BorgWarner Inc. (NYSE:BWA) is a global leader in clean and efficient technology solutions for combustion, hybrid, and electric vehicles. The company's diverse product portfolio, spanning air management, drivetrain, and ePropulsion systems, positions it at the forefront of the automotive industry's transition towards electrification.

Financials

In the fiscal year 2023, BorgWarner reported annual net income of $625 million, annual revenue of $14.2 billion, annual operating cash flow of $1.4 billion, and annual free cash flow of $565 million. The company's strong financial performance underscores its ability to navigate the evolving automotive landscape and capitalize on emerging trends.

During the first quarter of 2024, BorgWarner delivered impressive results, reporting net sales of $3.6 billion, a 6% increase compared to the same period in the prior year. This growth was driven by a combination of favorable volume, mix, and net new business, which added approximately $233 million, or 7%, to sales. However, this was partially offset by a $32 million, or 1%, decrease due to fluctuations in foreign currencies, primarily the weakening of the Chinese Renminbi and Korean Won against the U.S. Dollar.

The company's gross profit margin for the quarter was 17.9%, up from 17.1% in the first quarter of 2023. This improvement was primarily attributable to the factors driving the sales increase, as well as the company's focus on cost management. Selling, general, and administrative expenses, including research and development (R&D) costs, increased to 9.2% of net sales, compared to 8.8% in the prior-year period, as the company continued to invest in its eProduct portfolio.

BorgWarner's Segment Adjusted Operating Income for the first quarter of 2024 was $404 million, representing a margin of 9.4%. This strong performance was driven by the company's ability to convert the higher sales into earnings, with an all-in incremental margin of over 23%. The Air Management segment delivered a Segment Adjusted Operating Margin of 15.2%, while the Drivetrain & Battery Systems segment achieved a margin of 13.6%. The ePropulsion segment, however, reported a Segment Adjusted Operating Margin of -14.2%, reflecting the company's ongoing investments in R&D to support its electrification strategy.

Outlook

Looking ahead, BorgWarner has provided guidance for the full year 2024. The company expects organic growth of approximately 2% to 5% year-over-year, with total sales in the range of $14.4 billion to $14.9 billion. This guidance takes into account a $100 million headwind from weaker foreign currencies, primarily the Chinese Renminbi and Korean Won, compared to the company's prior guidance.

BorgWarner's full-year adjusted operating margin is expected to be in the range of 9.2% to 9.6%, reflecting the company's focus on delivering strong conversion on higher sales while managing costs appropriately. Excluding the impact of the Eldor acquisition, the company's outlook contemplates full-year incrementals in the mid- to high-teens on an all-in basis.

Based on this sales and margin outlook, BorgWarner is expecting full-year adjusted earnings per share (EPS) in the range of $3.80 to $4.15 per diluted share. This increase compared to the company's prior guidance is driven by the impact of recent share repurchases and a reduction in the expected tax rate.

Geographic Performance

In terms of geographic performance, BorgWarner's sales growth in the first quarter of 2024 was primarily driven by China and Europe. The Air Management segment, which includes products such as turbochargers and high-voltage coolant heaters, saw strong demand in North America and China. The Drivetrain & Battery Systems segment, which includes products like battery systems and drivetrain components, experienced robust growth in China and Europe.

The company's ePropulsion segment, which encompasses its electric vehicle-related products, reported a 10% year-over-year decline in net sales during the first quarter of 2024. This was primarily due to a reduction in volume, mix, and net new business, driven by decreased demand for the company's light vehicle eProducts in North America. BorgWarner is actively addressing the margin challenges in this segment through cost-cutting measures and a focus on improving its incremental margin performance.

Capital Allocation and Liquidity

BorgWarner's balanced approach to capital allocation has been a key driver of shareholder value creation. In the first quarter of 2024, the company repurchased $100 million of its common stock, bringing the total share repurchases since 2020 to approximately $733 million. Additionally, the company's Board of Directors approved an increase in the share repurchase authorization to $767 million, further demonstrating the company's commitment to returning capital to shareholders.

The company's liquidity position remains strong, with $3 billion in available liquidity as of March 31, 2024, comprising $1 billion in cash and cash equivalents and $2 billion in undrawn revolving credit facilities. This financial flexibility allows BorgWarner to continue investing in organic growth initiatives, pursue strategic acquisitions, and return capital to shareholders through dividends and share repurchases.

Conclusion

BorgWarner's diverse product portfolio, spanning both foundational and electrified technologies, positions the company well to navigate the evolving automotive landscape. The company's focus on efficient powertrain solutions, combined with its strong market positions and technological capabilities, underpins its ability to deliver above-market growth and robust financial performance, regardless of the pace of electrification adoption across different regions.

As the automotive industry continues its transition towards electrification, BorgWarner's balanced approach to capital allocation, cost management, and strategic investments positions the company to capitalize on emerging opportunities and create long-term value for its shareholders.