Q3 2024 Adient PLC Earnings Call

Operator: I would like to inform all parties that today's call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the conference over to Mark Heifler. Thank you. You may begin.

Paul I would like to inform all parties that today's call is being recorded if you do have any objections. You may disconnect. At this time I would now like to turn the conference over to Mark Heisler. Thank you you may begin.

Michael Heifler: Thank you, Sue. Good morning, everyone, and thank you for joining us. The press release and presentation slides for our call today have been posted to the investor section of our website at www.adient.com. This morning, I'm joined by Jerome Dorlack, 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, followed by Mark, who will review our Q3 financial results and outlook for the remainder of fiscal 2024.

Mark Heisler: Thank you Sue 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 <unk> Dot com.

Speaker Change: This morning, I'm joined by Jerome door lock audience, President and Chief Executive Officer, and Mark Oswald, Our executive Vice President and Chief Financial Officer.

Speaker Change: On today's call Jerome will provide an update on the business followed by Mark who will review, our Q3 financial results and outlook for the remainder of fiscal 2024.

Speaker Change: After our prepared remarks, we will open the call to your questions.

Michael Heifler: 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 uncertainty. I would caution you that our actual results could differ materially from these forward-looking statements made on the call.

Speaker Change: Before I turn the call over to Jerome and Mark there are a few items I'd like to cover.

Speaker Change: 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 I would caution you that our actual results could differ materially from these forward looking statements made on the call.

Michael Heifler: Please refer to slide two of the presentation for our complete Safe Harbor statement. In addition to the financial results presented on a gap basis, we will be discussing non-gap 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.

Speaker Change: Please refer to slide two of the presentation for our complete Safe Harbor statement.

Jerome Dorlack: Thanks Mike. Good morning everyone.

Jerome Dorlack: Thank you for joining us to review our third-quarter results. We'll also discuss the drivers for our revised outlook and reiterate our long-term commitment to creating sustainable value for our shareholders. Turning to slide four, which summarizes the third quarter.

Jerome Dorlack: Adient Q3 results were significantly impacted by the EMEA region, which experienced lower volume, mix, and weaker commercial recovery. Americas and Asia performed generally in line with internal expectations. Our specific customer and platform sales have been affected much more than headline industry volume figures. For example, in the Americas, our top programs representing 60% of our volumes are down 8% this fiscal year, while S&P production estimates for the same period are up 3%. In EMEA, we're down 3% year over year versus S&P being down 1% year over year.

Jerome Dorlack: We believe much of this underperformance is timing related to launches and specific customer inventory management. As Mark will note later in our presentation, we are starting to see signs of progress on certain launches. The Adient team continues to quickly adapt to changing market conditions and declining vehicle volumes that we've seen across the industry. By diligently focusing on the factors that are within Adient's control, the team has continued to execute operationally, driving consolidated business performance.

Jerome Dorlack: Before turning to Adient's key financial metrics for the quarter, which are shown on the right-hand side of the slide, I want to remind you that prior year's results benefited from recognizing a one-time insurance recovery of approximately $20 million. U.S. revenue for the quarter totaled $3.7 billion, down about 8% compared to last year's third quarter. Adjusted EBITDA for the quarter totaled $202 million, down approximately 20% when adjusting for the insurance recovery.

Jerome Dorlack: We have a high cash conversion business model that played out this quarter generating free cash flow of $88 million. We end the quarter with a strong balance sheet with ample liquidity that gives us flexibility to manage through a dynamic industry landscape and take advantage of opportunities to create value. In this regard, we remain committed to executing a balanced capital allocation plan, and during the quarter, we'll return $75 million to shareholders through share repurchases. This will bring the total year-to-date share repurchases to $225 million.

Speaker Change: We remain committed to executing a balanced capital allocation plan and during the quarter, we returned $75 million to shareholders through share repurchases.

Speaker Change: This brought the total year to date share repurchases to $225 million.

Jerome Dorlack: We have repurchased nearly 8% of our outstanding shares since the beginning of the year. As I mentioned before, the industry is continuing to experience near-term volume headwinds, and given the reduced Customer Production Environment, we are refining our guidance for the remainder of the fiscal year. Let's walk through some of the dynamics influencing this decision and how each region is navigating the challenging near-term macro conditions and the strategic focus in the long term. Turning to slide five.

Speaker Change: We have repurchased nearly 8% of our outstanding shares since the beginning of the year.

Speaker Change: As I mentioned before the industry is continuing to experience near term volume headwinds.

Speaker Change: Given the reduced.

Speaker Change: Customer production environment, we are refining our guidance for the remainder of this fiscal year.

Speaker Change: Let's walk through some of the dynamics influencing this decision and how each region is navigating the challenging near term macro conditions and.

Speaker Change: And the strategic focus and the long term.

Speaker Change: Turning to slide five.

Jerome Dorlack: In the APAC region, we have seen top-line sales performance in line with the market. This region continues to be the growth engine of the company, particularly in China, where we continue to perform above the market. Business performance there continues to be strong, and as this region's share of the portfolio grows, especially in China, this will provide a natural tailwind of mix for Adient overall. In the Americas, we expect volumes to eventually recover as customers clear excess inventories and make progress on their new product launches. The region continues to be laser-focused on flawless execution with a long-term focus on margin expansion. The region also continues to reduce its third-party metals business, which is underperforming our expectations for return.

Speaker Change: In the APAC region, we have seen topline sales performance in line with the market.

Speaker Change: This region continues to be the growth engine of the company, particularly in China, where we continue to perform above market.

Speaker Change: Business performance, there continues to be strong and as this region share of portfolio grows, especially in China. This will provide a natural tailwind of mix for AD and overall.

Speaker Change: In the Americas, we expect volumes to eventually recover as customers clear excess inventories and make progress on their new product launches.

Jerome Dorlack: In Europe, we are proceeding with increased caution due to declining volume, insourcing, and weakening customer programs. This quarter, we continue to experience headwinds from customer-driven inefficiency. Last quarter, we announced a first step in our European restructuring. We are planning additional steps to address the ongoing headwinds in the region to manage cost and capacity. We will have more to share when we provide our fiscal year 25 outlook in November.

Jerome Dorlack: Overall, we remain confident in maintaining our strong business performance and are focusing on the aspects within our control to enhance our results. Turning to slide six, we are prioritizing winning the right business and executing successful launches. Our business awards this quarter demonstrate further market share growth in China and enhancements to our global customer relationship. I would like to point out the win with GAC, which resulted in part from our innovative capabilities to drive an outstanding customer experience while also maintaining a competitive business. As you can see on the chart, these winds are vertically integrated to include complete seat systems that include jibs, trim, foam, and metals.

Jerome Dorlack: This is a key enabler to improving margins. We have highlighted a few launches where we have demonstrated strong launch execution, and we continue to deliver on safety, quality, and on-time delivery metrics. One example of this is the Nissan Armada. Adient has fully engineered the full-size three-row SUV with both a seven and eight passenger capacity. On this program, we have the JIT Foam Trim 2nd and 3rd row metal

Jerome Dorlack: Another successful launch was BYD's first EV program in Thailand, the Dolphin. And America's two Toyota launches have been key to our continued success in the region with our Japanese customers, a key differentiator for Adient. Ultimately, we believe our focus on vertical integration and operational excellence will drive meaningful margin improvement. Including on slide 7, the team is not satisfied with the current results and the status quo.

Jerome Dorlack: We continue to leverage our core principles, including operational excellence, customer portfolio management, and accelerating automation, to improve business performance. Diving a bit deeper into these, let's start with operational excellence. As mentioned on the prior slide, excellence in launch execution underpins our business. The team is focused on operational excellence, streamlining processes, reducing waste, and optimizing resource allocation. Coupled with disciplined capital expenditures, including asset reuse. Our cost-saving modular assembly process is in production, and more are planned for launch in the upcoming year.

Jerome Dorlack: In addition, there is an increased focus on expanding automation. However, automation is not new to Adient. We continue to deploy industry-leading tools and now are expanding artificial intelligence tools with a focus on our metals plants, where we have the highest amount of non-value-added indirect labor that we see is right for picking. Automation continues to transform operations by reducing labor costs, improving accuracy, and achieving repeatable and reproducible results to transform operations for the future.

Jerome Dorlack: Innovation is also crucial. Not only does it increase seating content but also increases and enhances customer satisfaction. With respect to that, Adient recently set up a JV with a local comfort system supplier to industrialize and innovate a Mechanical Massage System. This is the first ever innovative product in the market that Adient China and Jinbo have jointly developed. These innovative efforts are collaboratively distributed across all regions.

Speaker Change: But also increases and enhances customer satisfaction.

Speaker Change: With respect to that and even recently set up a JV with a local comfort system supplier.

Speaker Change: To industrialize and innovate and we get a mechanical massage system. This is the first ever innovative product.

Jimbo: In the markets that add in China, and Jimbo has jointly developed.

Speaker Change: These innovative efforts are collaboratively distributed across all regions.

Speaker Change: Shifting to our portfolio, where we are focused on growth in APAC, specifically, China, where we have seen the strongest margins and increasing content opportunity.

Jerome Dorlack: Moving to our portfolio, where we are focused on growth and APAC, specifically China, where we have seen the strongest margins and increasing content opportunities. The strong portfolio that we have built in the region contributes to our expectation of substantial growth and positive mix. In the Americas region, we view the setup as favorable for continued execution and margin expansion. As I mentioned earlier, Adient's relationship with our Japanese and Asian OEMs is a key differentiator and one thing that makes Adient different. We view this as a competitive advantage with these highly vertically integrated OEMs and programs.

Speaker Change: The strong portfolio that we have built in the region contributes to our expectation of substantial growth and positive mix.

Speaker Change: In the Americas region, we view the setup is favorable for continued execution and margin expansion.

Speaker Change: As I mentioned earlier ambience relationship with our Japanese and Asian Oems as a key differentiator and one thing that makes adient adient. We view this as a competitive advantage with these highly vertically integrated Oems and programs we continue.

Jerome Dorlack: We continue to progress our plans to exit low-margin Tier 2 metals contracts as well in the Americas region. As previously mentioned, we are reviewing the strategic plan in Europe and the need for and the need for additional pairing of those operations. And finally, we are committed to being good stewards of capital and executing a balanced capital allocation plan with a focus on return of capital to our shareholders. Similar to prior years, the team is developing next year's plan, which will be finalized in the upcoming months, including assumptions on macro factors, such as production, production, Volumes, FX Rates, etc.

Jerome Dorlack: We will share the details with you when we report our Q4 and full year 2024 results in November. We remain committed to evaluating all options to deliver incremental value to Adient shareholders as part of this planning process. Now, I'd like to turn it over to Mark to take you through our financials and updated guide. Thanks, Jerome.

Mark Oswald: Let's jump into the financials on slide nine. Adhering to our typical format, the page shows our recorded results on the left side and 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 undernight performance. Details of all adjustments for the quarter are in the appendix of the presentation. Important to note, year-over-year results were impacted by a one-time favorable insurance recovery in the prior year of approximately $20 million.

Mark Oswald: High level for the quarter, sales were approximately 3.7 billion, down about 8% compared to our third quarter results last year. Lower customer volume and the negative impact of FX movements between the two periods drove the year-on-year sales decline. The adjusted EBITDA for the quarter was $202 million, down 20% year-over-year when adjusting for the one-time insurance recovery from the prior year, and a reported adjusted net income of $29 million, or 32 cents per share. I'll cover the next few slides rather quickly since details of the results are included on the slide. This should ensure that we have adequate time for Q&A.

Mark Oswald: Starting with revenue on slide 10, we reported consolidated sales of approximately $3.7 billion, a decrease of $339 million compared with Q3 fiscal year 20. The primary driver of the year-on-year decrease was lower volumes and pricing of $285 million. The impact of FX movements between the two periods weighed on the quarter by 54 million. Focusing on the right-hand side of the slide, Adient's consolidated sales were lower in Americas and EMEA, while sales in Asia grew by about 1%, driven by a 6% year-on-year growth in China. In the Americas, lower sales were driven by lower volumes and a weaker program mix.

Mark Oswald: We continue to see a slower than expected launch ramp phase from our customers on certain key plants. In addition to the slow ramp of certain launches, a few of Adient's high-volume programs also experienced downtime as customers managed inventory levels. I will note as we progress out of Q3, we are beginning to see some green shoots as one or two of our higher volume, richer mixed launch programs appear to be moving closer to run rate, likely reaching that level early in our next fiscal year.

Mark Oswald: In Europe, we were negatively impacted by overall weaker market demand, as well as exposure to customers in programs that had lower production. And in our APAC region, China continues to be the company's growth engine, with sales outpacing industry production. In Asia, outside of China, sales were generally in line with industry volume.

Mark Oswald: Regarding Adient's unconsolidated seeding revenue, year-on-year results show an increase of about 8% adjusted for FX. The deconsolidation of a joint venture aided the year-on-year comparison. Moving to slide 11, we provided a bridge of adjusted EBITDA to show the performance of our segments between the periods. Adjusted EBITDA was $202 million in the current quarter versus $276 million reported a year ago. The primary drivers of the year on year comparison are detailed on this page. As mentioned earlier, lower volume and mix had the biggest impact, call it $60 million. Volume headwinds were experienced across each of our regions.

Mark Oswald: Outside of volume and mixed currency movements between the two periods, pressure gears on your comparison by about $15 million, primarily related to the peso, RMB, yen, and Thai baht. Partially offsetting the headwinds just mentioned was positive business performance, call it $25 million when adjusting for the non-recurring insurance recovery in last year's Q3. Key drivers of the year-on-year improvement were improved net material margin, freight cost, engineering, and admin. One last point, the timing and luckiness of commercial recoveries have a significant impact on the EMEA region, as last year's Q3 results included an outsized level of recovery.

Mark Oswald: The team did a good job at managing business performance in a tough market. The improvements in Americas and APAC partially offset the lower volumes and business performance headwinds in EMEA. Similar to past quarters, we provided our detailed segment performance slides in the appendix of the presentation.

Mark Oswald: High Level, or the Americas, improved business performance of $41 million, primarily driven by net material margin performance, improved freight costs, and engineering recovery. As a reminder, Q3 of 23 benefited from a non-recurring insurance recovery of about $4 million in the region. Volume of Mix was a headwind of $34 million impacted by adverse customer mix, slower launches on key platforms, and inventory management with certain companies. In EMEA, the year-on-year results were influenced by business performance, which pressured the quarter by about $55 million.

Mark Oswald: It includes the non-recurrence of Q3-23's insurance settlement, call it $16 million, as well as adverse labor and overhead performance, primarily driven by short notice downtime at certain customers, which created inefficiency. Commercial Margin was a headwind in Q3'23, but it has benefited from an unusually high level of customer recoveries, essentially timing. Volume Mixed Negatively Impacted the Quarter by 16 Million. Before leaving EMEA, I'll mention, given the challenging conditions in the region, our team conducted its normal course assessment of the recoverability of long-lived assets, including goodwill. No formal impairment triggering events were identified.

Speaker Change: In performance, primarily driven by short noticed downtime at certain customers, which created inefficiencies.

Speaker Change: Commercial margin was a headwind in Q3 23.

Speaker Change: As it benefited from an unusually high level of customer recoveries essentially timing.

Speaker Change: Volume and mix negatively impacted the quarter by $16 million before.

Speaker Change: Before leaving EMEA, all mentioned given the challenging conditions in the region. Our team conducted its normal course assessment of Recoverability of long lived assets, including goodwill.

Speaker Change: No formal impairment triggering events were identified that said due to the recent trend in EMEA as a result impairment warning language is being included in our Q3 24 Form 10-Q, which we expect to file later this afternoon.

Mark Oswald: That said, due to the recent trend in EMEA's results, impairment warning language is being included in our Q3-24 Form 10-Q, which we expect to file later this afternoon. Our detailed year-end testing is planned for Q4. As you know, we are taking steps to adjust our costs in Europe. We will continue to assess additional efficiency actions in the region. Moving on in Asia, improved business performance related to higher material margins and improved labor efficiency. However, volume of Mix negatively impacted the quarter by 10 million.

Our detailed year end testing is planned for Q4.

Speaker Change: As you know we are taking steps to adjust our costs in Europe, we will continue to assess additional efficiency actions in the region.

Speaker Change: Moving on in Asia improved business performance related to higher material margin and improved labor efficiencies.

Mark Oswald: FX was a 7 million headwind in the quarter. In addition to the Q3 regional bridges, we also included a year-to-date look to provide a clearer picture of how the regions are performing by smoothing certain of the one-time factors that could influence a particular quarter. In summary, the company continues to drive improved business performance, which is significant given the volume of headwinds the team has had to manage through. This is especially true when looking at Americas and Asia.

Speaker Change: Volume and mix negatively impacted the quarter by $10 million.

Speaker Change: <unk> was a $7 million headwind in the quarter.

Mark Oswald: EMEA, as previously mentioned, is a region that is facing significant macro and structural challenges. Let me now shift to our cash, liquidity, and capital structure on slides 12 and 13. Starting with cash on slide 12, the right side of the slide highlights the year-to-date results. You can see that the longer time frame helps smooth some of the volatility in working capital movements. For the quarter, free cash flow, defined as operating cash plus capex, was $88 million. The primary drivers of the year-on-year results are listed on the right side of the slide.

Mark Oswald: I won't read each one, other than to say that we continue to expect strong pre-cash conversion for the full year. One last point is called out on the slide, adding that it continues to utilize various factoring programs as a low cost source of liquidity. At June 30, 2024, we had $133 million of factory receivables versus $170 million at fiscal year end. Moving to slide 13.

Mark Oswald: As noted on the right-hand side of the slide, the company returned $75 million to shareholders in the quarter, bringing the total year-to-date cash return to shareholders to $225 million. This is approximately 8% of our outstanding shares at the beginning of the year. This move underscores Adient's belief in being good stewards of capital while maintaining a strong balance sheet, ensuring the efficient allocation of resources and flexibility. Turning to our balance sheet, Adient's debt and net debt position total about $2.5 billion and $1.6 billion, respectively, at June 30, 2024.

Mark Oswald: The company's net leverage at June 30th was just under 1.9 times, which is within the targeted range of one and a half to two times. Total liquidity for the company was approximately $1.8 billion at June 30, comprised of $890 million of cash on hand and about $923 million of undrawn capacity under Adient's revolving line of credit.

Mark Oswald: Moving to slide 14, just a few comments related to our outlook for the remainder of fiscal 2024. As Jerome mentioned, we are updating Adient's fiscal year 20 board guidance to reflect current market conditions. On the top line, we have updated our sales guidance to approximately $14.6 billion. Results and outlook reflect revised production forecasts, and to a lesser degree, the temporary softness of Adient's customer mix, driven in large part by customer launch curves and inventory management.

Mark Oswald: Our adjusted EBIT Outlook is updated to reflect the volume impact of the lower top line and is forecasted now at $870 million. For the remainder of the year, our current guide assumes business performance will trend higher, mitigating the expected volume and mix headwinds. Net business performance is primarily driven by net material margin performance and improved freight costs. Equity income is expected at $80 million, and interest expense is still expected at $185 million, no change from our prior guidance on these two items.

Mark Oswald: Cash taxes have decreased to about $100 million. For modeling purposes, tax expense is estimated at $110 million, reflecting our revised earnings expectations for the fiscal year. CapEx, largely based on customer launch schedules, is forecast at $285 million. This is a reduction from prior guidance as we are matching spending with our customer program volumes and timing, as well as the efficiencies that we're driving into the process. And finally, our free cash flow is expected to be $250 million, no change from prior guidance.

Mark Oswald: And we still expect some modest working capital improvements to offset the lower EBITDA impact on cash. To sum it up, we are focused on managing the business controllables, such as delivering excellent results for our customers, lowering costs, obtaining fair commercial recoveries, and generating strong free cash flow for the owners of our business, while maintaining flexibility with a strong balance sheet. With that said, let's move to the question and answer portion of the call.

Operator: Thank you. At this time, if you would like to ask a question, please ensure that your phone is unmuted. Press star 1 and record your name clearly when prompted. If you need to withdraw your request, you may press star 2. Again, that is star 1 to ask a question. Our first question comes from Colin Langan with Wells Fargo. You may go ahead.

Colin Langan: Oh, great. Thanks for taking my questions. Maybe just to kick it off, I mean, if I look at the implied Q4, it implies a bit of a step up from year to date. So is that correct? And what would be driving the stronger Q4 results?

Mark Oswald: Yeah, thanks for the question, Colin. You're absolutely right.

Mark Oswald: If I move from Q3 to Q4, clearly, there's gonna be the volume decline that we're looking at there, if you just look at what the revenue implied guidance is there. But it's offset really by the business performance. So when I look at business performance, right, we're gonna see some better operational waste, tooling is better, and then obviously, our continuous improvement initiatives will help the quarter. Net material margin is also gonna be positive, right? So if I look at just the timing of commercial recoveries, et cetera, then there's a little bit of net commodity. So, to a large extent, yes, outsize business performance versus the volume headwinds that we're seeing.

Jerome Dorlack: Got it. And then sounds like you're still sort of working on the 2025 plan, but maybe any update on, I think it was about this time last year, you talked about getting to the 8% long-term target, and I think 100 basis points for volume, 100 from recovery, and 100 from performance. Any color on where that stands and any color on FX. Hedwin, The Shared Thoughts.

Speaker Change: 2025 plan, but you know maybe any update on I think it was about this time last year, you talked about getting to the 8% long term target and I think 100 basis points or for a volume of hundred from recoveries.

Speaker Change: 100 from performance any color on where that stands and any color maybe on FX I think the peso was a headwind this year does that help into next year.

Jerome Dorlack: Yeah, so I'll start and then I'll turn it over to Mark to maybe give some additional color. You know, when we think about kind of the long-term margin trajectory for the company getting to that seven and a half, 8% level, Alan. I would break it into the three regions now really and how each of the three regions has performed against expectations and where those are coming from.

Speaker Change: Yes.

Speaker Change: I'll start and then ill turn it over to Mark to maybe give some additional color.

Mark Heisler: When we think about because of the long term margin trajectory.

Mark Heisler: For the company getting to that.

Ellen: 758% level Ellen.

Mark Heisler: I would break it into the three regions now really and how each of the three regions has perf.

Mark Heisler: Performed against expectations, and where those where those are coming from.

Jerome Dorlack: You know, where we stand today, we've got what we think is, really, now kind of 200 basis points left to go after. And if you then go kind of region by region, the Americas is really on track to get there.

Mark Heisler: You know, where we stand today, we've got what we think is.

Mark Heisler: Really now kind of 200 basis points left to go after.

Speaker Change: And if you then go kind of region by region. The Americas is really on track to get there.

Jerome Dorlack: They still have some metals portfolio business left to wind down in their, They're in their portfolio, I guess, you know, they have things to wind out with certain customers that are taking a bit longer because ICE programs have been delayed. Really, even as recent as the last week meeting with certain customers, we now see a light at the end of the tunnel when those start to wind down in the late, 26, early 27 time period. And then it just comes down to getting those loss-making programs out.

Speaker Change: They have still some metals portfolio of business left to wind down in there.

Mark Heisler: They're in their portfolio I guess, you know they have things to wind out with certain customers that are taking a bit longer because ice programs have been delayed.

Jerome Dorlack: And the macro costs have really been recovered now. So it's largely a wind out of the portfolio in the Americas. And we expect to see, you know, they've gotten 100 basis points better this year.

Jerome Dorlack: And we're not here to give a 25 guide, but I would expect similar progress out of them next year as we move forward. If you then move to Asia or the Asia Pacific region, you know, for them, it's really about just holding serve and expanding revenue. And as they expand revenue there, it's a natural tailwind for Adient. And just as they become a larger part of our portfolio, we just get a natural mixed tailwind.

Jerome Dorlack: Then what's left for us to claw back really now, and you've seen it in this call in particular, is our European region. So the European region is now going to be a drag year on year for us, and as we move forward into 25, you know, we expect to see, I wouldn't expect any significant recovery. And then really, as we get into 26, when we see business rolling out of that portfolio, with customers that we're going to need to pair out of the portfolio, who are either non-critical to us, or we're non-critical to them, there'll be, I think, additional restructuring actions that we're going to have to take there to address. What is a smaller region for us?

Jerome Dorlack: We have to get our SG&A in line. You saw the first step of that announced last quarter on the earnings call. There'll be additional actions that we have to take. And then, in addition to that, there are going to be metals.

Jerome Dorlack: Projects, just like in the Americas, that have to roll out of the portfolio. And so I think it's a long way of getting there, there's 100 basis points left to get in the Americas and 100 basis points left to get in Europe. And we still expect to see that come through in a run rate when we get to 27. It's just a different path now than what we would have expected when we started talking about the 300 basis points. 200 left to get, 100 to the Americas, and 100 in Europe. Europe's gonna come through restructuring, and it's gonna come through customer management, really.

Jerome Dorlack: And then, with respect to your question on the HESO. We'll have more to say on that when we get to our 25th guide, but I would caution you.

Jerome Dorlack: I wouldn't start thinking about significant peso upside just because we have, and we talked about this when we talked about the 24 guide. I mean, we have a layered hedge policy where we're layering on hedges throughout the year, and so we would have layered on 25 hedges during 24 when the peso would have been at, you know, 16.5 and 17. And so you shouldn't be thinking because the peso today is trading at 19.5, that we're going to have massive upside going into 25.

Jerome Dorlack: I mean, you won't see the effect of a 19.5 peso if it stays at this level until we get into 26, really. So, just a reminder. Don't start thinking about massive upside at a 19 and a half peso from here.

Colin Langan: Got it, that makes sense. Thanks for taking my questions.

Operator: Thank you. Our next question is from Dan Levy with Barclays. Please go ahead.

Trevor Young: Hi Trevor Young on for Dan today. I just had a couple of questions here, but first I was going to ask on You highlighted the focus on asset reuse as a lever to drive the $25 million cut to your CapEx plans this year. I just wanted to see if you could unpack this a little bit more and give a sense as to how this could be used as a lever going forward.

Mark Oswald: So thank you very much for the question. I think if you look at it historically and then talk a little bit about the going forward piece of it. You know, historically, when we were heavily investing, in particular in our metals business, I mean, we were spending capital in the, you know, $500 million plus range. And it was because we were, you know, really going out; we weren't leveraging our capital assets globally. We were really looking at metals in a silo fashion and reinvesting in new recliner mechanisms, new track mechanisms, new product families. And we had a very heavy capital bill.

Mark Oswald: As we've moved forward now as a company, we've started to leverage our asset base globally. We've really looked at, as an example, press capacity globally. We started now with Europe, which has obviously gone from a call it a 20 million vehicle bill to, pull it, 16 and a half million. And you just don't need that type of press capacity in that region.

Mark Oswald: So we've started picking up presses, moving them from Europe into the North America region. We're picking up recliner lines, moving them globally around the world. Now we're moving track lines around the world now, and so that's when we talk about asset reuse. It's really looking at our asset base globally, particularly in the metals business, and taking that burden and spreading it out across the world. And that's how we drive this capital bill down from $500 million to a more sustainable $300 million level.

Mark Oswald: And really taking this year, looking at, you know, we thought it'd be $315 million. I think we're now down to the $285 million range. That's how we've gotten that $25 million out. Again, just looking at customer program timing, looking at when PPAPs need to be submitted, looking at total asset placement around the world, where can we reuse them, and really driving that to a more sustainable level of $300. We do think that is kind of that long-term run rate for the business. Will there be years where it's at $310, $315, yes, are there going to be years at $285, yes, but it's going to be right around that kind of $300 range for the business.

Speaker Change: And also in the past you've talked.

Speaker Change: <unk> talked about some M&A opportunities I, just wanted to get a sense with the share price where it is.

Speaker Change: If you're giving any additional consideration to buybacks as it is a weight in the opportunity set or the plan, but I guess framework is still the same in terms of priorities.

Trevor Young: the plan, but I guess the framework is still the same in terms of priorities.

Mark Oswald: Yeah, great, great question. And yes, you're correct.

Speaker Change: Yes, great Great question, and yes, you're correct those 3.5% notes come due here in August so the intent is to pay those use cash on the balance sheet to pay those down.

Speaker Change: We said all along that we're going to have a flexible capital allocation plan, we want to make sure that we could obviously invest in the business. We want to obviously return cash to the shareholders. We want to make sure that we have flexibility.

Speaker Change: Inorganic growth opportunity presented itself right.

Mark Oswald: Those three and a half percent notes come due here in August, so the intent is to pay those off using cash on the balance sheet to pay those down. You know, we said all along that we're going to have a flexible capital allocation plan; we want to make sure that we can obviously invest in the business, we want to obviously return cash to the shareholders, we want to make sure that we have flexibility if, you know, an inorganic growth opportunity presented itself, right?

Speaker Change: I think we're striking that balance today I mean, if you look at what we returned so far.

Speaker Change: In terms of buybacks $225 million, you could probably assume that we're going to continue to repurchase as we move through the fourth quarter. Your free cash guide. This year is $2 50, so pretty likely that we're going to exceed that amount of free cash being returned to the shareholders. So again striking that balance so nothing has changed in terms of.

Speaker Change: You know our thought process there.

Speaker Change: Awesome I appreciate it.

Speaker Change: Yeah.

Speaker Change: Thank you. Our next question is from Joe Spak with UBS you May go ahead.

Joe Spak: Hi, Thanks, good morning, everyone.

Mark Oswald: And I think we're striking that balance today. I mean, if you look at what we've returned so far, in terms of buybacks, 225 million, you could probably assume that we're going to continue to repurchase as we move through the fourth quarter. Our free cash guide this year is 250. So you know, pretty likely that we're going to exceed that amount of free cash being returned to the shareholders. So again, striking that balance, so nothing has changed in terms of, you know, our thought process.

Mark Heisler: Mark maybe just.

Mark Oswald: Our thought process is there.

Mark Heisler: To go back to some of the comments about Hum the quarter on the implied fourth quarter guidance. It seems like one of the things, which I believe you mentioned that really hit us.

Trevor Young: Awesome! I appreciate it.

Operator: Thank you. The next question is from Joe Spak with UBS.

Joseph Spak: Thanks. Good morning, everyone.

Speaker Change: It seems like particularly Europe in the quarter was just sort of the the very fast in nature of the of the production cuts and I think if you look at even quarter over quarter Decrementals and in EMEA. They were pretty severe so it doesn't seem like sales get better in EMEA are in the fourth quarter, but is your view just side with better plan.

Mark Oswald: Mark, maybe just, To go back to some of the comments about the quarter and the implied fourth-quarter guidance, it seems like one of the things that you mentioned that really hit, it seems like particularly Europe in the quarter, which is sort of the very fast nature of the production cuts. And I think if you look at even quarter over quarter decrements in EMEA, they were pretty severe. It doesn't seem like sales got better in EMEA in the fourth quarter. But is your view just that with better planning, the decrementals could be a little bit better? Or what else?

Speaker Change: The decrementals can can be a little bit better Uh huh.

Speaker Change: What else are to transact. We so you know as we called out in the third quarter right. There was some short notice customer downtime that drives inefficiencies right. So.

Mark Oswald: Exactly. So, you know, as we called out in the third quarter, right? There was some short notice customer downtime that drives inefficiencies, right? So, you know, there's some better planning there. We also know and have a better line of sight in terms of commercial recoveries, right? Those, we've said all along, can be lumpy between quarters. So, we have a good, what I'd say, line of sight in terms of what recoveries we're going after here in the fourth quarter.

Speaker Change: Some better planning there, we also know and have a better line of sight in terms of certainly the commercial recoveries right. Those as we've said all along it can be lumpy between quarters. So we have a good wood I'd say line of sight in terms of what recoveries, we're going after here in the fourth quarter. I can also look at you know some of my engineering spend et cetera, So yeah, when I as though.

Mark Oswald: I can also look at, you know, some of my engineering spend, et cetera. So, yeah, when I add those together, I see better business performance in EMEA for Q4. And the other thing, Joe, and thank you for the question. In Q3 and EMEA, in particular, we had three customer launches that were taking place simultaneously, and the customers were not executing very well.

Speaker Change: Together I seen better business performance in EMEA for Q4.

Speaker Change: The other thing Joe and thank you for the question and then Q3 in EMEA in particular, we had.

Speaker Change: E customer launches.

Speaker Change: That were taking place.

Speaker Change: Simultaneously in the car.

Speaker Change: Customers were not executing very well.

Speaker Change: And so we had.

Speaker Change: Yes.

Mark Oswald: You know, I would call it schedule reliability on those three launches. That was, I mean, sub 60%, and they were taking place at our You know, one German site and two Czech sites where our ability to manage that short-time workforce was extremely, extremely.

Speaker Change: I would call it schedule reliability out of those three launches that was sub 60%.

Speaker Change: And they were taking place in our.

Speaker Change: One German site and to check sites that just you know.

Speaker Change: Our ability to manage that short time workforce was extremely extremely limited.

Joseph Spak: Okay, maybe just as a follow-up to that, and it seems like what you're implying is, at least quarter to date, maybe customers are sort of hitting their plan schedule a bit better, but if you can confirm that, and is there any way to dimensionalize, you know, the magnitude of the recoveries you're expecting in the fourth quarter?

Speaker Change: Okay.

Speaker Change: And maybe just as a follow up to that then.

Speaker Change: And it seems like what you're implying is at least quarter to date, maybe customers are sort of hitting their plan and schedule a little bit better, but if you could confirm that and is there any way to dimensionalize the magnitude of the recoveries you're expecting in the fourth quarter.

Speaker Change: Yeah, I would say that we are as I indicated you know there are green shoots that we're seeing with the customers launching not only here in the Americas, but also over in Europe. So, yes, we are seeing and feeling more comfortable now in the fourth quarter there.

Mark Oswald: Yeah, I would say that we are, as I indicated, you know, there are green shoots that we're seeing with the customers, not only here in the Americas but also over in Europe. So yes, we are seeing and feeling more comfortable now in the fourth quarter there. Really don't want to dimensionalize, you know, the recoveries other than know that or just say that, you know, we have that line of sight because, again, those vary as we go through the quarter, but you know, feeling confident in terms of what we need to get in terms of progress to date in terms of getting those Okay.

Speaker Change: Really don't want to Dimensionalize the recoveries other than no that would just say that we have that line of sight because again.

Speaker Change: Vary as we go through the quarter, but you know feeling confident in terms of what we need to get in the progress to date in terms of getting those.

Joseph Spak: Okay, if I could just sneak one more in. Can you just remind us about the exiting the third party metal contract, like how much more is there to go? What's the size of that business now that you want to get out of?

Speaker Change: Okay, maybe if I can.

Speaker Change: I'll just sneak one more in can you just remind US you know with the with the exiting the third party metal contract like how much more is there to go but what what's the size of that business now.

Speaker Change: But you want to get out of.

Speaker Change: So I mean.

Mark Oswald: I mean, I mean, the total. I mean, the total metals business, yeah, it's like, call it two and a half billion. I mean, of that third-party metals represents almost 800 million to a billion or so. I mean, we have to wind off or call it balance in balance out contracts of almost 800 million. That's it's not all winding down, because there are some that are replaced with more profitable businesses. You should really think about it of almost 800 million that's either being wound off

Speaker Change: Total.

Speaker Change: When he total metals business, yeah, it's looked at call it $2 5 billion.

Speaker Change: Of that third party metals represents almost $800 million to 1 billion or so I mean, we.

Joseph Spak: Thank you. Our next question is from James Picariello with BNP Paribas. Please go ahead.

James Picariello: Hi, everybody. Just on that $800 million number, in terms of the metals exit, is that a net $800 million? Unknown Speaker in terms of the revenue reduction because you also mentioned that there's business coming in. I'm just wondering in terms of the net exit.

Mark Oswald: Yeah, I'd say, that net exit, we've never given that number before. But I mean, to kind of dimensionally frame it up, it's probably in the call it two to 400 million range, James.

James Picariello: Rolling off. Rolling off. Right, yep. And as you think about Europe and the excess capacity in the region, you're navigating a lower LVP backdrop for years to come, as you might frame it. In addition to restructuring actions, is there anything else strategically wise in terms of, you know, sharing capacity, you know, with, you know, with others in the region, just anything besides restructuring on the Strategic Effort in Europe? Yeah, I mean, what I would say is that we are evaluating all levers available to us.

James Picariello: Create Value for our shareholders, including pairing of operations, sharing of operations, combining of operations, you know, anything that eliminates capacity or makes use of capacity in an economically feasible manner. And that's the process we're going through right now in a very lively and timely manner. I mean, Europe is, to be very clear, the most burning platform that we have as a company, and it's the one that we spend the most time on.

James Picariello: Because, as you can see in the results, I mean, we're not satisfied with it. It needs to be addressed, and it's something that is not going to resolve itself. If you look at both, total vehicle volume production is going to remain depressed. You know, the entrants that are coming into the region are going to take capacity out because of the imports, along with our customer actions with the insourcing that's taking place out there when new plants are being put down, you know, they're doing seeding in-house; those announcements are public from that standpoint that are impacting not only us but also our competitors, which is creating excess seeding capacity in the region. And so anything that can create value is what we're evaluating from that standpoint.

Mark Oswald: Makes a lot of sense. Thanks.

Operator: Thank you. And as a reminder, if you would like to ask a question, please press star one. Our next question is from John Murphy with Bank of America. You may go ahead.

John Murphy: Good morning guys, this is Federico on behalf of John. I just have a question on Asia and so I think you Jerome, you said that China grew 6% in your consolidated sales and... Young Consolidated was 8%, and from what I remember, the unconsolidated sales are like three, four times larger than the consolidated sales. Is there a new reason why the unconsolidated business is growing faster and so much larger? Is it a strategic decision, or is it just how the market behaves?

Mark Oswald: Thank you.

Mark Oswald: Yeah, I would say that if I would

Mark Oswald: Unconsolidated Sales. As I indicated in my prepared remarks, there was a deconsolidation of one of our joint ventures that aided the year-on-year comparison there. I'd also say the customer mix is different, right? So if I look at certain of my unconsolidated sales, right, whether it's my Piper joint venture over there, obviously they're exposed and have the, you know, business with BYD, some of the faster growing Chinese local 95%

unknown: [inaudible]

Operator: Thank you. And at this time, there are no further questions. Again, as a reminder, to ask a question, please press star one. One moment to see if there are any further questions. And there are no further questions at this time.

Speaker Change: One moment to see if there's any further questions.

Speaker Change: And there are no further questions at this time.

Speaker Change: Okay, well. Thank you everyone for joining us this morning.

Unknown Executive: Okay, well, thank you everyone for joining us this morning. Feel free to give us a call if you have any additional questions, and have a good day. Thank you.

Speaker Change: Feel free to give us a call or Jeff any additional questions and have a good day. Thank you.

Speaker Change: Thank you that does conclude today's conference. Thank you all for participating you may disconnect at this time.

Operator: Thank you. That does conclude today's conference. Thank you all for participating. You may disconnect at this time.