Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- BorgWarner Inc (BWA, Financial) outperformed the market by 350 basis points in the first half of 2024.
- The company secured multiple new product awards across combustion, hybrid, and electric vehicles.
- BorgWarner Inc (BWA) delivered a strong 10.4% margin in Q2 2024, up 30 basis points from the previous year.
- The company announced a $300 million share repurchase plan for the second half of 2024.
- BorgWarner Inc (BWA) reduced Scope 1 and 2 greenhouse gas emissions by 32% from the 2021 baseline.
Negative Points
- Q2 sales were relatively flat year-over-year at approximately $3.6 billion.
- The company reduced its full-year sales guidance from $14.4 billion-$14.9 billion to $14.1 billion-$14.4 billion.
- The ePropulsion segment faced restructuring due to market dynamics, with expected cost savings not fully realized until 2026.
- Foreign currency headwinds negatively impacted sales by $62 million year-over-year.
- The company anticipates a 2%-3% decline in market production for the full year, with significant reductions in China, North America, and Europe.
Q & A Highlights
Q: Why does the eProduct restructuring not include Europe and is it in response to program cancellations or push-outs?
A: The restructuring is primarily focused on North America and China due to the weight of our engineering and footprint in these regions. It also touches some parts of Europe. The restructuring is sized to ensure mid-teens conversion on new product launches and focuses on long-term product leadership and efficiency. (Frédéric Lissalde, President, CEO & Director)
Q: Are there any benefits to the ICE and hybrid side of the business from the current propulsion mix volatility?
A: Yes, the propulsion mix is volatile and unpredictable. BorgWarner is focused on converting additional revenue wherever it comes from, particularly by launching new business that has been booked. (Frédéric Lissalde, President, CEO & Director)
Q: What is driving the high decremental margin in the second half of the year?
A: The high decremental margin is driven by a combination of lower sales, normal seasonality, and the impact of restructuring savings. Year-over-year, we are incrementing in mid-teens on the high end of our guide and holding flat on the low end, reflecting strong underlying performance. (Craig Aaron, CFO, EVP & Controller)
Q: What is causing the slight reduction in full-year growth over market guidance?
A: The reduction is primarily due to lower eProduct revenue and a specific BEV program in North America that is underperforming. However, we still expect to outgrow the market by 350 to 450 basis points for the full year. (Frédéric Lissalde, President, CEO & Director)
Q: Can you explain the strong margin performance in the drivetrain and Battery Systems segment?
A: The strong margin performance is due to growth in both the Battery business and the foundational drivetrain business. We are converting on extra sales while focusing on cost productivity actions, supplier savings, and restructuring benefits. (Craig Aaron, CFO, EVP & Controller)
Q: How are you viewing capital allocation beyond 2024, particularly regarding M&A and shareholder returns?
A: While M&A remains an important part of our long-term strategy, our approach is now more stringent and prudent. We do not see M&A as highly likely in the next 2-3 quarters, thus our intention to repurchase $300 million of stock, effectively returning 100% of our cash generation to shareholders. (Frédéric Lissalde, President, CEO & Director)
Q: What is the rationale for advertising the share buybacks?
A: We aim to provide transparency to our shareholders. Given that we were blacked out for most of the second quarter, we wanted to clarify our intention to allocate all of our free cash flow to shareholders. (Craig Aaron, CFO, EVP & Controller)
Q: How are eProduct sales trending, and what is the impact on the Battery Systems business?
A: Q2 eProduct sales were $576 million. The impact on the Battery Systems business is positive, with strong performance contributing to our incremental margins and supporting our full-year guidance. (Craig Aaron, CFO, EVP & Controller; Frédéric Lissalde, President, CEO & Director)
Q: How are Eldor losses expected to trend this year, and will restructuring actions include Eldor?
A: Eldor losses are expected to remain unchanged. Our restructuring actions are focused on the total business, targeting $100 million in cost savings by 2026. (Craig Aaron, CFO, EVP & Controller)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
