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Why Is BorgWarner (BWA) Down 7.2% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for BorgWarner (BWA). Shares have lost about 7.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is BorgWarner due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

BorgWarner Q4 Earnings Surpass Estimates, Improve Y/Y

BorgWarner delivered adjusted earnings of $1.21 per share in fourth-quarter 2018, beating the Zacks Consensus Estimate of $1.07. The figure also increased from $1.07 per share recorded in the year-ago quarter. Net earnings were $230 million against net loss of $146.2 million in the prior-year quarter.

BorgWarner’s net sales declined 0.5% year over year to $2.57 billion, beating the Zacks Consensus Estimate of $2.56 billion. Net sales decreased by roughly $65 million, owing to foreign currency fluctuation.

In the reported quarter, operating income amounted to $266 million compared with the prior-year figure of $208 million.

2018 Results

In 2018, the company’s net earnings increased to $931 million or $4.44 per share from $440 million or $2.08 per share in 2017.

Net sales for the year went up 7.5% year over year to $10.5 billion.

Segment Details

Net sales from the Engine segment decreased to $1.54 billion from $1.58 billion in the prior-year quarter. Excluding impacts of foreign currencies, the segment’s net sales rose 0.4% year over year and adjusted EBIT (earnings before interest, income taxes and non-controlling interest) declined 5.9% to $243 million.

At the Drivetrain segment, net sales increased to $1.05 billion in the fourth quarter from $1.02 billion in the prior-year quarter. Excluding impacts of foreign currencies, net sales improved 4.4% on a year-over-year basis and adjusted EBIT increased 7.4% to $133 million.

Financial Position

As of Dec 31, 2018, BorgWarner had $739.4 million in cash compared with $545.3 million as of Dec 31, 2017. Long-term debt was $1.9 billion, decreasing from $2.1 billion recorded at the end of 2017.

At the end of 2018, net cash provided by operating activities was $1.13 billion compared with $1.18 billion in the prior year. During the year, capital expenditure, including tooling outlays, decreased to $546.6 million from $560 million in 2017.

Outlook

For first-quarter 2019, the company’s net organic sales are likely to decline 5.5-7.5% from net sales of $2.8 billion in the year-ago quarter. Further, it envisions net earnings of 92-96 cents per share.

For 2019, BorgWarner anticipates net sales of $9.90-$10.37 billion and net earnings of $4-$4.25 per share. Further, operating margin is expected to be 11.9-12.2%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -15.67% due to these changes.

VGM Scores

At this time, BorgWarner has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, BorgWarner has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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