BorgWarner Meets Expectations - Analyst Blog

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BorgWarner Inc. ( BWA ) posted a 3.5% increase in profits to $1.19 per share (excluding non-recurring items) in the third quarter of the year from $1.15 in the same quarter of 2011. The profit was in line with the Zacks Consensus Estimate.

Revenues dipped 5% to $1.7 billion due to a 6% fall in light vehicle production in Europe, which comprises over half of the company's ales. However, excluding the impact of foreign currencies and dispositions in 2011, net sales went up 2% in the quarter.

Operating income declined 3.4% to $192.0 million (excluding non-recurring items) or 11.3% of net sales from $198.8 million or 11.1% in the third quarter of 2011.

Segment Details

Revenues in the Engine segment ebbed 7.2% to $1.2 billion as growth in light vehicle turbocharger sales in Asia and North America as well as engine timing systems sales in Asia were more than offset by a decline in volumes in Europe due to the economic weakness.

Excluding the negative impact of foreign currencies and 2011 dispositions, net sales went up 1% in the region. Adjusted earnings before interest, income taxes and non-controlling interest (adjusted EBIT) went down 2.2% to $184.1 million in the quarter from $188.2 million in the third quarter of 2011.

Revenues in the Drivetrain segment slipped 1% to $534.4 million due to the negative impact of currencies. Excluding that impact, revenues inched up 5% in the segment, driven by strong all-wheel drive system sales around the world, primarily in North America. Adjusted EBIT was flat at $44 million compared with the third quarter of 2011.

Financial Position

BorgWarner had cash and cash equivalents of $621.5 million as of September 30, 2012 compared with $359.6 million as of December 31, 2011. Total debt at the end of the quarter decreased to $1.1 billion from $1.3 billion as of December 31, 2011. Consequently, debt-to-capitalization ratio deteriorated to 26.6% from 35.8% as of December 31, 2011.

In the first nine months of 2012, net cash provided by operating activities improved to $542.6 million from $473.1 million in the same period of 2011, mainly driven by higher deferred tax. Capital expenditures, including tooling outlays, increased to $283.0 million from $274.1 million in the first nine months of 2011.

Lower Guidance

BorgWarner revised its 2012 revenues and earnings guidance downward owing to the economic slowdown in Europe. For the year, the company anticipates annual sales growth between 0% and 1% compared with the prior guidance of 4% to 6%. Excluding the negative impact of foreign currencies, annual net sales growth is expected between 5% and 6% compared with the prior level of 9% to 11%.

The company also expects net earnings between $4.90 and $5.00 per share for the year, excluding special items, which is lower than the prior outlook of $5.05 to $5.25 per share.

Our Take

BorgWarner is a leading manufacturer of powertrain products for the world's major automakers. Its products include four-wheel-drive and all-wheel-drive transfer cases (primarily for light trucks and sport utility vehicles or SUVs), as well as automatic transmission and timing chain systems. The company's products are capable of improving vehicle performance and stability meeting fuel-efficiency and emission standards.

The company operates in 57 locations in 19 countries, providing products that increase fuel efficiency and reduction in emission. These products are manufactured and 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 ), Toyota Motor Corp. ( TM ) and Honda Motor Co. ( HMC ).

However, the company faces tough competition from its peers, as any advanced technology developed by them will adversely affect its business. Currently, it retains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating.

BORG WARNER INC (BWA): Free Stock Analysis Report

FORD MOTOR CO (F): Free Stock Analysis Report

HONDA MOTOR (HMC): Free Stock Analysis Report

TOYOTA MOTOR CP (TM): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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