What happened
Beating analysts' revenue estimates, BorgWarner (BWA +2.98%) reported a year-over-year increase in revenue of 8% for the first quarter of 2023. Investors, however, weren't impressed. Instead, they were more focused on the fact that the auto parts supplier failed to meet expectations on the bottom of the income statement. And that's not all. Some details in the company's 2023 forecast signaled a yellow flag to investors, leading to a sell-off in the stock.
As of the end of trading on Thursday, shares of BorgWarner are down 11.1% since the end of last Friday's session, according to data provided by S&P Global Market Intelligence.
NYSE: BWA
Key Data Points
So what
Reporting adjusted earnings per share of $1.08, BorgWarner failed to meet analysts' expectations of $1.11. During the quarter, BorgWarner recognized a contraction in its gross margin -- from 19.4% in Q1 2022 to 17.9% in Q1 2023 -- due to higher material costs and unfavorable foreign currency rates.
In addition to what they saw in the rearview mirror, the road ahead is also giving investors pause. Management projects cash flow in 2023 to decline year over year. Whereas BorgWarner generated operational cash flow of $1.57 billion, management forecast the company will book $1.4 billion to $1.55 billion in cash from operations. Similarly, free cash flow is also expected to drop. The company generated free cash flow of $846 million in 2022, but management forecasts free cash flow of $550 million to $650 million.
Now what
Investors may not be celebrating the company's recent performance -- or its 2023 forecast -- but those who are thinking of parking BorgWarner's stock in their portfolio should continue to weigh the company's strengths and weaknesses. The company is a compelling way to gain EV exposure, and while there have been some bumps in the road, every company faces challenges. There's nothing that BorgWarner is facing that seems insurmountable.
