective in 2017. I mean, we entered 2017 with, call it, somewhere between $40,000,000 to $60,000,000 of gross exposure and we sit now today with something of a net exposure in single digits. So I think we are very, very effective in what we're able to do from the 232 and 301 tariffs. If you look at the magnitude of where these tariffs sit at a 25% or even a 10% range, it's a question of speed and it took us when those came in somewhere in kind of a 12 to 16 month range to work through that. Obviously given the magnitude of these, we would need to work through this in a much more expeditious manner.

[Jerome Dorlack, President & CEO at Adient]

So I

[Jerome Dorlack, President & CEO at Adient]

think the difference between 2017 and now is the time and the speed at which we would need to work through in terms of a efficacy of a solution. And so what 2017 did is it prepared us in terms of playbooks. I think it also prepared the industry and our customers in terms of how not only Adient, but also the entire supply base and the value chain would be approaching and working through these types of solutions.

[Kosta Tasoulis, Equity Research Analyst at Wells Fargo Securities]

Thank you. And my second question is, I think your initial growth over the market guidance in China was 6%. How is that shaping up in today's updated guidance?

[Mark Oswald, Executive VP & CFO at Adient]

Yes. So today's guidance, as we indicated, we would expect our sales to be flat to down versus last year, right? If you look at where the overall market is trending in China, as Gerald mentioned on his portion of his prepared remarks, the market is up, but it's really attributed to the growth in BYD and exports, right? If you strip those out, obviously, the market would be down. So again, I'd say that this year slightly worse versus earlier expectations heading into 2025.

[Mark Oswald, Executive VP & CFO at Adient]

But as Jerome also pointed out on the call, we did win $1,000,000,000 of new business last year that comes on board in 'twenty six and 'twenty seven, which then helps us drive growth in that region again as we get into 'twenty six and 'twenty seven.

[Kosta Tasoulis, Equity Research Analyst at Wells Fargo Securities]

Great. Thanks for taking my questions.

[Mark Oswald, Executive VP & CFO at Adient]

Thank you.

[Operator]

Thank

[Operator]

you.

[Operator]

I am currently showing no further questions.

[Mike Heifler, Vice President of Investor Relations at Adient]

Hey, I want to thank everyone for your interest in Avient today and we will be available for the rest of the day for follow-up questions. Feel free to reach out to me, Mike Heifler, Investor Relations at Avian. Thank you.

[Operator]

That does conclude today's conference. We appreciate your

Participants

Executives

• Mike Heifler, Vice President of Investor Relations
• Jerome Dorlack, President & CEO
• Mark Oswald, Executive VP & CFO

Analysts

• Dan Lévy, Senior Equity Research Analyst at Barclays
• Jake Scholl, Equity Research Associate at BNP Paribas
• Kosta Tasoulis, Equity Research Analyst at Wells Fargo Securities