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BorgWarner Earnings Beat Estimates on Diesel Demand

By John Rosevear - Feb 13, 2020 at 4:36PM

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The outlook for 2020 is cautiously upbeat.

Auto-industry supplier BorgWarner (BWA 2.50%) said that its net income fell 4.3% in the fourth quarter of 2019, to $220 million, as it was able to largely offset the effects of a slowdown in commercial-vehicle demand with stronger demand for light-vehicle parts and better-than-expected demand for diesel engines in Europe. 

Excluding one-time items, BorgWarner earned $1.17 per share in the fourth quarter, down from $1.21 per share a year ago but well ahead of analysts' consensus estimate of $1.02. Revenue of $2.56 billion was roughly flat but exceeded Wall Street's $2.49 billion estimate.

The company also gave cautiously upbeat guidance for 2020. 

The raw numbers

Metric Q4 2019 Change vs. Q4 2018 2019 Change vs. 2018
Revenue $2.559 billion (0.6%) $10.168 billion (3.4%)
Operating income $478 million 79.6% $1.303 billion 9.5%
Adjusted operating income $340 million 5.3% $1.232 billion (4.9%)
Adjusted operating margin 13.3% 0.8 pp 12.1% (0.2 pp)
Net income $220 million (4.3%) $746 million (19.9%)
Adjusted free cash flow $221 million (47.1%) $699 million 20.5%

Data source: BorgWarner. Adjusted figures exclude the impact of one-time items. BorgWarner had a net one-time credit of $138 million in the fourth quarter of 2018, mostly related to the sale of a subsidiary. It took a net charge of $57 million in the fourth quarter of 2018. BorgWarner's expressions of adjusted operating income and margin also exclude the impacts of exchange-rate movements. Pp = percentage points.

What happened at BorgWarner in the fourth quarter?

  • BorgWarner finished 2019 with revenue growth, adjusted earnings per share, and free cash flow all coming in above its guidance for the year.
  • Net sales in the company's engine segment were $1.53 billion in the fourth quarter, down slightly from $1.54 billion a year ago. But excluding the impact of exchange-rate movements and the sale of its thermostat product line, the segment's net sales were up 3.5% from the year-ago period, and its adjusted earnings before interest and tax increased 11.2% to $264 million.
  • Growth in the engine segment, powered by strong results in Europe and China, was somewhat offset by lower industry volumes in North America. In particular, stronger-than-expected demand for diesel engines in Europe helped. 
  • Net sales in the drivetrain segment were $1.04 billion, down slightly from $1.05 billion a year ago. Here again, excluding the impact of currency swings, sales were up 1.5% and adjusted EBIT increased 7.7% to $136 million. 
  • Growth in drivetrains was powered by higher sales in China and lower costs year over year, offset somewhat by lower industry volumes in North America. 

Also of note: The company said in January that it had reached a deal to buy rival Delphi Technologies (DLPH) in an all-stock transaction that values Delphi at $3.3 billion. 

Exterior of BorgWarner's technical center in Warren, Michigan.

Image source: BorgWarner.

Looking ahead: Guidance for 2020

BorgWarner reiterated the cautiously upbeat guidance it gave in its preliminary full-year report late last month. For 2020, auto investors following BorgWarner should expect:

  • 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.

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Stocks Mentioned

BorgWarner Inc. Stock Quote
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