Adient Q3 2026 Earnings Call Transcript

Adient (NYSE:ADNT) released third-quarter financial results and hosted an earnings call on Wednesday. Read the complete transcript below.

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Summary

Adient plc reported Q3 2026 consolidated revenue of $3.9 billion, up 5% year-over-year, with adjusted EBITDA remaining flat at $225 million.

The company highlighted external pressures such as Middle East conflict and elevated commodity costs but expects these headwinds to be temporary.

Strategic focus includes growing new business awards and enhancing operational efficiency, with an emphasis on automation to improve margins.

Adient returned $30 million to shareholders through share repurchases in Q3 and remains committed to a balanced capital allocation strategy.

For fiscal 2026, Adient raised its revenue guidance to approximately $15 billion but maintained adjusted EBITDA guidance at $885 million due to ongoing external cost pressures.

Regionally, the Americas showed strong operational execution and sales growth, EMEA faced challenging conditions but showed improvement, and Asia, particularly China, continued to outperform despite market softness.

The company plans to increase investments in automation and maintain a strong balance sheet with a leverage ratio of 1.7 times.

Adient received several customer recognitions, reinforcing its position as a trusted supplier, and is pursuing new business opportunities with onshoring trends in North America.

Full Transcript

OPERATOR

Welcome to Adient's third quarter 2026 earnings call. Parties will be in 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 would now like to turn the call over to Linda Conrad. Thank you, and you may begin.

Linda Conrad, Investor Relations

Thank you, Shirley. Good morning, everyone, and thank you for joining us. The press release and presentation slides for our call today have been posted to the Investors section of our website at Adient. This morning I'm joined by Jerome Dorlag, 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. Mark will then review our Q3 financial results and our outlook for the remainder of our fiscal year.

After the 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 GAAP basis, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures to the closest GAAP equivalent can be found in the appendix of our full earnings release. And with that, it is my pleasure to turn the call over to Jerome.

Jerome Dorlack, President and CEO

Thanks, Linda. Good morning everyone and thank you for joining us today. I'll begin with a business update on our third quarter performance as well as provide an update on how we are managing through the current operating environment and why we remain confident in the strength of Adient's operating model. Before that though, I want to take a moment to recognize our global team. Their unrelenting focus on execution, launch discipline, customer responsiveness and operational performance is what reinforces Adient's position as a supplier of choice.

Our strong relationships with our customers continue to drive new business awards and support the durability of our revenue base. I would also like to thank our customers for their continued trust and partnership. Their confidence in Adient and their willingness to rely on us on some of their most important vehicle programs is something that we never take for granted. We remain committed to earning that trust every day through flawless execution, innovation and operational excellence.

With that, let's turn to the Q3 summary page. Our third quarter performance aligned with our internal expectations even as external conditions pressured near-term results. Consolidated revenue was approximately $3.9 billion, up 5% year over year, while adjusted EBITDA was $225 million, flat compared with prior year. The point I want to highlight is that the pressure we are seeing this year has been largely external and, in our view, temporary. Vehicle production remained relatively stable overall, but certain customer programs have faced headwinds and the Middle East conflict drove macro-related pressure including elevated commodity and freight costs and lower exports into the Middle East, primarily from Asia outside of China. In commodities and freight specifically, costs remain elevated, but we are beginning to see signs of stabilization. Overall, we see these headwinds as manageable. Most importantly, our business performance remains solid. The operating model is delivering, our book of business remains strong and we believe Adient is well positioned to capitalize on top line growth as the external environment normalizes.

We also demonstrated our disciplined approach to capital allocation during this quarter. We returned $30 million to shareholders through share repurchases in Q3, bringing year-to-date repurchases to $55 million, and we remain committed to our balanced capital allocation strategy as we move through Q4. Stepping back, Q3 was another quarter where the team executed well through volatility. The near-term headwinds put downward pressure on reported results, but the underlying performance of the business remains solid and our operating model continues to position us well for future growth and shareholder value creation.

Moving now to the regional update on slide 5. As we look across the business this quarter, what stands out is the resilience of our regions to deliver even as conditions remain mixed across the global automotive industry. Each of our regions is managing through a combination of external pressures, customer-specific volume fluctuations and ongoing geopolitical impacts. At the same time, we are seeing encouraging evidence. The actions we've taken to strengthen the business are translating into resilient performance and positioning us well for the future.

Starting with the Americas, the region delivered a solid quarter supported by strong operational execution, favorable customer mix and disciplined cost management. We achieved sales growth and margin expansion despite temporary operational inefficiencies and customer-driven interruptions. The team remains focused on controlling what we can control, including managing through elevated commodity and freight costs related to the Middle East conflict.

At the same time, we are engaged in constructive discussions with customers around onshoring opportunities. While we have nothing new to announce today, we believe Adient is well positioned to benefit from these trends over time given our North America manufacturing footprint, engineering capabilities and strong embedded and durable customer relationships. Moving now to EMEA, the environment remains challenging. Lower customer production levels and ongoing market softness are pressuring volumes and profitability.

That said, we are seeing the benefits of the restructuring and operational actions we've implemented over the past several years take hold. Business performance is improving, cost discipline remains strong and we are working closely with customers to navigate the current environment. We also have line of sight on the roll-off of our underperforming metals business, which we view as a positive contributor as we move into fiscal year 27. While there is still work to do, the team remains focused on improving the quality of the business and driving further operational progress.

Moving to Asia, China remains a dynamic market. While the broader market has softened, our business once again outperformed and continues to benefit from strong positions with many of the customers gaining share in the market today. Customers such as NIO and Leapmotor, supported by new launches, premium content programs and continued customer confidence in Adient's capabilities. In addition, our mix is rapidly moving closer to the industry profile where approximately 70% of production is represented by local OEMs.

While that shift has created some expected margin pressure, the impact is occurring more gradually than we initially anticipated. As a result, we do expect some additional margin compression as we move into fiscal year 27. While attention is typically focused on China, it's also important to highlight the strength of our business across the rest of Asia, which generates nearly $2 billion in annual revenue. We are a leading seating supplier in the region and our combination of scale, customer diversity and disciplined execution provides a solid foundation for continued profitable growth.

For additional context, we have included an overview of this business in the appendix that we would encourage you to review. The strength of our Asia business outside of China, combined with our strong competitive position within China, continues to support attractive earnings and cash flow generation. Asia remains an accretive region for Adient and will continue to be an important contributor to our long-term growth, profitability and shareholder value creation.

When we step back and look across the portfolio, we see a business that is executing well. The Americas is building momentum, EMEA is making measurable progress despite a challenging environment and Asia is selectively growing with market leaders while maintaining profitability and supporting our long-term growth strategies. These regional trends reinforce our confidence in the strength of our operating model, the quality of our customer relationships and our ability to create sustainable shareholder value over the long term.

Moving to slide 6, I would like to spend a moment on what sits behind these results because our performance is not accidental, it is intentional. It is the direct product of Adient's position as a supplier of choice and that status is earned every day across four dimensions. It starts with launch execution. Consistent, flawless launches are the foundation for everything else. Our proven ability to deliver complex programs on time with strong quality and responsiveness is what earns the confidence of our customers.

This is reinforced by our engineering and innovation. We are involved in early vehicle development, bringing innovative products that support content growth and partnering with customers to take cost out of the value stream. We strengthen that foundation further with our world-class footprint which allows us to support customers globally. Collectively, this is what allows us to execute on programs consistently across regions with the scale and operational flexibility our customers need.

Supplier-of-choice status matters. It converts directly into tangible business wins, deeper customer relationships and long-term shareholder value. Nowhere is that clearer than in customer recognition and this quarter gave us several standouts. We were recently honored by both Toyota and Mitsubishi for being an outstanding supplier and we are especially proud of the Adient team in the Americas for once again being named GM Supplier of the Year for the fifth consecutive year, which reinforces the strength of our relationship and the confidence customers have in Adient's execution.

That same trust supported the recent Chevrolet Equinox conquest and onshoring win we announced last quarter. Furthermore, in China, Adient recently received NIO's highest supplier recognition, the Guardianship Award. This reflects more than a decade of mutual trust and collaboration with NIO. Adient was also named to NIO's primary and preferred partner list, recognizing us as NIO's primary seating supplier. Adient also received Chery's highest supplier recognition, the Excellent Supplier Award, in recognition of our outstanding launch execution and support for the KP31 pickup export program.

That award ties directly back to the importance of launch execution already mentioned. Customer recognition is the leading indicator. Being a trusted partner ultimately results in new business awards. On the next slide, we will walk you through a few of those as well as a few premium program launches. Slide 7 highlights several proof points that support Adient's future growth and durable revenue visibility. They reflect the strength of our customer relationships, our engineering capabilities and our ability to launch complex seating programs across regions.

We are winning business where our customers need a partner that can support them from design and engineering through launch and production. There are a couple themes here worth calling out. First, our platform wins reinforce the long-cycle nature of our revenue. Programs such as the Ram Dakota, Honda Pilot and Tata Nexon are not only important awards for Adient, but they are also important platforms for our customers. Being selected on these programs reflects the trust our customers place in Adient and helps strengthen our long-term position on vehicles that are central to their future plans.

We also want to highlight the commercialization of innovation and its growth across customers. As an example, Pro-Force Massage Flow is moving from concept to production across multiple customers in Asia as shown with the recent awards on the Changan Avatr D518 and the Dongfeng Voyah H77B. And finally, our launch execution remains a competitive advantage. In EMEA, we are supporting vertically integrated launches with global OEMs including the Volvo EX60 and Mercedes-Benz AMG EAGT.

In Asia we are launching complete seat systems featuring premium content such as zero gravity seating and power swivel on the Leapmotor D99. Taken together, these wins show the foundation of Adient's operating model as delivering tangible commercial outcomes. We are leveraging engineering, manufacturing scale, vertical integration and customer trust to secure higher-value business and support future content growth. That is what gives us confidence in the durability of our revenue stream and our ability to convert execution into long-term value creation.

Let's take a closer look at a specific example on slide 8. As you may recall we mentioned the launch of the all-new Nissan Elgrand last quarter. It is worth spending a minute talking about this program because it represents the breadth of capabilities that Adient brings to its customers. The Elgrand is Nissan's first major redesign of this platform in more than a decade and is an important program in the premium MPV segment. We're adding that this program showcases how we help customers differentiate their vehicles through content-rich seating solutions.

The vehicle includes zero gravity seating, enhanced comfort and adjustability features, and a unique third-row architecture that combines passenger flexibility with cargo functionality. In addition, this program showcases Adient's ability to provide our customers with vertical integration which optimizes seating design and manufacturability across foam, trim and JIT, resulting in improved cost and quality for our customers. Looking a bit more internally at Adient and the how of what we do, the Elgrand program also highlights our ability to drive manufacturing process innovation.

A few examples of this is that the program has AI-enabled weld inspection, fully automated rail assembly, automated loading and unloading at the end of line, and seat inspection. Our commitment to manufacturing process innovation helps improve quality, consistency and operational performance. If you have a chance after the call, I'd encourage you to take a look at the short video linked on this page which shows an example of our AI weld inspection process in action and provides a practical example of how we're applying automation and artificial intelligence on the plant floor not only to improve quality, but also reduce costs to improve the competitive position of Adient and its customers. Innovation at Adient is not just about a few new features. It's about integrating engineering, manufacturing, automation and launch execution to help our customers win in the marketplace while enhancing the strength of our operating model. Moving to slide 9, in closing before I hand it over to Mark, I want to come back to a point I made earlier. Adient is executing through a volatile environment. External cost pressures, customer-driven disruptions, uneven market conditions are creating near-term headwinds, but the underlying performance of our business remains resilient across the portfolio.

We're focused on controlling what we control. That means advancing regional improvement plans, driving operational excellence, and investing in actions that strengthen the business over the long term. A good example is how we're responding to the production volatility we're seeing in certain customer programs, in particular full-size pickup trucks. Rather than simply absorbing these inefficiencies, we're accelerating investments in automation, digital manufacturing and advanced material handling technologies.

These initiatives are helping us improve productivity, increase operational flexibility and reduce labor intensity as well as better manage fluctuations in customer production schedules. Those are the kinds of self-help actions that enhance our competitiveness and strengthen our operating model regardless of the external environment. On the regional progress, the Americas is building momentum, EMEA is making progress through restructuring and customer collaboration and Asia remains accretive to Adient, supported by strong customer relationships and growth with market leaders creating a world-class competitive moat.

At the same time, customer recognition, launch execution and new business awards reinforce the strength of our operating model and support our confidence in the outlook. Our focus remains on finishing fiscal year 26 strong, delivering our commitments and positioning Adient for success in fiscal year 27 and beyond. With that, I will hand it over to Mark to walk us through the financial results and outlook.

Mark Oswald — EVP and Chief Financial Officer

Thanks, Jerome. Let's turn to financials on slide 11. Adhering to our typical format, the page shows our reported results on the left side and our adjusted results on the right side. My comments will focus on the adjusted results, which exclude special items that we view as either one-time in nature or otherwise not reflective of the underlying performance of the business. Full details on these adjustments are included in the appendix of the presentation for reference.

That said, moving to the right side, high level for the quarter, sales for the quarter were $3.9 billion, up 5% year over year, reflecting favorable FX, strong volumes, particularly in the Americas and Asia, and solid commercial discipline. Adjusted EBITDA was $225 million, relatively flat year on year, reflecting the impacts from the Middle East, conflict-related costs, and temporary operating headwinds, which we'll get into further in a couple of slides.

Equity income was lower year over year as a result of lower volumes with certain customers in China, primarily driven by softer demand on ICE vehicles. Adjusted net income was flat year over year at $38 million, or $0.48 per share. Diving into the quarter, beginning with revenue, turning to slide 12, consolidated revenue increased 5% year over year to approximately $3.9 billion, reflecting favorable volume, pricing, and foreign exchange. Looking at regional performance, the Americas outperformed the market, benefiting from strong volumes at key customers, pricing, and recent program launches.

While we're pleased with the momentum, we would expect that the level of outgrowth to moderate into fiscal year 27 as certain lower-margin third-party metals business rolls off, which is consistent with our portfolio optimization strategy. EMEA sales remained below market levels, primarily reflecting customer mix. As Jerome noted earlier, this remains a difficult volume environment across the region. We are managing through that directly with our customers, staying closely engaged on current production dynamics and taking the actions necessary to support performance as market conditions evolve.

China remained a significant source of growth. Consolidated sales increased approximately 33% year over year despite a softer market, driven by strong production ramp-ups at customers such as NIO, Leapmotor, and Nissan. While launch-related growth will naturally moderate over time, these programs reinforce our strategy of aligning with customers that are gaining share and expanding in attractive growth segments. The rest of Asia underperformed the broader market, primarily due to customer mix, as certain customers faced greater volume pressures than the overall region.

On the unconsolidated side, sales declined approximately 17% year over year, primarily in China, reflecting lower volumes on legacy ICE vehicle platforms as the market shifts towards NEVs, as well as modest impacts from Middle East–related disruptions. Importantly, this trend largely reflects customer mix dynamics rather than any change in our competitive position overall. The key takeaway is that we're continuing to grow where the market is growing.

Our customer portfolio, launch cadence, and exposure to leading programs support above-market growth in our consolidated business, even as we navigate differing regional and customer-specific dynamics. Moving on to slide 13, Q3 adjusted EBITDA was $225 million, or 5.7% of sales. During the quarter, we absorbed approximately $32 million of temporary operating impacts related to Middle East conflict and customer- and supplier-driven disruptions, reflecting higher net input costs for commodities, freight, and operational inefficiencies.

Excluding those items, EBITDA margin would have been in the mid-6% range, about 80 basis points higher than our reported results and above our prior-year levels. We believe that this better reflects the strength of the underlying business and the progress we're making through operational execution, commercial discipline, and ongoing self-help actions. While these external pressures weighed on results, the operating model performed as expected, supporting our confidence in the business and our ability to deliver on our commitments as per our usual format.

The appendix waterfalls provide additional insight into the regional details. I'll walk through these relatively quickly. In the Americas, adjusted EBITDA increased $13 million year over year to $125 million, supported by favorable volumes, partially offset by temporary customer- and supplier-driven inefficiencies and Middle East conflict–related costs. In EMEA, adjusted EBITDA declined $7 million to $14 million. Volume and mix remained a headwind, but business performance improved through restructuring benefits and SG&A discipline, which helped offset part of the regional pressure.

In Asia, adjusted EBITDA was $107 million, down $6 million year over year. The region remained highly profitable, but results reflected lower equity income, expected mix margin compression in China, lower ICE vehicle demand, and higher launch investment to support our growth plans. Overall, the results reinforce the same message Jerome delivered in his opening remarks. The business is executing well through volatility. Temporary external pressures are weighing on near-term results, but the underlying operating performance remains resilient, and we remain focused on delivering our full-year commitments.

Let's move now to our cash flow walk on slide 14. We generated $138 million of free cash flow in the third quarter, bringing year-to-date free cash flow to $161 million. There are a few important items to keep in mind as you think about our year-to-date cash performance. As you'll recall, our free cash flow generation is heavily weighted in the back half of the year due to seasonality of our business. This quarter benefited from approximately $45 million of customer payment timing, which we expect to reverse in the fourth quarter and reflected in our outlook.

Year to date, free cash flow has benefited from strong operational execution, disciplined working capital management, and lower restructuring cash spending compared to the prior year. As a reminder, we had a nonrecurring tax settlement that was paid out last quarter, and we've had an increase in capital expenditures this year to support growth initiatives. I would also note that our teams have done an excellent job proactively managing cash generation across the business.

We have accelerated certain customer recoveries and tooling-related collections where possible and remain focused on working capital discipline, which helps strengthen our cash position entering the final quarter of the year. Turning to slide 15, our balance sheet remains strong and flexible, which is critical in today's operating environment. At quarter end, we had approximately $1.8 billion of total liquidity, including $924 million of cash and roughly $834 million of available revolver capacity, giving us substantial financial flexibility to manage volatility, support the business, and remain disciplined in our capital allocation.

As I highlighted on the previous slide, it's important to note that the quarter-end cash balance included the approximate $45 million of customer payment timing, which we expect to reverse in the fourth quarter. The progress we've made strengthening the business was also recognized externally, with Moody's upgrading Adient's corporate credit rating to Ba3 during the quarter. We view that as a validation of our improved balance sheet, consistent execution, and disciplined financial management.

Our leverage ratio ended the quarter at 1.7 times, comfortably within our targeted range of 1.5 to 2 times. I'll also mention that we have no near-term debt maturities. We've also returned capital to our shareholders, repurchasing approximately 1.3 million shares for $30 million during the quarter. As always, we'll remain disciplined and balanced in how we deploy capital, prioritizing long-term shareholder value while maintaining financial flexibility to support the business.

Overall, we believe we're entering the final quarter of the year from a position of strength, with a healthy balance sheet, ample liquidity, and flexibility to navigate a dynamic operating environment. Turning to our updated outlook for fiscal '26, we are increasing our revenue guidance to approximately $15 billion, primarily reflecting improved customer production schedules and, to a lesser extent, favorable foreign exchange. The higher revenue outlook is supported by recent launch activity, growth with key customers, and expected strong execution across the business.

At the same time, we are maintaining our adjusted EBITDA guidance of approximately $885 million and free cash flow guidance of approximately $130 million. While underlying operational performance remains solid, persistent headwinds resulting from the ongoing Middle East conflict, such as elevated commodity and freight costs, are expected to pressure near-term results. As we enter Q4, our priorities remain clear: execute for our customers, manage the factors within our control, deliver on our commitments, and position Adient to create value in fiscal year '27 and beyond.

Before we open the line for questions, I want to spend a few moments on slide 17 and briefly share our thoughts on a few of the key drivers likely to impact fiscal year '27 results. We will issue formal guidance for fiscal '27 in November, as in prior years, as the team continues to fine-tune and gain clarity on such items as vehicle production, foreign exchange, trade policy, input costs, capital expenditures, and restructuring. That said, based on what we see today, we believe the business is positioned for above-market growth in the Americas and China, supported by onshoring wins, recent new and conquest awards, and ramping programs with key customers. Especially with our continued progress with domestic Chinese OEMs in our Asia business. In the Americas, that growth will be partially offset by planned exit of certain low-margin third-party metals business. We expect positive business performance to be driven by our focus on automation, restructuring, commercial discipline, and continuous improvement across all disciplines. From a capital allocation perspective, our priorities remain unchanged.

We expect to maintain a strong and flexible balance sheet, operate within our target leverage range, and continue balancing investment in profitable growth with returning capital to our shareholders. As we've discussed, approximately $80 million remains under our current share repurchase authorization. Given our balance sheet position and cash generation profile, we expect the board to increase the authorization later this year. So while it's still early, the underlying indicators support our confidence in the positive momentum of the business as we look towards fiscal 2027.

And with that, operator, we can move to the question-and-answer portion of the call.

OPERATOR

Thank you. We will now begin the question and answer session. If you would like to ask a question, please unmute your line and press Star one. You will be prompted to record your name. To withdraw your question, you may press Star two. Again, press Star one to ask a question. And one moment please for our first question. Our first question comes from Joe Spack with UBS. You may ask your question.

Joe Spak, Analyst

Thanks. Good morning, everyone. Mark, maybe just to start on some of the higher Middle East costs and resins, and I just want to make sure I understand some of the commentary here. So, you know, I guess you're going to sort of try to go back and retroactively get, you know, some payment for the higher costs incurred. You know, we'll see, I guess, how successful that is. But your other comment about stabilization, I just want to make sure I understand that secondarily.

Like, does that mean that if those price increases moderate from here, you'll begin to be able to reprice for those higher prices so that's less of a headwind? And when should we expect that to occur if it does stable?

Mark Oswald — EVP and Chief Financial Officer

Yeah, good question. Good morning. I guess I'd look at it in two fronts, Joe. So first of all, the costs that we're incurring there, you could break it up into two buckets. The Middle East cost, which for the quarter, call it about $20 million, that includes higher freight, fuel and, as you indicated, the resin costs or the commodity cost for our chemical foaming operations. For the foaming operations, we do have pass-throughs and escalators in place with about 90% of that business.

So those refunds or those recoveries will come. It'll obviously be on about a two-quarter lag, is what we typically experience. And so with the war continuing, we would expect that to also continue into Q4, with some of the recovery starting obviously in Q4. So for full year, call those Middle East costs somewhere in that $35 to $40 million from where we are today. The other, call it $10 or $12 million, that make up that $32 million that we called out this quarter is really the customer-driven costs.

And those would be just inefficient operating patterns at certain of our customers as they continue to work with what I'd call inefficient operating patterns there. So that was about $12 million for the quarter, bringing that total to $32 million. So we would look, as we go into Q4, for those to start to subside. So net-net, as I look at full year, that $32 million probably becomes somewhere around $35–$40 million for the full year. Does that help?

Joe Spak, Analyst

Yeah, that does. And then the second question is, I guess just on restructuring, and I know you sort of was on sort of your list of potential, you know, challenges, I guess for next year, I guess just to maybe start, is there an updated restructuring number for this year? I think you previously mentioned something like $120 million, but it looks like it's only $77 million year to date. So I don't know if that means there's a larger amount coming or maybe some things are coming a little bit better.

And then just bigger picture, with concern over some customers restructuring in Europe, even though I know that's probably not necessarily happening next year, but just to help level set investors, if you assume the worst case and you had to completely close a facility, what is, would that cost you like $30 million or can you sort of ballpark frame what that would sort of cost so we can set expectations?

Mark Oswald — EVP and Chief Financial Officer

Sure, I'll start, and Jerome, feel free to jump in. So for the full year we have not changed our outlook, so call that somewhere in that $120 million range. As I look into 27, that's one of the elements that we said we still need to get clarity on. We're working with customers as they look at their platforms, they look at their end of production, where they're going to move production to. That's the big wildcard, Joe. So you're absolutely right with your magnitude.

If there's a certain platform that all of a sudden is in one of our facilities and it comes out, you could be looking at a bill of $30 million or more. And that's why Jerome and I, as we went through this year, we said we'd love to give you what the next one, two, three years of restructuring charges looks like so that you guys could have clarity. The problem is we just don't have that clarity yet from our customers. And so we'll continue to, if there is restructuring, do it in a very efficient way.

We've come up with, I'd say, different tactics in the past where we've done long-distance JIT, for example, where we've been able to save on restructuring charges. But that is really the big wildcard as we go into 2027.

Joe Spak, Analyst

Is it fair to say that, I mean, I know you sort of talked about the more long-term, normalized restructuring level is lower, but is it fair to say that, given timing and some of your initiatives, and obviously some of the restructuring that you're doing now rolls off, that it's unlikely to get worse, or it's still too early?

Mark Oswald — EVP and Chief Financial Officer

I think it's just... Yeah, it's just probably too early to tell, only because, again, I'm waiting to hear from our customers in terms of what their final plans are. Do I think that over time it should trend down? Yes, but it's going to be very lumpy because it's all going to be dependent on when certain of those programs actually end production for certain of the regions. Like Americas, for example, Joe, they've done a great job at what I call self-funding.

So if they have to shut a facility down, we've done very good at selling the plant, selling the facilities. So there are, what I'd say, different offsets to that too that we also have to fine-tune as we go through the next couple of months because there will be some asset sales, there'll be some building sales that we could lean on to help out with what I'd call the distributable cash that obviously gets put back to our owners.

Joe Spak, Analyst

Okay, thank you so much. I'll pass it on.

OPERATOR

Thank you. Thank you. Our next question comes from Emmanuel Rosner with Wolfe Research. You may ask your question.

Emmanuel Rosner, Analyst

Great, thank you so much. My first question is on Asia and China. Just for China, can you just dimension first your exposure to exports from the region to other regions? To what extent you're sort of like broadly in line with this sort of industry way there, more or less? And then on Asia, just with the direction of margins year to date, maybe a couple of points lower, just how do you think about it on a go-forward basis, please?

Jerome Dorlack, President and CEO

I'll take the first one, Emmanuel. Thank you very much for the questions. As far as our export exposure in China directly, we are below what the total market export rate is today. A lot of that is driven by our historical joint ventures that we were engaged in. When we wound those down, Yanfeng would have kept the large presence with a lot of the exporters there. And now we've focused more on certainly rotating our portfolio to the domestics, but then also rotating it towards domestic production that will remain in China that we view as more durable in the longer term.

So we are under-indexed to total export volume in China. I hope that answers your question on that part. And then I'll turn it over to Mark for the second one. Does that help, Emmanuel?

Emmanuel Rosner, Analyst

Yes, yes, thank you.

Mark Oswald — EVP and Chief Financial Officer

And then for your second question, just in terms of the margin contraction there, you know, obviously we've been very transparent as we've gone through the year there. We did say that's going to be very manageable—call that 100 basis points or so. You've seen the outperformance there. So again, big picture, as long as I can continue to grow my top line, convert that into EBITDA and free cash flow, I view that as very manageable. The team's also doing a very good job at mitigating how much of that margin contraction there is.

They're using, as Jerome indicated, whether it's automation, they're looking at different techniques, operating patterns over within the region over there. So again, extreme focus on minimizing the impact of that contraction. I still look for that region—it's still a very, what I'd say, profitable region, very cash-generative region for us, and it will remain that way.

Emmanuel Rosner, Analyst

Got it. And then just a question on free cash flow, please. So last quarter you had shown walk towards normalized free cash flow, which was maybe something like $100 million more than what you have this year. About half of it is lower restructuring. And I understand that this is still TBD. As we look into next year in terms of restructuring spend, was curious about some of the other buckets, like are those—would those still be on track to improve, you know, for 2027?

Jerome Dorlack, President and CEO

I'll start with the response and I'll hand it over to Mark. I think as we look at that normalized cash flow, and really then the distributable cash flow that we believe is the potential of Adient long term, that is still our clear objective and where we clearly view that we can get to. I think as you begin to size up 27—and kind of turning back to what Joe's question was—restructuring will be an unknown that we'll sort through. On the capital expenditure side, which will be another large bucket, we would anticipate an uptick in capital expenditure given just the growth that we're going to see that we talked about earlier in the Americas, in China, and also our drive for automation as we look to expand margins and drive margins higher. Automation is going to be a key lever associated with that. And that's why we haven't called out yet what we expect capital expenditures to be, because it's just too early to call based on some of our more recent wins and the timing associated with them, and when the capital will roll in. On the other buckets such as interest expense, we will continue to be prudent on our capital allocation program.

And then it is worth noting, as Mark said, taxes are notably higher this year due to a one-time payment that we had in one of our jurisdictions. We expect that to trend towards a more normal level as we get into our fiscal year 27. Mark, anything else to add?

Emmanuel Rosner, Analyst

Okay. You had one more bar in there which was fiscal 25 pull-ahead actions of $30 million. I assume that would still not recur going forward, right?

Mark Oswald — EVP and Chief Financial Officer

Correct. Correct.

Emmanuel Rosner, Analyst

Thank you.

OPERATOR

Thank you. Our next question comes from Rajat Gupta with JPMorgan. You may ask your question.

Rajat Gupta, Analyst

Great, thanks for taking the question. I just wanted to follow up on the Asia and China margin question. You'd expected like 100 basis points China margin compression this year. Curious if you could quantify how it was year to date, and how we should think about the fourth quarter and into 2027? And I have a quick follow-up.

Mark Oswald — EVP and Chief Financial Officer

Yeah, sure. So you're absolutely correct. We did indicate about 100 basis points of compression. If I look at this year, I would expect us to track pretty close to that. As we go through the balance of this year, again, it's just—when I think about the mix of vehicles, the launch of vehicles that come on, what's happening from the commercial side of the business—when you think about commercial recoveries, that all plays into what I'd say is the cadence of that margin as you progress through the year.

And so again, it's going to be lumpy between quarters, but I think that 100 basis points is pretty much the bogey that we're looking for.

Rajat Gupta, Analyst

Any read into 2027 yet on the trajectory for those margins?

Mark Oswald — EVP and Chief Financial Officer

Yeah, again, early days. We're still going through, obviously, certain of the fine-tuning there. I think what we do have very good insight into is the growth over there, what vehicles are going to be launching, what we're winning business with. As I indicated, we expect that to remain significantly above market over there. The team also right now is going, I'd say, the fine-tuning for what They're going to be doing in terms of, from an operational perspective, what type of automation tools they're going to implement at the plants, et cetera. Right. So as they go through and fine-tune that, obviously that will weigh on the performance of whether or not we could contain the margins, you know, even, you know, I'd say closer, you know, to, you know, less than 100 basis points, but too early. But, you know, I'd say that overall, still very manageable in terms of what we see in the forecast for the remainder of 26 and into 27.

Jerome Dorlack, President and CEO

You broke up a little bit. But I think part of the question was around exports in our European business into China. And given our profile. Yeah. So given our profile there, and even if you go back several years where Europe was a net exporter, they're now a net importer, and our exposure to exported platforms into China was generally fairly low, with the exception of S-Class where we supplied all the components on S-Class. That was a large exporter into China.

Outside of that, I wouldn't say significant exposure or risk on a go-forward basis on vehicle platforms that are exported over into China. As far as the margin profile of our European business going forward, Mark already talked about, we already have now, I think, clearer line of sight on metals projects that will start to roll off in fiscal year 27, which will present a tailwind for us. We also have positive balance-in of other projects. And then some of the restructuring actions that were taken starting in 25, completed through 26, taking hold as well in 27.

So, you know, all else being equal, we would expect to see margin expansion in our European operations next year.

OPERATOR

Thank you. Our next question comes from Colin Langdon with Wells Fargo. You may ask your question.

Colin Langdon, Analyst at Wells Fargo

Oh, great. Thanks for taking my questions. Just a follow up on Europe. I mean, on your slides you indicated you expect outperformance in the Americas and Asia next year, but not Europe. Is that just purely the roll-off? Because you just mentioned a second ago that you have sort of backfill business there. Was that the roll-off of the metals business or is there like a customer mix issue that's kind of dragging the performance down in any way? To remind us, the size of the metals business, is that something like 500 million that's going to eventually roll off or is it bigger or smaller?

Mark Oswald — EVP and Chief Financial Officer

Yeah, yeah, Colin. So that is primarily the driver next year. I'd say next year you're probably talking about $90 million of it rolling off, followed by 28, another chunk of it, you know, probably a little bit bigger in 28 rolling off versus 27. But for planning purposes, yeah, 90 million next year rolling off is what you should be penciling in.

Jerome Dorlack, President and CEO

Yeah. And to the first part of your question, as Mark said, in particular a portion of that is the metals business rolling off there. I do think we wouldn't necessarily refer to it as a customer mix issue as much as it is it's been targeted by us on certain platforms where we've just deprioritized them or exited them, coupled with certain vehicle assembly plants being idled in Europe where we had exposure to. So it's really a mix of all three of those, Colin.

Colin Langdon, Analyst at Wells Fargo

Got it. That makes sense. And then one of your top competitors talks a lot about automation. I noticed it was on your slides and in your commentary today. Where do you think you stand in sort of the need to automate your production and how you think you are relative to your peers? Is that a disadvantage or do you think you have some catching up to do? Do you think you need to spend more there in automation? Any thoughts there?

Jerome Dorlack, President and CEO

You know, the first part of your question on it, I think automation in certain regions we operate in is an absolute necessity. You know, if you look at some of the more recent union agreements that have been settled, you know, that's all public information. You can see the wage inflation that we're facing and we're committed to working to offset that through, you know, essentially looking at our supply chains, working with our partners in the plant, and automation where required.

So automation is going to be a necessity moving forward. And that's part of—if you go back to the color I added to Emanuel's question on cash flows in 27—we will see an increase in automation spending in order to expand margins, not just keep pace, but really drive it forward with earnest. In terms of how we're positioned versus our competitors, I think if you look across our portfolios, I believe we are competitively positioned across all of them in terms of the technology we have available to us, the partners that we work with on the outside to drive the automation through, and where we're able to implement it at scale.

I think what we need to be cognizant of is we are very targeted in where we deploy automation and making sure that we're not trading a variable cost, such as labor that we can flex on some of our more unstable programs, with a fixed cost that then you're essentially stuck with and it becomes a much more difficult commercial negotiation. So we've been very targeted in how we deploy automation in our JIT factories based on kind of the run-rate stability and ongoing prospects of some of those JIT platforms.

If you contrast that to trim, metals, and foam, where we're really, I'd say, leading or world-class in those areas, it has been a very aggressive deployment. Because we share those factories across multiple customers, we're better able to flex the fixed costs. Hopefully that answered your question on automation.

Colin Langdon, Analyst at Wells Fargo

That's very helpful. Thanks for taking my question.

Jerome Dorlack, President and CEO

Yeah, no, thank you for the question, as always.

OPERATOR

Thank you. Our next question comes from Dan Levy with Barclays. Your line is open. You may ask your question.

Dan Levy, Analyst at Barclays

Hi, good morning. Thanks for taking the questions. Wanted to start out with just what's going on with Americas and the backlog. Maybe you could just talk to this very strong outperformance you saw in the third quarter, which I know you said is unlikely to occur. But the additional piece of this is you talked about above-market growth in the Americas. At one point in the past, you had mentioned that you could see Americas growth over market at mid-single digits.

You know, you've also said at some point that there could be $400 million of potential backlog opportunity in 27, which would equate to a pretty significant step-up of revenue. So maybe you could just go through some of the program revenue dynamics for the Americas business. Thank you.

Jerome Dorlack, President and CEO

Yeah, I'll start and then I'll hand it over to Mark. You know, in the Americas business on our high return-on-capital product lines—and when we talk about those, we're thinking about JIT, trim, and foam—I think we do have a line of sight to above-market growth on those. You know, we talked about the backlog with the onshoring. A good deal of those onshoring wins were fully integrated or will become fully integrated in the 28 time frame. So I think when we look at those product lines, we continue to see above-market growth.

Is it 2%, 3%, or 5%? I think we'll have to see how mix shapes up next year and how quickly some of our truck platforms recover. That's going to be key, and I think we have to weigh against that, when you look at the total region revenues, is the wind-off of metals programs, which we've talked about. We continue to talk about that and we will continue to see that as we move through fiscal year 27 and 28. So while the region as a whole may be slightly above-market growth to potentially flat-to-market growth, in our high return-on-capital product lines we will see above-market growth, which will lead to margin expansion, and as we look at kind of net of automation deployment, expanding cash flows.

Dan Levy, Analyst at Barclays

Great, thank you. As a follow up, I wanted to just ask about some of the dynamics of mix and the conversion to revenue. So in the third quarter we saw volume/mix on the EBITDA line was negative 2 on $147 million incremental revenue. Maybe you could just explain that. But as we go into 27 and you have this step-up of Americas backlog, you have a wind-down of revenue of programs where the margin was fairly low, what types of incremental margins we should expect on the revenue dynamics?

Should it be theoretically higher than what we've seen in the past because you have this lower-margin business rolling off?

Mark Oswald — EVP and Chief Financial Officer

Yeah, I think I'll start there. And Jerome, feel free to jump in. But what we've typically said is somewhere in that 16, 17% range is what I would look at for my incremental, and I wouldn't think that next year would be any different from that. I think when you look at, you know, this past year, for example, we've been absorbing certain of the Middle East costs, certainly the customer-driven costs. Right. You know, despite, you know, some of the higher volumes there.

So I think that, you know, gets behind us as we go into 2027. As Jerome mentioned, you know, we will have some of that metals business rolling off next year—call that about $100 million of metals business rolling off in the Americas. So, you know, again, you know, I'd say that you're probably right around that 16, 17% incrementals as you see that revenue roll in next year.

Dan Levy, Analyst at Barclays

Great. Thank you.

Mark Oswald — EVP and Chief Financial Officer

Thank you.

Jerome Dorlack, President and CEO

Thank you.

OPERATOR

At this time, I'll turn the call back over to the speakers.

Linda Conrad, Investor Relations

Thank you, Charlene. Thank you everyone for your interest in Adient. We appreciate your— and if you have any follow up questions, please don't hesitate to reach out. As a reminder, we will be in New York City next week at the J.P. Morgan conference. Hope to see many of you there. Thank you and have a nice day.

OPERATOR

Thank you. This does conclude today's conference. We thank you for your participation. At this time, you may disconnect your lines.

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