BorgWarner Earnings Impress, Revs Up

Zacks

BorgWarner Inc. (BWA) posted a 36% increase in adjusted earnings to 79 cents per share in the fourth quarter of 2013, compared with 58 cents in the fourth quarter of 2012. Earning per share outpaced the Zacks Consensus Estimate of 71 cents.

On a reported basis, BorgWarner had earnings of $141 million or 62 cents per share in the fourth quarter of 2013, compared with $121 million or 51 cents per share a year ago.

Revenues increased 10% year on year to $1.89 billion, in line with the Zacks Consensus Estimate. Excluding the impact of foreign currencies in 2012 and 2013 and dispositions in 2012, revenues went up 9% year over year.

Operating income increased 10% to $188 million or 10% of net sales from $171 million or 9.9% in the fourth quarter of 2012.

2013 Results

BorgWarner recorded all-time high adjusted earnings of $2.89 per share in 2013, beating the Zacks Consensus Estimate of $2.81. In comparison, the company generated earnings of $2.48 per share in 2012.

Net income (on a reported basis) amounted to $624 million or $2.70 per share, compared with $501 million or $2.09 per share in 2012.

Revenues increased 4% to $7.44 billion from $7.18 billion in 2012, narrowly missing the Zacks Consensus Estimate of $7.45 billion. Excluding the impact of foreign currencies in both years and dispositions in 2012, revenues went up 4% year over year.

Segment Details

Revenues in the Engine segment rose 8.5% to $1.27 billion. Excluding the favorable impact of foreign currencies and 2012 dispositions, net sales went up 8% in the segment, driven by higher global sales of turbochargers, exhaust gas recirculation coolers and engine timing devices.

Adjusted earnings before interest, income taxes and non-controlling interest (adjusted EBIT) increased 14% to $208 million in the quarter from $182 million in the fourth quarter of 2012.

Revenues in the Drivetrain segment rose 12.3% to $628 million. Excluding the favorable impact of foreign currencies, net sales increased 10%, driven by increased global sales of all-wheel drive systems, traditional transmission components and dual clutch transmission modules. Adjusted EBIT increased 43% to $71 million from $49 million in the fourth quarter of 2012.

Financial Position

BorgWarner had $939.5 million in cash as of Dec 31, 2013, compared with $715.7 million as of Dec 31, 2012. Total debt including notes payable was $1.22 billion as of Dec 31, 2013, compared with $1.07 billion as of Dec 31, 2012. Consequently, debt-to-capitalization ratio was 25.2%, compared with 25.3% as of Dec 31, 2012.

In 2013, net cash provided by operating activities decreased to $719 million from $879 million in 2012. Capital expenditures, including tooling outlays, went up to $418 million from $407 million in 2012.

Stock Split

BorgWarner implemented a two-for-one stock split on Dec 16, 2013. The split was implemented in the form of a stock dividend. The new shares were given to shareholders of record as of Dec 2, 2013.

Acquisition Update

BorgWarner announced that it will purchase all the shares of Gustav Wahler GmbH u. Co. KG and its general partner. The acquisition is expected to terminate in the first quarter of 2014, depending on the standard regulatory approvals. Wahler is a manufacturer of exhaust gas recirculation (:EGR) valves, EGR tubes and thermostats. Wahler’s units are located across Germany, Brazil, the U.S., China and Slovakia. It is expected that Wahler will generate annual revenues of $350 million in 2013.

Outlook

For 2014, BorgWarner’s organic sales are expected to increase between 7% and 11%. It expects net earnings (excluding non-comparable items) for the year to be $3.10–$3.25 a share. Operating margin guidance for 2014 is 12.5% or more, excluding the impact of the Wahler acquisition.

Our Take

BorgWarner is a leading manufacturer of powertrain products for major automakers. The company’s products are capable of improving vehicle performance while meeting fuel-efficiency and emission standards. It currently carries a Zacks Rank #3 (Hold).

The company operates in 56 locations in 19 countries. Its products are sold worldwide, primarily to original equipment manufacturers of passenger cars, SUVs, trucks and commercial transportation products. The company’s largest customers include Ford Motor Co. (F), ToyotaMotor Corp. (TM) and Honda Motor Co. (HMC).

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