Q4 2025 Adient PLC Earnings Call
Welcome to the Eddie its fourth quarter in full year. 2025 earnings call parties will be in a listen-only mode until the question and answer session of today's call. I'd like to inform all participants that today's call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Linda Conrad. Thank you. You may begin.
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 investor section of our website at audience.com.
This morning, I am joined by Jerome dorlack audience, 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.
Mark will then review our Q4 and full year Financial results as well as our guidance for fiscal year 26.
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, I would caution you that our actual results could differ materially from these 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 gap 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 Gap. Equivalent can be found in the appendix of our full earnings release.
And with that, it is my pleasure to turn the call over to Jerome.
Thanks Linda.
Good morning everyone and thank you for joining us to review our fourth quarter and full year fiscal 25 results.
We will discuss our fiscal 26 Outlook and share additional information and how we are positioning ourselves for long-term success.
turning out to slide 4 which summarizes our fourth quarter and full year results with business execution, remaining strong,
We delivered an adjusted IBA margin of 6.1% and free cash flow of 134 million in the quarter.
It's worth noting that full year free cash flow ended at 204 million.
Capital allocation, which Mark will cover in his section.
This performance comes amidst challenging business conditions not just in the fourth quarter, but throughout the year, including customer volume reductions and dynamic tariff policies.
The adyant management team would like to recognize all of our employees for stepping up and meeting these challenges.
By working together with both our customers through commercial negotiations and remapping value chains.
And our suppliers through Supply Chain management.
We have successfully mitigated, The Lion Share of our terrific exposure this year.
On a full year basis, we generated 881 million of adjusted Ava on 14.5%.
Customer volume reductions. Continue to be offset with strong business performance.
From a cash perspective, we are able to generate an additional 204 million of free cash flow this year.
Net of funding, our European restructuring program.
Given our solid cash generation. We're able to return capital, or Capital, to our shareholders, through 125 million of share BuyBacks, which represented a 7% reduction of our beginning, ear, share count and 18%, since the start of the program,
Mark will provide additional details in his section.
What? We also want to highlight the amendment and extension of our abl revolver.
The team has worked diligently to optimize our debt structure and day-to-day cash needs over the last few years. We have taken the opportunity to better align, our liquidity needs and reduce interest expense.
Moving now to slide 5.
Let's take a moment to emphasize some of our accomplishments this year.
Our operational performance and focus execution. If continued whether it's launching new business,
Managing the uncontrollable such as tariffs.
Or driving continuous Improvement. The adyant team is delivered over a 100 million of business performance this year, excluding the net impact of tariffs.
We have actively pursued and won, onshoring opportunities and will continue to do. So, as customer footprint, strategies evolve,
We have pursued in 1 important conquest and replacement business, including replacement, business on 1, of our largest platforms, the F-150, which we will talk about on the next slide.
We have won 1.2 billion dollars of new business in China, with nearly 70% of those wins with domestic China oems. As we aggressively work to confirm ourselves as the premier seating supplier in China.
We are winning new profitable business in Europe, putting us on track to drive, revenue and margin growth in the region in the out years.
Edion is committed to driving long-term shareholder value.
By investing in Innovation across every facet of our business.
We are strategically in grading integrating artificial intelligence into our operations.
From manufacturing and Engineering to support functions.
To enhance safety efficiency, quality and scalability.
To ensure, we maximize the benefits of these Technologies. We are proactively equipping. Our Workforce with the skills needed to leverage, Ai and adapt to a rapidly evolving digital environment.
These initiatives position adyant to capitalize on emerging opportunities.
Strengthen our competitive advantage.
And deliver sustainable growth for our investors.
Turning now to Page 6.
We continue to prioritize when a new and Conquest business will also successfully launching several new programs.
As previously mentioned, we have secured the replacement of the jit and foam business on the Ford F-150.
In addition we are able to Conquest incremental content and secure the trim business as well. Which we will talk more about on the next slide. In addition to the F-150 and the Americas. We have 1 Conquest, jit foam and trim business with an Asian OEM on a full-size SUV.
And another Conquest win on Metals content on the Mercedes GLE and GLS.
And the Americas and replacement on the S-Class in a map.
In Asia, we continue to grow with leading domestic China oems, including byd.
We have also continued to penetrate new domestic. Oems such as Cherry with our recent complete seat win on their upcoming pickup truck.
We could not continue to win the new businesses. Like those just mentioned.
Without delivering on our customers expectations.
Through successful launches.
These programs continue to showcase our high level of execution and our ability to meet the rigorous.
Safety quality and on-time delivery standards of our customers. Reinforcing our supplier of choice status.
We have just been talking about what we are doing to win new business, but it's not just about our execution excellence and which programs we are winning. It's about how we are driving sustainable value for our customers.
Which is the Cornerstone of our future growth.
Training the slide 7.
When in the F-150 business was not just about winning the jit and foam replacement business.
It was also about working with our customer to drive enhanced craftsmanship through design collaboration.
By collaborating on design to optimize foam, trim and jit Manufacturing.
We have enabled to improve overall quality appearance and the customer experience.
It is this kind of partnership that reinforces the value. We bring to our customers every day and why we remain a supplier of choice.
An innovation front.
If continued to see more demand from our customers on enhanced safety features as consumer seating trends for comfort and autonomy Drive, additional requirements for occupant out of position protection.
Through our joint development agreement with autole as announced earlier this month.
We are providing our customers with enhanced Safety Solutions, built around the principle of multi-dimensional collaborative protection.
Atian zeg guard is a dynamic safety system designed to protect occupants in the event of a collision when in deeply reclined positions.
As electrification and Smart Technologies continue to evolve the passenger experiences.
This will position add in and auto leave at the Forefront of seating and Safety Solutions.
Each of these items just mentioned are meaningful by themselves.
But as the combination of them together with the execution, Excellence, customer collaboration and Investments, and Innovation, that will collectively Drive our future growth.
When we look forward to 2027 adding has line of sight to double-digit growth over Market in China.
Mid single digit growth over Market in North America.
And growth at Market in Europe.
As we turn to slide 8, we would like to highlight our commitment to that growth through a new strategic partnership.
We are pleased to announce that we have secured a partnership in China that builds on Adient's long-standing local business model and strong customer relationships.
This agreement expands our operational footprint, which accelerates and deepens our engagement with China's leading oems to further. Strengthen our competitive position and support sustainable growth in this key Market.
The new unconsolidated JV is targeted to close in q1 fiscal year 26.
Moving the slide 9.
It is clear that audience end to end. Innovation strategy is creating sustainable value for shareholders.
Across every area of our business. We are focused on initiatives that strengthen our competitive position and drive long-term growth.
Here are just a few examples that demonstrate this.
First automation by Design.
We're working closely with our customers on product design, optimizing plant layouts for more efficient Automation, and enabling long-distance Jet and modularity.
We have recently launched our first long-distance jet operation in North America and are looking to expand this with other programs and customers in the region in the future.
This approach reduces cost and improve the efficiency and offers greatest greater flexibility. For our customers in the dynamic North American Market, where an ever-shifting tariff, landscape and geopolitical Landscape.
Requires greater flexibility.
When it comes to process automation.
We have introduced smart Manufacturing Technologies. Such as Aid driven, relaxed ovens in partnership with the University of Michigan.
Which improved quality enhance, Energy, Efficiency, and optimize labor?
We already have 2 programs in production, which more with more actively being quoted across multiple customers.
Through design Innovation, we are launching sculpted trim. And Q2 fiscal year 26, which is the next generation of seat. Trim that delivers complex shapes that were previously unachievable with current cut and so processes.
This product offers greater design flexibility Superior, craftsmanship and continued labor optimization.
Not only that it leaped frogs automated sewing by replacing the sewing process.
With this end-to-end Innovation mindset.
We will be able to capitalize on enhanced in Cabin customer experiences.
Mobility Trends and evolving customer requirements to drive value for all of our stakeholders.
As we move to slide 10.
Let's take a look at the key initiatives that each of our regions will focus on in fiscal year 26.
In the Americas. The key driver will be what happens with production volumes.
Right now, the forecast is based on October's S&P and that shows a decline.
In 2025, we also expected volumes in the region to decline, and they did not.
If that repeats again in North America in 20126, our Outlook would improve significantly.
In the meantime, we will continue to drive business. Performance capture, onshoring opportunities,
and invest in new and Conquest business.
Aura. The key drivers are successful launches.
Business performance and continuing to make progress on our multi-year restructuring plan.
Balance and balance out will begin, but it is being impacted by changes in customer programming timing.
The program and the Productions are being delayed.
Despite that we expect margins to begin improving toward the mid single digits Beyond fiscal year 26.
In Asia, we are driving for growth, especially with local China. Oems
We know that there will be some margin compression as we pursue this business. But expect incremental growth to help offset this and sustain double digit Regional margins and strong cash flow generation.
As we focus on fiscal year 26, when adding it must deliver is clear.
But is also clear that the world will continue to be dynamic with many uncertainties.
pair of policies, the geopolitical landscape an ever-changing Supply chains, just to name a few
with that said, the management team wants to assure you that any will continue to execute on what we can control.
And aggressively mitigate what we cannot control to maximize the results for our shareholders.
Moving now to slide 11.
So, what do we want to leave you with today?
Eddie is clearly adding is clearly focused on Flawless execution.
And planting the seeds for our future growth.
We are investing in Innovation and our people.
We have created a team fully dedicated to automation to expand Innovation across all of our plants globally.
We will continue to leverage our world-class footprint and our laser focused on our strategic objectives and delivering value to all of our stakeholders.
We will deliver on our European restructuring plan, and if needed.
We will pursue additional restructuring as customer requirements evolve.
We will continue to be good stewards of capital and execute our balanced capital allocation strategy.
We are committed to be in a supplier of choice for our customers.
We are driving profitable, new business, including onshoring opportunities, as they arise.
And replacing Legacy contracts that have weighed on our bottom line for too long.
These are the key drivers that make addi and well positioned for future growth.
Cash flow, generation and sustainable shareholder value.
With that. I'd like to hand it over to Mark to take you through our financials and our Outlook.
Thanks, Jerome. Let's jump into the financials.
Adhering to our typical formats, slides 13 and 14 detail reported results on the left side and our adjusted results on the right side.
We will focus our commentary on the adjusted results, which excludes special items which we view as either 1 time in nature, or otherwise, skew. Important Trends in underlying performance.
Details of all adjustments are in the appendix of the presentation.
Sales of 3.7 billion where 4% better than fiscal year, 24 with adjusted ibida of 226 million in adjusted IBA, margin of 6.1%.
Adjusted IBA and adjusted IBA. Margin were both down year-on-year. Primarily due to the timing of commercial settlements in equity, income reflecting, the impact of modifications to our Kyper joint venture agreement.
Which are partially offset by favorable cost and impacts in business performance. For both the Americas and emia
In addition, Equity income was also impacted by a few 1-time non-recurring items within the JVS such as an income tax adjustment and timing of engineering expense and Recovery.
Add a reported adjusted. Net income of 42 million or 52 cents per share.
For the full year is shown on slide. 14 sales came in at approximately, 14.5 billion down 1% year-over-year due to lower, customer volumes and unfavorable mix, which was partially offset by FX Tailwind.
Adjusted IBA landed at $881 million, essentially flat with 2024, despite the increase and decrease in volume.
Other business performance offset the unfavorable volume mix headwinds as well as lower Equity income year on year.
For the year, we report adjusted net income of $161 million, or $1.93 per share, which represents a 5% improvement in adjusted EPS versus the prior year.
I'll go through the next few slides briefly, as details of the results are included on the slides. This should ensure we have sufficient time for Q&A.
Digging deeper into the quarter and beginning with revenue on slide 15. We reported Consolidated sales or approximately 3.7 billion in Q4, which was 126 million increase compared to Q4, fiscal year 24.
Primarily driven by FX Tailwind in favorable volume and pricing in the quarter.
Shifting gears to the right side of this slide, adding some Consolidated sales were favorable to the broader markets in the Americas, while sales in Amia underperformed, due to customer mix and intentional portfolio actions.
Sales in China, trailed the market due to production declines from our traditional premium, OEM customers, while the rest of Asia outperformed due to customer launches in Prior years, is ramping to full production for this year.
An audience unconsolidated Revenue. You're on your results declined, approximately 4%, adjusted for FX.
Results were primarily affected by JV portfolio. Rationalization items in the Americas that were finalized in q1 of fiscal year 25, we saw a growth in both emia and China on Consolidated businesses.
Turning to slide 16. We provided a bridge of adjusted Eva to show the segment performance between periods.
Adjusted Eva was 226 million during the quarter. Down m, 9 million year on year, the primary drivers of the year-on-year performance include. As mentioned earlier, the time of commercial settlements, which tends to be Lumpy from quarter to quarter, and was particularly impacted by certain actions pulled into our third quarter of this year.
A year-over-year decline in equity income mentioned previously, which was partially offset by positive business performance, in the Americas. And to a lesser extent in a meal
FX and net Commodities provided modest Tailwind in the quarter. In overall business performance was favorable year-on-year. Despite a net $4 million tariff impact during the quarter.
Moving to slide 17 in our full year results, audience, adjusted Eda was 881 million essentially flat with the prior year.
EDI drove nearly 100 million dollars in favorable business performance year-on-year, which included 17 million of net, tariff expense
our commitment to operational excellence drove additional efficiencies in lower launch expenses during the year, which offset the 50 million of unfavorable volume and mix headwinds due to lower volumes in Europe and other customer mix, headwinds in Asia,
In addition, net Commodities were a 28 million headwind year-on-year. Primarily resulting from the timing of recoveries.
Despite the challenges presented in fiscal year 2025, the Adient team was able to expand margins by 10 basis points year on year.
As in past quarters, we provided our details segment, performance, slides in the appendix of the presentation.
For the Americas, we expanded margins by 40 basis points for the full year. In Durrell 41 million of incremental. Payroll business performance through lower launch costs, commercial actions and input costs year on year despite a 17 million dollar, net, tariff impact during the year.
volume and mix was a 19 million Tailwind for the year due prior year, slowing ramp launches, reaching full production volumes in 2025,
Next Commodities were a 28 million headwind for the year driven by the timing of contractual pass through.
In the fiscal year 2025, 25 results were influenced by volume mix, which was a $36 million headwind during the year due to lower customer production volume.
Positive business performance of 17 million during the year due to improved net material margin and improved operating performance. Partially offset by 12 million dollars in unfavorable FX due to the transactional exposure to the zlati.
And finally, in Asia business performance was a 34 million Tailwind during the year, due to improved net material margin lower launch costs and improved engineering and administrative expenses which offset the 33 million. Volume mix headwind during the year, due to lower sales in China, in adverse, customer mix in the region.
FX was a $17 million tailwind in Q4 2025 due to the transactional impacts of Asian currencies and the translational effects versus the USD.
To sum up the regional performance, in 2025, the team has done an outstanding job of demonstrating continued resiliency.
Driving positive business performance in the face of macro challenges.
I would just reinforce reinforce what Jerome has already highlighted. The EDI team is doing what it needs to be, done to control what's in our power and to control focusing on operational execution.
Turning to adding cash flow now on slide 18.
For the full year, Fiscal Year 2025, the company generated $204 million of free cash flow, which is defined as operating cash flow less CapEx.
On the right side of the slide, we have highlighted, the key drivers impacting the full year, free cash flow during the year we benefited from certain fiscal year 24 dividends that were delayed and paid in fiscal year 25 from certain of our China joint ventures this favorable timing of dividends was more than offset by elevated cash restructuring in Amia in the timing of customer tooling. Recoveries
In addition, cash flow is favorably impacted by approximately $30 million of items pulled ahead from Q2.
Excluding these actions, adding would have been at the high end of its guidance range. Call it about $170 million.
These actions resulted from a combination of timing for customer payments and actions taken by the company to proactively mitigate the potential impact of timing from Junior related receivables due to their cyber event.
1 last item to highlight on the slide at September 30th 2025 we had approximately 185 million of Factory receivables versus 170 million. At the end of 24, adding continues to utilize various factoring programs as a low-cost source of liquidity.
Moving to slide 19 for our liquidity and capital structure.
On the right side of the slide, you'll note that adding ended the fiscal year with strong liquidity, totaling 1.8 billion dollars comprised of 9858 million of cash on hand and 814 million of undrawn capacity, under our revolving line of credit.
during the fiscal year, the company returned a total of 125 million to its shareholders for full year 25 retired approximately 7% of its shares outstanding at the beginning of the fiscal year
In addition adding continues to proactively manage our capital structure.
In September before, the close of the fiscal year, we launched an amend and extend initiative on our abl which closed in mid October.
This action extended the maturity from 2027 to 2030, as Jerome pointed out earlier. The team is optimized for our cash needs over the past few years. So, we were able to reduce the revolver by $250 million and opportunistically reduce our annual interest expense on both drawn and undrawn capacity by approximately $2 million per year.
.4 billion and 1.4 billion respectively, at September 30th 2025.
The company's net leverage ratio at September 30th was 1.6 times, near the lower end of our target range of 1.5 to 2 times.
As you could see, adding does not have any near-term debt maturities.
Moving now to slide 21, we'll review some of the key underlying assumptions to our fiscal year 2026 Outlook.
As we typically do, we have based our outlook on a combination of the October S&P vehicle production forecast.
Near-term. EDI releases and any customer production announcements.
In addition to volumes FX rates have also changed year on year with the Euro moving most significantly.
Tailwind from the Euro will essentially mask, the volume pressure. As we look at Revenue, as you can see, adding is expected to grow significantly above Market in China.
However, face stiff, headwinds in Europe and North America.
As we will discuss further on the next slide, it should be noted that we have put in a q1 adjustment. For Ford not yet reflected in the October S&P production estimates.
Which slightly skews the growth over Market comparison. Negatively for North America.
With that as a backdrop, let's turn to slide 22 to see the expected impact of adding fiscal year 2026 results.
First I would like to specifically address our assumptions around F-150 volumes which is adding second largest platform in the Americas.
When it comes to the F series and reflecting on the impact to their customer fire. We have reflected. The downtime that has been announced to date, which is currently through the week of November 10th.
Because Ford is not indicated, the mix of F series vehicles, that will be down specifically the mix between F-150, and the Superduty Vehicles, including Cadence, for recoveries. We do not think it prudent for adding to come up with our own forecasts, especially with regard to makeup plans.
Of course, we are actively monitoring the situation and will provide additional insights once. We have more clarity from Ford,
In addition to the F-150 volumes we are also proactively monitoring other current events such as the potential chip Supply challenges from an Xperia.
We view these events as more as production, disruptions issues versus fundamental demand challenges.
Given the underlying macro factors remain stable, especially in North America. We remain hopeful that volume stability, will continue into 2026.
As we look Beyond specific events. Basing, our outlook on the current S&P assumptions,
North America and Europe, Revenue are projected to be down by approximately 650 million dollars year on year. But this will be partially offset by growth over Market in China for a net decline year-on-year of approximately 480 million dollars.
typically, you would expect the adjusted e of the impact of this to be roughly 75 million, but you could see we have a higher decremental mix impacted by continued mixed headwinds in Europe, in margin compression in China,
Well, we expect to maintain double digit margins in China, the combination of growth with domestic China. Oems in volume headwinds from the luxury Global oems in China is expected to compress overall margins. As we are forecasting, headwinds of roughly 100 basis points
well, margins, in China are forecast to compress with an offset of positive ibida from growth, we do not expect the adverse impact to overall adyant margins
As we execute at approximately 100 million of business performance in 25, we are targeting a similar amount for fiscal year 26. However, as we are also focused on growth about 35 million of that performance is expected to be invested in growth, through launch costs and Engineering for future programs. Resulting in a net impact of business performance at 75 million.
Dollars.
For illustrative purposes. If we were to hold volumes constant year on year, you can see that our financial look like Outlook which show approximately 14.8 billion in sales in 925 million of adjusted ibida resulting in adjusted, Eva to margin of about 6.3%.
Turning to free cash flow on slide 23 the year on UD decline, that is forecasted to pre-. Cash flow is driven by 3 factors.
of the fables 30 million bullet heads actions previously mentioned in 2025
Elevated cash tax in fiscal year, 26 driven by approximately 20 million for a potential settlement associated with an ongoing tax audit within a specific jurisdiction.
As well as lower adjusted ibida in higher cap. Ex reflecting our investment in future growth and innovation.
The cumulative impact of these items results in free cash flow of approximately 90 million dollars based on current volume assumptions. However, we would expect that to be closer to 170 million at constant volume.
I do want to remind everyone that below free cash flow, adding expects to have an additional dividend of approximately 85 million dollars to our non-consolidated interests or NCI
As general mentioned in his section, we are committed to investing in future growth.
the Investments, we are making today are expected to drive double digit growth overall Market in China in single digit growth overall Market in North America,
These Investments are expected to drive volume profitability and incremental cash flow in the out years.
The combination of our execution excellence and our investment in future growth. And Innovation is why adding expects to maintain strong sustained. Cash flow, generation for 2027 and Beyond as we ensure our investments today. Drive shareholder value in the future.
Turning now, to our guidance on slide 24.
I have already watched through several key items on the slide so I won't read through those. In addition to what we have discussed, I would add our guidance on Equity income remains approximately 70 million dollars.
Based on our current debt levels are interest. Expense is expected to be approximately 185 to 190 million dollars.
as we have said, throughout the presentation, our guidance reflects adding commitment to controlling what it can,
Our business execution and commitment to continuous Improvement, will continue to drive strong business performance. We will manage through the volume challenges and continue to invest in the future is adding is committed to driving long-term shareholder value.
Turning to slide 25 before going into Q&A.
In closing, I would like to reiterate that adding is firmly committed to executing our balanced plan for Capital allocation.
Driven by our business performance. We enter fiscal year 26, from a position of strength with strong balance sheet and solid liquidity.
We ended fiscal year 25 with 958 million of cash on the balance sheet.
Well, ahead of the roughly 800 million we need for ongoing operations.
This provides adding the opportunity to proactively manage its capital allocation whether it's through investment for future growth Debt, Pay down or continue to share repurchases.
As a reminder, idiot has 135 million of authorization remaining. And it share repurchase program leaving room for additional purchases as appropriate in fiscal year 2026.
By utilizing the levers. I just mentioned the adyant team is committed to prudent, Capital allocation in maximizing shareholder value.
And with that, we can move to the question and answer portion of the call. Operator, can we have our first question, please?
Thank you. We will now begin the question and answer session. If you would like to ask a question, please unmute your phone and press star 1. You will be prompted to record your name to withdraw your question. You may press star 2.
Again, press star 1 to ask a question and 1 moment for your first question.
That is going to come from Colin Langan with Wells, Fargo, your line is open.
Oh, great. Thanks for taking my questions. Um, maybe if we could get started with the the 1%, uh, forecast underperformance versus S&P, any caller on the major puts and takes Sarah. I think you mentioned the F-150. Did you say that you, you factored in the downtime that's expected, but not the recovery that that, you know, Ford is actually going to indicated. There's recovery. And then any color, maybe in particular on the, uh, wind down of unprofitable business in Europe is, is that um, is that another Big Driver there that we should be considering in in sort of the, the 1% track
On their call was F series and F series of the mixture of F-150 F250 and the entire Superduty lineup.
And they haven't, you know, officially made any announcements of where that recovery is going to come from and how all of the downtime will mix into that. So what we have forecast in our guidance, is the downtime that we know today. What we actually have in our EDI releases which takes us through the week of November 10th with a restart on November 17th with no recovery. So, no, you know, makeup of any volume in addition to that, what we don't know is what that recovery and makeup volume will look like, will it come with significant overtime? Will it come with, you know, additional Crews additional makeup? Will it be kind of low calorie makeup type Revenue?
And what will that? That mix look like. So that's part of that 1% you know, when S&P comes out with an updated,
Can of November number, I think we'll tie out closer to that because they will have captured some of the F-150 downtime. And so that's part of it. The other piece of it is the European um, picture. So the, you know, we now have the full
Star Louie, our plant and star. Louie the exit of that business is that wins off as well as a plant in Nova Mesto, in Slovakia, the exit of that business as well, winding down, which would be below, kind of SNP. Uh, performance.
So hopefully that answers your uh your questions on that.
Got it. I mean are those major contributors to the to the 1% overall or those you combined? So yeah, I mean those would be the those would really capture the 1% overall. Yes,
got it. Okay, that makes sense. And then if I just look at the the walk on slide, 22, the volume mix drag is, I think something like a 26% decremental which is, I think pretty high. Um, any color on why such a high decremental uh, for for the Lost volume?
Yeah, I'll uh, I'll start and then Mark can add any color. If he needs to, there's a couple of factors that go into that, you know, first of all, we have things like F-150, you know, factored into that and you have to remember, you know, that's not coming out at a, at a normal decremental because of the nature of how that F-150 downtime is coming in. It's, you know, it's coming in first at a very short notice, it's coming in. Initially it was basically half shift. So we were having a staff 2 full plants fully but only getting half volume on it. You know. It ran like that for several weeks and now we're having to run it at full down weeks but still having to pay sub-pay.
And given that is 6% of our total sales, that's a pretty severe decremental for us. Um, for a very large portion of our q1. In addition to that, in our q1. We also have next area, downtime. And that Next Period, downtime is coming, you know, it's, it's been public announcements at 1 of our very large Japanese customers.
Significantly impacting our North America operations. So when you think about q1 you know it's going to have a very significant incremental in it because of those 2 factors and Xperia and F-150 very short notice.
You know, partial shifts that are running either you know, half or sub-pay impacted with very high decremental associated with them. You know that we're not really able to manage just given the short notice of them, those are 2 factors.
The first factor in there is
You know, 1 that I would say we will monitor closely throughout the year, which goes a bit to why we've given our official guide. And then, if it were flat volumes,
The mix of what S&P is calling off, you know, they have called off in their October release.
You know, some of our platforms which are maybe higher contribution margin being down year-over-year and and we'll see how that plays out throughout the year and then the fourth factor which is what Mark talked to you, you know, we're rolling on.
In our China business significant new business this year. As that business roles on it isn't rolling on in, its first year of production at full,
You know kind of incremental margins right? We have significant launch costs going into it. We're rolling on with some of the China local OES as those roll on. They're not rolling on it, kind of the regional contribution margin level, it takes us some time to bring those up to the the standard margin level and I see that's the fourth Factor associated with some of that volume mix. But the first 2 are very significant just how some of those downtime that downtime is coming out.
Q1.
Got it. That makes sense. All right, thanks for taking my questions.
Thank you, appreciate it. Thank you.
The next question comes from Emmanuel, Rosner with wolf re.
Please go ahead.
On the, uh, the gross investments, um, $85 million investment for the future. Um, can you just comment a little bit more around, you know, how much of that is?
you know, discretionary how far out in terms of uh the future, we're looking at, for this payback versus things that are nearer term and just needed because you have you know, launches coming up
Yeah, I'll uh, I'll start and then I can, you know, turn it over to mark for additional comments. Yeah, I I say it. It's an investment that's needed to really drive the growth, you know, in my prepared comments we kind of commented on what we see, 27 shaping up to be where we see North America being able to grow, you know, in the mid single digits over kind of vehicle volume, especially when we take kind of the metals out of that, which we've said, we want to wind down metals and we see China and Asia growing at, you know, kind of double digits over market and we have that line of sight. And so we see that investment as needed.
You know, that's what I would call kind of the program growth and some of the engineering associated with it. The other thing that I would point you to a manual where we're really driving business, performance aggressively is on the Automation and AI side. If I look at 25 versus 26, you know, in 25, we spent 20 just round numbers, 25 million dollars on Automation and AI in our plants and that yielded about 20 million dollars in savings. As we begin to ramp up these efforts, we have a facility in more hungry. That's dedicated to Capital Improvement.
Ai and automation, we have a mirror facility employment Michigan that's dedicated to the same activities. You know we will spend upwards of about million dollars in Ai and Automation and on a run rate basis that'll yield almost forty million dollars in savings so you know the capital is roughly doubled but the savings is more than doubled on a run rate basis and that's factored into that total expense Improvement or increase year-over-year. So I wouldn't necessarily label it as discretionary as much as it is driving business performance and Improvement into the business year-over-year. Yeah. In Emmanuel the the payback on on that capex that Jerome was talking about on. That Innovation is is typically about 2 years, you know. It could be anywhere from 1 and a half to 2 years. That's what we try and focus on there. Um, and as Jerome indicated, the other call it 35 million is really engineering and launched support for programs that are being launching with our customers. So think of it in the 2. Yeah. And we'll see those
launches a manual really start coming on and
You know, the end of 26, fiscal year.
And then accelerating through 27.
Okay, great. Um, and then I was also hoping for potential update on
Uh, on Shoring, there wasn't as much discussion on on this. Um, you know, Discord and then in the past, I think that um, you had obviously mentioned already previous wins, but it sounded like you were getting close to some potential, um, additional wins there. So just, uh, Curious where you know where that's tracking? I guess, what, what would be the timeline of it? Um, starting to, uh, help the revenue.
Yeah, so in terms of helping the revenue, um, the 1, you know, the 1 product that we announced with um, a Japanese customer, you know, it's now and actually, you know, it's with Nissan on the Rogue that's now in production. So that is in our kind of 26 figures um that incremental volume that they have onshore back into the US. Um it's unfortunately being offset by some other production challenges and that we see just in terms of volume
the other Japanese customer.
We expect that to launch at the end of our fiscal year 26. It'll be, you know, running up to full volume.
and then as far as other onshoring wins,
We are, I'd say in the final kind of last rounds of negotiation with a significantly large program. Um, round between 200 to 250,000 units that will move from Mexico into the US. It will, you know, would be incremental volume for us utilizing existing footprint for us and I would anticipate, we'll have, you know, more news on that, in the next.
I'd call it 3 to 4 months or so.
Great. Thank you.
Thank you for the questions.
Thank you. The next question is from Dan Levy with Barclays. Please go ahead.
Hi, good morning. Thanks for taking the questions. Um, you gave some impressive growth over market targets for 2027.
Line of sight. And I know that there is obviously a, you know, the macro environment can can move and
You know, but what is the line of sight of sort of secure business? You know, it's, it's a function just of launches coming out and how do you factor in, you know, there is still some uncertainty on how automakers might be moving their plans powertrain stuff moving around. What is the line of sight on that growth in Market?
Yeah, I'll start and then Mark can add comments. I, I'd say the line of sight and if I just kind of go region by region, you know, in China as we spoke
Kind of on the last earnings call. It, it really comes down to customers ability to launch and execute. You know, we were, I'd say impacted last year and if you look at kind of half over half, you know, we saw almost a
I think it's a call it a what 50 basis, point Improvement. Sorry 500 basis points Improvement, half 1 to half 2, in terms of
mixed Improvement or growth over Market Improvement in China because our our launch is finally started to accelerate their. And that's what really gives us confidence in our 26th. And then moving into 27 is 1. Our mix shift to the China oems, but then their ability to Now launch and their launch Cadence is finally picking up. So I think in China, we have a reasonable kind of line of sight within the Americas, which is our other region now that we're starting to gain some significant traction.
It's really, you know, dependent on the Japanese oems and their ability to I think rotate some of their powertrain and rotate some of their plants.
The what gives us confidence is, you know, they generally do what they say they're going to do, you know their level of execution, their level of commitment.
their ability to,
Plan to do and execute is at a high level. So I think we have
Generally a high level of confidence. When we look at,
What happens in the last quarter of 26? That's when a lot of these launches kind of time in and Cadence in thus the high level of engineering and and elevated capex, spend this year and as that rolls into 27. So I think generally, we feel pretty good about what we see moving into, you know, 27 um, for the business. And then you know, the other key piece of that especially in the Americas is when we think about growth over market and we'll have more of this as we roll through 26 and really into 27 is it's also the portfolio, you know? We're we mean we've talked about this as rolling off some of that, third-party Metals business and then really looking at growing the jet trim and foam.
So it's that portfolio rotation that will help to accelerate, you know, growth over Market in those markets. We really want to play in and that's why the F-150 business you know, not just winning what we had on the jit and the foam but also conquesting that trim business getting more down the vertical integration stream and providing that value proposition with or, you know, co-developing with them a better end product for the End customer and was really crucial.
Great. Thank you. Um, as a follow-up uh,
Same vein, you know, I know that that 26 on the margin side has some unique volume mix issues, but you've talked about this, you know, mid-term 8% ebit margin Target. There's a few different work streams in terms of balance and balance out Europe. Should we understand? 26? Just as a transition year but the broader positive margin trajectory is still on track with each of these work streams and that 8% is still something that you're shooting for and is
a realistic Target over time.
Yeah, yeah. Dan um, I would say that nothing has fundamentally changed obviously 26 you know significantly impacted by volume you know that said we continue to drive the positive business performance. We're investing in the growth as Jerome just mentioned, you know, we have a good line of sight in terms of where that growth is coming from and 27 and 28.
You know, that balancing balance out story still holds, right? Albeit, you know certain of those programs have been extended in terms of their end of production life, right? So it's sort of muted the impact in 26, but I think when you get into 27, right, you've you've got your growth, you've got your balance and balance out, right? You've got your portfolio, mixed starting to change. Those are all the elements that will continue to walk us up from, you know, the current level of margin up to, you know, call it that 77 and a half, you know, um, approaching that Target
Great. Thank you.
Comes from Nathan Jones with stifle. Please go ahead.
Morning, everyone.
Nathan, I guess I'll start I guess I'll just start with a question. Um, bluntly on the first quarter um given the disruption of the F-150.
Uh and your your expectations there. So just if you could provide any more color on what you're expecting specifically for for Revenue margins. Um,
In the first quarter of 2016.
And your production assumptions, you know, we did call it 195 million of ibida last year in the first quarter, there was no production declines, you know, at that point last year, um, is Jerome indicated this year? We're facing not only F-150, but the, you know, ahnaf shifts related to the next Xperia, um, chip shortages there. So, you know, is it possible that you're going to see a 15-20 million decline in overall, um,
IBA quarter on quarter year on year, for the first quarter. Absolutely. Right. And then you throw in there jlr, right? They just started to produce, you know, their their units right at the capacity. So again, it's those macro factors that I think probably puts q1 at the trough for the year and then we start building on that as we get into Q2 3 and 4 as you know F150 comes back as you have the supply chain shortages worked out with an Xperia, right? You have jlr so that's sort of the way I see the calendars and as I go through the year,
That's helpful. Thanks. And I guess my other ones on Capital allocation.
Um lower free cash flow in in 26, but as you noted, you have more cash than you need to run the business.
Any expectations for what share repurchase in 2026 is likely to be relative to 2025. Thanks.
Opportunistically look to balance that between, you know, the Cherry purchases, Debt Pay down. As I indicated, we have 135 million left of repurchases on the current authorization. So
You know, we'll we'll time the ref purchases in the magnitude of repurchases, you know, in line with, you know, how we see Clarity with production playing out this year, as we see the Cadence of our cash flow coming in this year, right? And so, if I'll give you a specific number, you know, I just say that we'll balance, you know, taking the cash off the balance sheet between Debt Pay down.
As well as the repurchases.
Thanks for taking the questions.
Thank you.
Thank you. The next question. Comes from. Joe Speck with UBS. Please go ahead.
Thanks. Good morning everyone. Um, super helpful. Detail on on the decremental, in, in your, in your 26 guidance.
um, I just want to
Maybe talk through 1 other element because I know you said you're not counting on some of that F150 volume coming back. But if it does um it is it fair to assume that the incremental on that volume actually don't
Come close to the decremental margins because of all the, the Trap, labor and costs. And something in efficiencies you mentioned, so it'll help dollars but but the, the overall decremental will still look a little bit worse than we would normally expect. Is that, is that fair?
Yeah, I think that's right. Joe. I mean if you just think about how that volume comes back on as Jerome indicated, you know, are they going to be running overtime or running weekends, right? So that that goes into that equation.
Okay, any any help any guidance on sort of what we could expect the incremental on that volume to be, if it does come back.
Um I I think it's too early to say still go. I you know, a lot of it's going to depend on
You know, how does it come back? What are some of the discussions? We have with
board around the total, um, you know, recovery mechanism of it. I think it's 2 Premium to, to engage in those types of, um, forecasts and that's, that's 1 of the reasons why again, out of respect for, for our partner Ford, we didn't even want to put anything in here because we just, we don't know the timing Cadence.
You know, if it's if it's going to be run over.
You know, let's say the Easter break I mean that's going to be that's going to be a lot of Premium costs. It was just going to be run over Saturday and Sundays. That's a different model. So it's just it's too early to say at this time. What? That even looks like
Apologies. If I missed this, I know you spoke about elevated restructuring in 26. I think it was about 1:30 million 255. Did you give an actual number for 26? And then you talked about more normal levels beyond that, but I just want to
Um get your sense of sort of what gives you confidence that you know, continue to restructure in particular in Europe won't won't be needed that. You're going to be you know more right sized after after 26. Thanks.
Yeah, Joe so good. Good question. So, you know, we we did about 130 million of cash. Restructuring last year, I think that drops down to about 120 million this year, right? Normalized run rate for us, right? Um, is probably going to be somewhere in that 50 million, right? Plus, or minus once we get through, I'd say the elevated restructuring in Europe, you know, part of it. We've, we've been very transparent in you and I have talked about this before, right? It's you know, we do see that trending down, um, but in terms of the overall timing, some of that's going to be dependent on customer, you know, just program runoffs, right? And and what they decide to do with their facilities and where they're going to Source, you know, certain of their programs. So, again for modeling purposes, I'd assume a 50 million run rate. So, again, when you think about this year for 26, right? You know, a couple of the elements, the calls for a cache that are elevated, right? I'd say, you know, my cash taxes, you know, at 120, you know, million or elevated, those typically would
Would be in that hundred hundred 105 million, mark on a run rate basis my restructuring dollars rather than 120 should be falling back to that 50 million run rate and then it's just a function of ibida, right? So if you were going to ask, you know, what's the normalized level of free cash flow, you know, start with your e, but let's just say we do 900 million capex. We've always said that that'll be running somewhere in that 280 to 300, especially with, you know, the growth Investments and the automation that Jerome talked about cash, interest call, that 185190 cash taxes 100 and restructuring 50. So you'd get to a normalized level, you know, call it somewhere around that, 250, 260 Mark at a 900 million ibida, right? So that's the way that's the way I think about free cash flow and what's normalized levels for us?
Got it. Thank you.
Okay.
Great. Thank you. And the last question, that's the bottom of the hour, so if you can move to route the call up, that would be great.
So in closing, I want to thank everyone once again for your interest in adding it if you have any follow-up questions, please feel free to reach out to me. Also, I'd like to acknowledge we will be in New York City later this month participating in the Barclays automotive and Mobility conference and hope to see many of you. Then with that operator, we can close out the call.
Thank you, this does conclude today's call. We thank you for your participation. Have a wonderful day and you may disconnect your lines.