BorgWarner(BWA) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - BorgWarner's Q2 2024 sales were approximately $3.6 billion, reflecting a year-over-year decrease of almost 2$62 million due to a strengthening US dollar [16] - Adjusted operating income for Q2 was $376 million, resulting in a margin of 10.4$297 million, up $267 million from the previous year, attributed to strong working capital and capital expenditure performance [19][45] Business Line Data and Key Metrics Changes - BorgWarner secured multiple new product awards across combustion, hybrid, and electric powertrains, indicating strong product leadership [30] - The eFan systems for commercial vehicles represent the largest eFan business win in North America, with production expected to start in Q4 2027 [5] - The company is restructuring its ePropulsion segment to adjust its cost structure, expecting annual run rate cost savings of about$100 million by 2026 [32][43] Market Data and Key Metrics Changes - The full-year sales guidance for 2024 has been reduced to a range of $14.1 billion to$14.4 billion, down from previous guidance of $14.4 billion to$14.9 billion, primarily due to weaker foreign currencies and a lower market production outlook [20][22] - The company expects to outgrow market production by 350 to 450 basis points, despite a projected decline in market production of 2% to 3% [21][22] Company Strategy and Development Direction - BorgWarner is focused on powertrain efficiency, including combustion fuel efficiency and electron efficiency for hybrids and BEVs [12][14] - A new business unit structure has been introduced to enhance cost synergies and improve clarity for stakeholders [8][10] - The company plans to allocate all free cash flow to shareholders through share repurchases and dividends, with an intention to repurchase $300 million of stock in the second half of 2024 [38][46] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to deliver sales performance through organic growth above market production, despite a challenging production environment [14][45] - The restructuring actions in the ePropulsion segment are expected to improve near-term earnings and position the business for future growth [43] - Management highlighted the importance of maintaining a strong product portfolio to navigate the volatile propulsion mix environment [102] Other Important Information - BorgWarner has reduced its greenhouse gas emissions by 32% from the 2021 baseline, progressing towards its goal of an 85% reduction by 2030 [35] - The company is experiencing strong interest in its EGR product portfolio, which supports the need for efficient combustion engines [7] Q&A Session Summary Question: What is the rationale behind the eProduct restructuring not including Europe? - The restructuring is focused on North America and China due to the business unit's engineering and footprint concentration in these regions [50] Question: Are there any benefits expected from the ICE and hybrid side of the business? - Management indicated that they are focusing on converting additional revenue from various propulsion mixes, including hybrids and BEVs [51] Question: How does the company view its margin outlook for the second half of the year? - The company expects to maintain a strong margin profile, with an increase in full-year margin guidance to 9.6% to 9.8% [40] Question: What is the impact of tariffs on the eProduct business in China? - Management noted that the eProduct business in China is growing, with a significant portion of products used for hybrids and BEVs, and the impact of tariffs is still uncertain [98][113] Question: How does the company plan to allocate capital moving forward? - The focus will be on shareholder returns through stock repurchases, with M&A being less likely in the near term [115]