Adient Sees Profit Rising Post-Spinoff From Johnson Controls

(Bloomberg) -- Adient, the automotive seat maker being spun off from Johnson Controls, forecast adjusted profit of as much as $900 million on $17 billion in sales in the fiscal year starting Oct. 1, its first as a standalone company.

The company, which will be the world’s biggest producer of vehicle seating, is meeting with analysts today in New York and will start trading under the ticker ADNT when the spinoff is complete Oct. 31. Once separated, the companies will be known as Adient Plc and Johnson Controls International Plc.

Adient expects rising profits in the next few years as it benefits from cost-cutting, a diverse customer base and a base of 17 joint ventures in China, according to a presentation posted today on its website. The company controls about 45 percent of China’s automotive seating market and expects to grow faster there than its competitors.

“Adient has put together a credible plan, although some questions linger,” said Joel Levington, a Bloomberg Intelligence credit analyst. Levington said that China’s slowing economy and aging population may complicate its goals and that the company’s projected free cash flow of $250 million is less than he was expecting.

China Outlook

Adient Chief Executive Officer Bruce McDonald acknowledged in an interview that long-term economic growth in China may drop from its historic double-digit annual rates to 4 percent or 5 percent. But the company still has plenty of opportunities as Chinese consumers switch to sport utility vehicles that often have more seats than sedans, he said. In addition, some China-based suppliers will be getting squeezed out, the CEO said.

Chief Financial Officer Jeff Stafeil said free cash flow will be reduced in the upcoming fiscal year because of costs related to restructuring and to the spinoff, such as a new building for its operations base. After that, he said in the interview, annual free cash flow should return to the $600 million to 700 million that investors had come to expect when Johnson Controls was running the business. Especially during the next few years, most of that money will go to reducing debt, Stafeil said.

Adient will be based in Dublin, according to an August regulatory filing. The company is looking for a location in the Detroit area for its operations base, possibly in the city’s downtown or in suburban Southfield, said David Roznowski, an Adient spokesman.

Reduced spending for selling and administrative expenses will contribute to a 200 basis point improvement in its profit margin. the company said in its statement. Already, 56 percent of the 4,500 engineers employed globally are in low-cost countries.

Adient predicted an effective tax rate of 10 percent to 12 percent because of its Irish domicile. Johnson Controls became an Irish company after merging with Tyco International Plc in a so-called inversion deal announced in January and completed this month.

To contact the reporter on this story: John Lippert in Chicago at jlippert@bloomberg.net. To contact the editors responsible for this story: Kevin Miller at kmiller@bloomberg.net, John Lear