After 23 straight quarters, auto parts maker BorgWarner (NYSE:BWA) finally stumbled last quarter and reported lower earnings than Wall Street had predicted (as well as lower earnings than last year). On Thursday, it will try to correct at least one of those wrongs, and "beat the Street" when it reports its Q4 and full-year numbers.

What analysts say:

  • Buy, sell, or waffle? Sixteen analysts now follow BorgWarner, splitting their ratings evenly between buy and hold.
  • Revenues. On average, the analysts expect 6% quarterly sales growth to $1.11 billion.
  • Earnings. Profits are predicted to fall 22% to $0.95.

What management says:
It pays to read the paper. Skimming through BorgWarner's SEC filings to see what interesting things management might have said since last quarter's earnings, I found very little of interest. Fortunately, though, I remembered seeing a press release -- that somehow never made it onto the SEC's site -- from back in January, and I've dug that up for you. Good thing that I did, because this incredible vanishing document was one of those happiest of press releases: an upping of earnings guidance. In it, the Borg promised to return to at least the low end of its historical operating margins range, maintain its double-digit earnings growth in 2007, and increase this year's guidance range to $4.60 to $4.80 per share on sales growth of about 8%.

What management does:
According to CEO Tim Manganello, Borg is facing a couple of trends, working at cross purposes, that affect its net margins. On the downside, raw materials costs continue to outpace sales growth; the last two quarters saw sales grow 3% on average, year over year, versus 5% growth in cost of goods sold. On the upside, Borg is trying to counteract this with an "intensified focus on cost reductions," which includes layoffs. The results, shown below, demonstrate the mixed effectiveness of this strategy so far.

Margins

6/05

9/05

12/05

3/06

6/06

9/06

Gross

19.2%

19.8%

19.9%

19.8%

19.5%

18.9%

Operating

9.4%

9.3%

9.1%

9.4%

9.5%

8.8%

Net

5.8%

5.9%

5.6%

5.1%

5.8%

5.3%
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 November, in his semiannual review of all stocks falling within his half of the Motley Fool Stock Advisor portfolio, Fool co-founder Tom Gardner explained that he gives the company a pass for being caught up in "the carnage within the auto industry." Even great companies can be hurt when they're connected to troubled industries.

And as Tom explains, BorgWarner is "a great company," albeit "not nearly as undervalued as when [he] recommended it in 2003. (It's up more than 100% over that time.)" Still, he expects to see this stock produce double-digit returns for investors over the next five years.

Of course, all of this was penned three months ago -- or one earnings warning and one earnings upgrade ago. There's more information available on BorgWarner, readable simply by claiming your free one-month trial subscription to Stock Advisor now.

Customers:

  • Caterpillar (NYSE:CAT)
  • DaimlerChrysler (NYSE:DCX)
  • Deere (NYSE:DE)
  • Ford (NYSE:F)
  • GM (NYSE:GM)
  • Toyota (NYSE:TM)

What did we expect out of BorgWarner last quarter, and what did it produce? Find out in:

And to find out what the analysts are saying about Borg, read: "This Just In: Upgrades & Downgrades."

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