Key Points:
- The manufacturer's adjusted earnings were $1.19 per share.
- Management revised full-year sales guidance downward.
- The ePropulsion segment underperformed notably.
BorgWarner (BWA -0.22%), a global leader in propulsion systems for electric, hybrid, and internal combustion vehicles, released a mixed set of second-quarter results on July 31. The company reported adjusted earnings of $1.19 per share, up from $1.06 in the prior-year period. However, net sales saw a 1.9% year over year decline, which management attributed to lower market volumes and currency exchange impacts.
The company also raised its full-year adjusted operating margin guidance to a range of 9.6% to 9.8%, reflecting robust cost management efforts, although it reduced its full-year net sales outlook to a range of $14.1 billion to $14.4 billion. Overall, the quarter exhibited strength in operational efficiency but indicated challenges in its electrification strategy.
| Metric | Q2 2024 Result | Q2 2023 Result | % Change (YoY) |
|---|---|---|---|
| Net sales | $3.6 billion | $3.7 billion | (1.9%) |
| Adjusted earnings per share | $1.19 | $1.06 | 12.3% |
| Adjusted operating margin | 10.4% | 10.1% | 0.3 pts |
Company Overview and Strategic Focus
BorgWarner specializes in propulsion systems for electric, hybrid, and internal combustion vehicles. It has recently concentrated on expanding its electric vehicle (EV) and hybrid product offerings under its "Charging Forward" initiative. With this strategic pivot, the company aims to capture a healthy share of the rapidly growing EV market -- management is targeting for $10 billion in annual eProduct sales by 2027. Additionally, BorgWarner has pursued several acquisitions to enhance its technological capabilities and geographic reach.
Significant investments in research and development (R&D) and strategic acquisitions are bolstering its ambitious efforts. Recently, it enhanced its capabilities in power electronics and charging infrastructure with its acquisitions of Eldor and Hubei Surpass Sun Electric Charging.
Notable Developments During the Quarter
The quarter was marked by several significant achievements and challenges. Net sales for Q2 2024 were $3.6 billion, a 1.9% decline from Q2 2023's $3.7 billion, a slide driven by foreign currency fluctuations and lower market production volumes. The company reported a gross profit margin of 19.0%, up from 18.5% in the prior year period.
A closer look at segment performance reveals mixed results. The air management segment saw a slight dip in net sales to $1.974 billion from $2.027 billion, yet maintained stable adjusted operating income at $304 million. The drivetrain & battery systems segment displayed 7% growth, with net sales rising to $1.196 billion from $1.117 billion, boosting adjusted operating income to $176 million from $142 million. However, the ePropulsion segment struggled, with net sales falling to $464 million from $566 million, and experiencing an adjusted operating loss of $49 million compared to its loss of $19 million in Q2 2023.
Free cash flow also demonstrated positive trends, reaching $297 million in Q2, significantly up from $30 million in the same period last year. This positions BorgWarner well to meet or exceed its full-year free-cash-flow guidance of $475 million to $575 million.
However, challenges remain, particularly with BorgWarner's electrification strategy. The underperformance in the ePropulsion segment reflected difficulties in ramping up production and achieving sales targets for its EV products. The company has acknowledged these issues and is focusing on improving efficiency within this segment.
Additionally, the company's structural reorganization following the July 2023 spin-off of its fuel systems and aftermarket segments into Phinia is allowing BorgWarner to streamline its operations and better focus on core growth areas. This restructuring is expected to yield long-term operational efficiencies.
Looking Ahead
Management's update to its full-year guidance reflected both caution and confidence. The net sales guidance range was revised downward to $14.1 billion to $14.4 billion from the previous $14.4 billion to $14.9 billion, indicating a more cautious outlook amid industry headwinds. However, the company raised its full-year adjusted operating margin guidance to the 9.6% to 9.8% range, showing confidence in its cost management and operational efficiency.
Additionally, adjusted EPS guidance for the year was updated slightly to $3.95 to $4.15 from the prior range of $3.80 to $4.15. Investors should keep a close eye on the company's progress in its electrification strategy, particularly improvements in the ePropulsion segment.
