In a preliminary earnings release for 2019, Michigan-based auto-industry supplier BorgWarner (BWA +2.82%) said that its operating income rose 9.5%, to $1.3 billion, despite foreign-exchange pressures and a decline in overall sales.
BorgWarner's full-year revenue of $10.168 billion was down 3.4% from its 2018 result, but slightly ahead of Wall Street's consensus estimate of $10.03 billion, as reported by Thomson Reuters.
The release of preliminary 2019 numbers was accompanied by the announcement that BorgWarner has agreed to acquire rival Delphi Technologies (DLPH +0.00%) in a $3.3 billion all-stock deal. Management also provided full-year guidance for 2020, though it excludes the impact of its pending deal with Delphi.
Image source: BorgWarner.
The raw numbers
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $10.168 billion | $10.530 billion | (3.4%) |
| Operating income | $1.303 billion | $1.190 billion | 9.5% |
| Operating margin | 12.8% | 11.3% | 1.5 pp |
| Adjusted free cash flow | $692 million | $580 million | 19.3% |
Data source: BorgWarner. 2019 figures are preliminary. BorgWarner's expression of operating margin is its operating income as a percentage of net sales. Net sales excludes the impacts of exchange-rate movements and corporate actions. "Pp" = percentage points.
BorgWarner will report its complete fourth-quarter and full-year 2019 results on Feb. 13.
What management had to say
BorgWarner didn't provide much in the way of fourth-quarter business details, as its focus on Tuesday was on the Delphi transaction. On that front, CEO Frédéric Lissalde emphasized that Delphi's product portfolio will complement BorgWarner's offerings and allow the company to present more complete powertrain solutions to its automaker clients.
"Delphi Technologies will bring proven leading power electronics technologies, talent and scale that will complement our hybrid and electric vehicle propulsion offerings. As a combined company, we look forward to delivering enhanced solutions to our customers while driving increased value for our stockholders." -- Lissalde
Long story short: This deal is about ensuring that BorgWarner can maintain a leadership position in powertrain technology as the auto industry migrates to hybrid and battery-electric vehicles.
Guidance for 2020
Although BorgWarner and Delphi expect their deal to close in the second half of 2020, BorgWarner's preliminary guidance does not take any of the effects of that transaction into account. In a nutshell, it said that auto investors should expect the vehicle markets it serves to decline (globally) by 2% to 4% this year, and its financial guidance reflects that expectation.
For 2020, BorgWarner expects:
- Net sales between $9.75 billion and $10.08 billion.
- Operating margin between 11% and 11.5%.
- Free cash flow between $675 million and $725 million.
