BorgWarner Inc. (BWA) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Q2 Performance

  BorgWarner reported flat Q2 sales year-over-year at approximately $3.6 billion, outperforming a modest decline in production, with a 350 basis points market outgrowth for the first half of the year.

• Increased Full-Year Guidance

  The company increased its full-year margin and earnings guidance due to strong first-half performance, including a 10.4% margin and EPS of $1.19 per share for Q2.

• Restructuring for Cost Savings

  BorgWarner is focusing its ePropulsion segment restructuring to achieve annual run rate cost savings of about $100 million by 2026, with immediate positive impacts expected.

• New Business Unit Structure

  A new business unit structure was introduced to maximize cost synergies, enhance global strategies, and provide clarity to shareholders.

• Sustainability Progress

  BorgWarner highlighted its sustainability achievements, including a 32% reduction in Scope 1 and 2 greenhouse gas emissions from the 2021 baseline.

Pessimistic Highlights

• Sales and Market Challenges

  The company noted challenges in eProduct revenue and adjustments due to weaker foreign currencies and a lower market production outlook, leading to a reduction in total 2024 sales guidance.

• ePropulsion Segment Restructuring

  Short-term sales challenges in the ePropulsion business due to platform shortfalls and market dynamics necessitated restructuring actions.

Company Outlook

• Revised 2024 Sales Guidance

  BorgWarner adjusted its 2024 sales guidance to $14.1 billion to $14.4 billion, reflecting weaker foreign currencies and a lower market production outlook.

• Margin and EPS Increase

  The full-year margin outlook was increased to 9.6% to 9.8%, with adjusted EPS expected in the range of $3.95 to $4.15 per diluted share, supported by strong performance and restructuring benefits.

• Continued Market Outgrowth

  Despite a challenging environment, BorgWarner expects to outgrow market production by 350 to 450 basis points for the full year.

Q & A Highlights

• Q: Can you clarify the focus of the eProduct restructuring and why it does not include Europe? (John Murphy, Bank of America)

  A: The restructuring is primarily in North America and China due to the business unit's footprint. It aims to rightsize the cost structure for current sales levels and is sized for mid-teens conversion on future growth. (Frédéric Lissalde)

• Q: Are there benefits on the ICE side from the current market dynamics? (John Murphy, Bank of America)

  A: BorgWarner's portfolio is designed to outgrow and convert additional revenue from any propulsion mix, focusing on launching new business booked. (Frédéric Lissalde)

• Q: What drives the implied second-half decremental margin? (Colin Langan, Wells Fargo)

  A: The decremental margin reflects the strong first-half performance and expected benefits from ePropulsion restructuring, offsetting sales decline. (Craig Aaron)

• Q: Can you discuss the full-year growth over market guidance adjustment? (Colin Langan, Wells Fargo)

  A: The adjustment to growth over market guidance is primarily due to eProduct revenue being at the lower end of the guide, particularly affecting Q2 outgrowth. (Frédéric Lissalde)

• Q: How should we view R&D and capital investment in eProducts going forward? (Joe Spak, UBS)

  A: R&D will continue to support eProduct launches, with a focus on application engineering and maintaining a 15% return on invested capital for new programs. (Craig Aaron)

• Q: Is there a revision to the battery side of the eProduct sales outlook? (Joe Spak, UBS)

  A: The battery business is on track, contributing positively to incremental margins and included in the updated full-year guidance. (Frédéric Lissalde)