For 23 straight quarters, auto parts maker BorgWarner (NYSE:BWA) has consistently beaten every earnings target Wall Street could throw at it. On Friday, the company will try to make it six years in a row.

What analysts say:

  • Buy, sell, or waffle? Fourteen analysts still follow the company. Surprisingly for an auto industry stock, most of them love it. The stock gets eight buy ratings and six holds.
  • Revenues. On average, the analysts expect to see 5% sales growth to $1.1 billion.
  • Earnings. Profits are predicted to finally stall, and fall, however. The target is $0.87.

What management says:
The big news at BorgWarner this quarter was certainly its announcement on Sept. 22 that it will lay off 13% of its workforce in the U.S., Canada, and Mexico. The drastic reductions in payroll were caused by similarly "drastic volume declines and customer restructurings" among its customers; the company cited production declines at Ford (NYSE:F), GM (NYSE:GM), and DaimlerChrysler (NYSE:DCX) as catalysts. Ford and GM have announced reductions in fourth-quarter output of 21% and 12%, respectively; Daimler has said it's reducing production in the second half by 16%. Viewed against that backdrop, actually, a 13% reduction in force at BorgWarner looks pretty tame.

Management made its announcement near the very end of Q3 and expects the layoffs to be completed in October (Q4), so its Q3 results should not be affected very much by the costs of this downsizing. However, severance and related expenses will be incurred this year and, recognizing that, the firm lowered its full-year guidance to $3.80 to $3.95 per share -- about 13% lower than previous guidance.

What management does:
In the same release in which it announced the layoffs, management advised that raw materials costs have continued rising this year, driven by the higher cost of nickel used in turbochargers. And indeed, we have watched the company's rolling gross margin decline in each of the past two quarters as cost of goods sold rose 7% versus 6% sales growth year to date. BorgWarner has more than counteracted the inflation in raw materials costs, however, by reducing its operating costs 3% in the same period.

Margins %

3/05

6/05

9/05

12/05

3/06

6/06

Gross

18.7

19.2

19.8

19.9

19.8

19.5

Op.

9.2

9.4

9.4

9.1

9.4

9.5

Net

6.6

5.8

5.9

5.6

5.1

5.8
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
In August, Motley Fool Stock Advisor co-analyst Tom Gardner updated Fools on his thoughts about BorgWarner, pointing out how the firm's engine business continues to grow even as its drive-train segment has contracted somewhat. Taking into consideration the ongoing struggles of the U.S. automakers, Tom points out that the company doesn't just sell to the Detroit Big Three, but to automakers all over the globe (for more details on BorgWarner's customers and its strategy in serving them, read my interview with CEO Tim Manganello). In Tom's view, BorgWarner's "diverse customer base will continue to insulate it from vicious market swings in any one location -- domestically or abroad."

That's a view that Manganello appears to agree with. Despite the walkback on profits projections this year, he noted that sales will still be growing about 5% for the year. And that next year, BorgWarner expects to grow sales in the 7% to 9% range.

Competitors:

  • Honeywell (NYSE:HON)
  • Magna (NYSE:MGA)

Suppliers:

  • Gibraltar (NASDAQ:ROCK)

Over its three-plus years in the Stock Advisor portfolio, our recommendation of BorgWarner has trounced the market's return, 121% to 48% -- and it's just one of more than 100 recommendations we've made to date. To see the other 99-plus, check out a free trial today.

Fool contributor Rich Smith does not own shares of any company named above.