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Shares of BorgWarner Inc. Slide After a Disappointing Earnings Guidance

By Daniel Miller – Jan 13, 2016 at 12:00AM

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Along with many other automotive stocks this far into 2016, BorgWarner's stock price is trending lower.

What: BorgWarner (BWA 0.55%), a global product leader in powertrain solutions, is trading 10% lower on Wednesday, as of 4:00 p.m. ET, after its 2016 earnings-per-share expectations fell quite a bit short of consensus estimates. Despite new-vehicle sales setting a record in in the U.S. during 2015, BorgWarner's stock price is now trading at a three-year low and is one of many auto companies struggling to convince investors that the best is yet to come.

BWA Chart
BWA data by YCharts.

So what: BorgWarner announced its forecast for 2016 earnings to check in between $3.11 to $3.32, which was well short of the consensus estimates of $3.42. Management cited a strong dollar as a major headwind for financial results and that foreign currencies are expected to lower net earnings by between $0.02 to $0.07 per diluted share this year.

Now what: The good news for investors is that BorgWarner doesn't see the negative impact from currency beyond the first quarter of 2016.

"If our current assumptions are correct for 2016, the impact of currency should be really severe in the first quarter and we shouldn't see much of it going throughout the rest of the year,"said Chief Financial Officer Ron Hundzinski said at a Deutsche Bank automotive industry conference Wednesday, according to Bloomberg.

Disappointing guidance and the company's stock price sliding after news of Volkswagen's diesel emissions scandal broke -- as VW is one of BorgWarner's largest customers -- have sent BorgWarner's stock price to a three-year low, but the long-term investing thesis remains intact. BorgWarner is still well positioned to capitalize on industry trends driven by consumers' increasing demand for better fuel economy and a global trend toward cleaner and more efficient vehicles. 

Daniel Miller has no position in any stocks mentioned. The Motley Fool recommends BorgWarner. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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