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Holly LaFon
Articles (8704)  | Author's Website |

Chris Davis Ups Stake in World's Largest Car Seat Maker Adient

Buys as temporary setback lowers stock price

July 09, 2018 | About:

Chris Davis (Trades, Portfolio) has displayed strong conviction on Adient (NYSE:ADT) for more than a year and confirmed his maintained interest in an upward portfolio adjustment disclosed Monday.

Davis, portfolio manager at New York-based Davis Funds, purchased 2,952,932 shares of the world’s largest vehicle seat maker, reflecting a 36.9% increase over his previous position of 8,001,944 shares. With the buy, he holds an 11.7% stake in the company of 10,954,876 shares.

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Ireland-based Adient spun off from Johnson Controls (NYSE:JCI) in late 2016 and has global operations in Plymouth, Michigan. It makes interior seating and components for more than 25 million vehicles annually, including futuristic, multi-feature seats for the nascent electric vehicle industry.

Adient’s innovative take on car seats is geared toward experience, relaxation and freedom for passengers that no longer have to think about driving. Seats recently featured at auto shows offer rotation, stowaway ability and biometric sensors to send vital health data to doctors.

“As we go from traditional vehicle architecture and layout and migrate towards autonomous technology, I think the new challenges are good,” Adient’s VP of global innovation and design, Richard Chung, said in a Car Design News article in June. “In five to ten years from now, vehicle architecture will completely change with electrification, allowing for a completely different vehicle profile.”

The stock likely made it into Davis’ portfolio through its spinoff from his holding Johnson Controls (NYSE:JCI) in the fourth quarter of 2016, but he has been grabbing more over the fourth quarter of 2017 and first quarter of 2018. Buying also coincided with a 37% tumble in share price year to date.

Negatively affecting the stock price were two consecutive quarters of net losses related to its segment that makes seat structures and mechanisms used by Adient and other customers. The segment, Seat Structures & Mechanisms (SS&M), has faced higher commodities prices and launch inefficiencies that directly harmed first-half results.

In the second fiscal quarter (ended March 31), Adient reported $168 million in net losses, or a $1.80 loss per share, compared to $190 million in net income for the second quarter of 2017.

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Adient reported an adjusted Ebitda loss of $34 million in the quarter, compared to adjusted Ebitda of $40 million a year earlier. Its projections for the future of the SS&M segment were optimistic going forward.

“We expect profitability for the SS&M business to progress back to pre-spin levels, providing significant improvement compared with our FY18 outlook. Beyond 2020, fundamental changes to the business will be necessary to ensure appropriate financial returns are achieved,” R. Bruce McDonald, Adient chairman and CEO, said.

In a January presentation, Adient said 2018 is 'best characterized as a ‘transition’ year.”

Adient has a price-earnings ratio of 29.3. Its price-book ratio of 0.92 and its price-sales ratio of 0.23 are near their respective two-year lows.

Other notable investors with stakes in the company are Barrow, Hanley, Mewhinney & Strauss with 10% of shares and Hotchkis & Wiley with 2.61% of shares.

See Chris Davis (Trades, Portfolio)' portfolio here.

About the author:

Holly LaFon
I'm a financial journalist with a master of science in journalism from Medill at Northwestern University.

Visit Holly LaFon's Website


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