BorgWarner Inc BWA

AUBURN HILLS, Mich., July 31, 2024 /PRNewswire/ -- BorgWarner Inc. (NYSE: BWA) today reported second quarter results.

Strong Second Quarter Margin and Free Cash Flow, Increasing Full Year Adjusted Operating Margin and EPS Guidance

• BorgWarner achieved an adjusted operating margin performance of 10.4% during the second quarter, which equated to a U.S. GAAP operating margin of 8.2%. The Company also generated net cash provided by operating activities of $462 million and $297 million in free cash flow, despite a modest decline in the Company's weighted light and commercial vehicle markets.
• The Company increased its mid-point full year adjusted operating margin guidance by 30 basis points and adjusted earnings per share guidance by approximately $0.07 per share. This is being driven by BorgWarner's technology-focused portfolio and strong cost controls. BorgWarner reduced its full year mid-point net sales guidance by $400 million primarily due to a lower market production outlook, weaker foreign currencies and slower year-over-year growth in eProduct sales.
• BorgWarner intends to repurchase $300 million of the Company's outstanding shares during the second half of 2024. After these repurchases, BorgWarner will have repurchased $577 million of its outstanding shares since the start of the fourth quarter of 2023.

Business Update

The Company announced a number of items that are intended to support its future long-term profitable growth including: 

• Introduction of a new business unit structure that we expect to drive synergies, strengthen the Company's product and go to market strategy and improve reporting transparency for our stockholders. This new business unit structure was effective July 1^st, 2024.
• Restructuring of the Company's ePropulsion segment, which is expected to align the segment's cost structure to current market dynamics while preserving its long-term profitable growth potential. This restructuring is expected to result in annual cost savings of approximately $100 million by 2026.
• Multiple new business awards across its combustion, hybrid and battery electric vehicle (BEV) portfolio. BorgWarner booked three electric cross differential, a high-voltage eFan and two exhaust gas recirculation awards. These awards are primarily expected to launch in 2026 and 2027.

Second Quarter Highlights (continuing operations basis):

• U.S. GAAP net sales of $3,603 million, a decrease of 2% compared with second quarter 2023.
  • Excluding the impact of foreign currencies and the impact of net M&A, organic sales were down 0.3% compared with second quarter 2023.
• U.S. GAAP net earnings of $1.39 per diluted share.
  • Excluding $0.20 of net gains per diluted share related to non-comparable items (detailed in the table below), adjusted net earnings were $1.19 per diluted share.
• U.S. GAAP operating income of $297 million, or 8.2% of net sales.
  • Excluding $79 million of pretax expenses related to non-comparable items, adjusted operating income was $376 million, or 10.4% of net sales.
• Net cash provided by operating activities of $462 million.
  • Free cash flow of $297 million.

Financial Results (continuing operations basis):

The Company believes the following table is useful in highlighting non-comparable items that impacted its U.S. GAAP net earnings per diluted share. The non-comparable items presented below are calculated after tax using the corresponding effective tax rate discrete to each item and the weighted average number of diluted shares for the periods presented. The Company defines adjusted earnings per diluted share as earnings per diluted share adjusted to eliminate the impact of restructuring expense, merger, acquisition and divestiture expense, other net expenses, discontinued operations, other gains and losses not reflective of the Company's ongoing operations, and related tax effects.

Net sales were $3,603 million for the second quarter 2024, a decrease of 2% compared with net sales of $3,671 million for the second quarter 2023, primarily due to declining market production volumes and the negative impact of foreign currencies. Net earnings for the second quarter 2024 were $315 million, or $1.39 per diluted share, compared with net earnings of $228 million, or $0.97 per diluted share, for the second quarter 2023. Adjusted net earnings per diluted share for the second quarter 2024 were $1.19, up from adjusted net earnings per diluted share of $1.06 for the second quarter 2023. Adjusted net earnings for the second quarter 2024 excluded net non-comparable items of $0.20 per diluted share, while adjusted net earnings for the second quarter 2023 excluded net non-comparable items of $(0.09) per diluted share. These items are listed in the table above, which is provided by the Company for comparison with other results and the most directly comparable U.S. GAAP measures. The increase in adjusted net earnings per diluted share was primarily due to higher adjusted operating margin driven by the Company's cost controls, a lower effective tax rate and a lower share count.

Full Year 2024 Guidance: The Company has updated full year sales, margin and EPS guidance. Net sales for 2024 are expected to be in the range of $14.1 billion to $14.4 billion, compared to the Company's prior guidance of $14.4 billion to $14.9 billion and 2023 sales of approximately $14.2 billion. The Company expects its weighted light and commercial vehicle markets to be in the range of down 3% to down 2% year-over-year in 2024, a decrease from the Company's prior guidance of flat to down 2.5%. The Company's sales guidance implies a year-over-year increase in organic sales of approximately 0.5% to 2.5%, or estimated outgrowth above market production of approximately 350 to 450 basis points. The Company expects its 2024 eProduct sales to be near the low-end of the Company's prior $2.5 billion to $2.8 billion guidance, up from approximately $2.0 billion in 2023. Foreign currencies are expected to result in a year-over-year decrease in sales of approximately $175 million primarily due to the weakening of the Chinese Renminbi, the Korean Won and the Euro against the U.S. dollar. The acquisitions of SSE and the Electric Hybrid Systems business segment of Eldor Corporation are expected to increase year-over-year sales by approximately $30 million.

Operating margin for the full year is expected to be in the range of 8.2% to 8.3%. Excluding the impact of non-comparable items, adjusted operating margin is expected to be in the range of 9.6% to 9.8%, up from the Company's prior guidance of 9.2% to 9.6%. Net earnings are expected to be within a range of $3.88 to $4.05 per diluted share. Excluding the impact of non-comparable items, adjusted net earnings are expected to be within a range of $3.95 to $4.15 per diluted share, up from the Company's prior guidance of $3.80 to $4.15 per diluted share. The Company's full-year EPS guidance includes the expected impact of the Company's intended share repurchases of $300 million during the second half of 2024. Full-year operating cash flow is expected to be in the range of $1,325 million to $1,375 million, while free cash flow is expected to be in the range of $475 million to $575 million.

At 9:30 a.m. ET today, a brief conference call concerning second quarter 2024 results and guidance will be webcast at: https://www.borgwarner.com/investors. Additionally, an earnings call presentation will be available at https://www.borgwarner.com/investors.

For more than 130 years, BorgWarner Inc. (NYSE: BWA) has been a transformative global product leader bringing successful mobility innovation to market. Today, we're accelerating the world's transition to eMobility -- to help build a cleaner, healthier, safer future for all.

Forward Looking Statements: This press release contains forward-looking statements as contemplated by the 1995 Private Securities Litigation Reform Act that are based on management's current outlook, expectations, estimates and projections. Words such as "anticipates," "believes," "continues," "could," "designed," "effect," "estimates," "evaluates," "expects," "forecasts," "goal," "guidance," "initiative," "intends," "may," "outlook," "plans," "potential," "predicts," "project," "pursue," "seek," "should," "target," "when," "will," "would," and variations of such words and similar expressions are intended to identify such forward-looking statements. Further, all statements, other than statements of historical fact contained in this press release that we expect or anticipate will or may occur in the future regarding our financial position, business strategy and measures to implement that strategy, including changes to operations, competitive strengths, goals, expansion and growth of our business and operations, plans, references to future success and other such matters, are forward-looking statements. Accounting estimates, such as those described under the heading "Critical Accounting Policies and Estimates" in Item 7 of our most recently-filed Annual Report on Form 10-K ("Form 10-K"), are inherently forward-looking. All forward-looking statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate under the circumstances. Forward-looking statements are not guarantees of performance, and the Company's actual results may differ materially from those expressed, projected or implied in or by the forward-looking statements.

You should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Forward-looking statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed, projected or implied in or by the forward-looking statements. These risks and uncertainties, among others, include: supply disruptions impacting us or our customers, commodity availability and pricing, and an inability to achieve expected levels of recoverability in commercial negotiations with customers concerning these costs; competitive challenges from existing and new competitors, including original equipment manufacturer ("OEM") customers; the challenges associated with rapidly changing technologies, particularly as they relate to electric vehicles, and our ability to innovate in response; the difficulty in forecasting demand for electric vehicles and our electric vehicles revenue growth; potential disruptions in the global economy caused by wars or other geopolitical conflicts; the ability to identify targets and consummate acquisitions on acceptable terms; failure to realize the expected benefits of acquisitions on a timely basis; the possibility that our 2023 tax-free spin-off of our former Fuel Systems and Aftermarket segments into a separate publicly traded company will not achieve its intended benefits; the failure to promptly and effectively integrate acquired businesses; the potential for unknown or inestimable liabilities relating to the acquired businesses; our dependence on automotive and truck production, which is highly cyclical and subject to disruptions; our reliance on major OEM customers; impacts of any future strikes involving any of our OEM customers and any actions such OEM customers take in response; fluctuations in interest rates and foreign currency exchange rates; our dependence on information systems; the uncertainty of the global economic environment; the outcome of existing or any future legal proceedings, including litigation with respect to various claims, or governmental investigations, including related litigation; future changes in laws and regulations, including, by way of example, taxes and tariffs, in the countries in which we operate; impacts from any potential future acquisition or disposition transactions; and the other risks, noted in reports that we file with the Securities and Exchange Commission, including Item 1A, "Risk Factors" in our most recently-filed Form 10-K and/or Quarterly Report on Form 10-Q. We do not undertake any obligation to update or announce publicly any updates to or revisions to any of the forward-looking statements in this press release to reflect any change in our expectations or any change in events, conditions, circumstances, or assumptions underlying the statements.

We do not undertake any obligation to update or announce publicly any updates to or revisions to any of the forward-looking statements in this press release to reflect any change in our expectations or any change in events, conditions, circumstances, or assumptions underlying the statements.

Non-GAAP Financial Measures

This press release contains information about BorgWarner's financial results that is not presented in accordance with accounting principles generally accepted in the United States ("GAAP"). Such non-GAAP financial measures are reconciled to their closest GAAP financial measures below and in the Financial Results table above. The provision of these comparable GAAP financial measures for 2024 is not intended to indicate that BorgWarner is explicitly or implicitly providing projections on those GAAP financial measures, and actual results for such measures are likely to vary from those presented. The reconciliations include all information reasonably available to the Company at the date of this press release and the adjustments that management can reasonably predict.

Management believes that these non-GAAP financial measures are useful to management, investors, and banking institutions in their analysis of the Company's business and operating performance. Management also uses this information for operational planning and decision-making purposes.

Non-GAAP financial measures are not and should not be considered a substitute for any GAAP measure. Additionally, because not all companies use identical calculations, the non-GAAP financial measures as presented by BorgWarner may not be comparable to similarly titled measures reported by other companies.

Adjusted Operating Income and Adjusted Operating Margin

The Company defines adjusted operating income as operating income adjusted to exclude the impact of restructuring expense, merger, acquisition and divestiture expense, intangible asset amortization expense, other net expenses, discontinued operations, and other gains and losses not reflective of the Company's ongoing operations. Adjusted operating margin is defined as adjusted operating income divided by net sales.

Adjusted Net Earnings

The Company defines adjusted net earnings as net earnings attributable to BorgWarner Inc. adjusted to eliminate the impact of restructuring expense, merger, acquisition and divestiture expense, other net expenses, discontinued operations, and other gains and losses not reflective of the Company's ongoing operations, and related tax effects. The impact of intangible asset amortization expense will continue to be included in adjusted net earnings.

Adjusted Earnings per Diluted Share

The Company defines adjusted earnings per diluted share as earnings per diluted share adjusted to eliminate the impact of restructuring expense, merger, acquisition and divestiture expense, other net expenses, discontinued operations, other gains and losses not reflective of the Company's ongoing operations, and related tax effects. The impact of intangible asset amortization expense continues to be included in adjusted earnings per share.

Free Cash Flow

The Company defines free cash flow as net cash provided by operating activities minus capital expenditures and is useful to both management and investors in evaluating the Company's ability to service and repay its debt.

Organic Net Sales Change

The Company defines organic net sales changes as net sales change year-over-year excluding the estimated impact of foreign exchange (FX) and the acquisitions of the smart grid and smart energy businesses of Hubei Surpass Sun Electric and the Electric Hybrid Systems business segment of Eldor Corporation.

Outgrowth

The Company defines outgrowth as organic net sales change versus the year-over-year change in light and commercial vehicle production weighted for the Company's geographic exposure, as estimated by the Company.

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SOURCE BorgWarner