BorgWarner(BWA) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - BorgWarner reported Q3 organic sales of over $3.4 billion, down approximately 5% year-over-year, slightly outperforming a 6% decline in the market [7][26] - The adjusted operating margin for the quarter was 10.1%, which is 50 basis points higher than the previous year [9][30] - Earnings per share (EPS) increased by$ 0.11 year-over-year to $1.09, driven by strong operational performance and cost controls [9][32] - Free cash flow for the quarter was$ 201 million, up $165 million from the previous year [32] Business Line Data and Key Metrics Changes - The turbos and thermal technologies and drivetrain segments each represent approximately 40% of net sales, with strong margins and cash flow profiles [18][21] - The remaining 20% of net sales comes from the Power Drive Systems and battery and charging systems business units, which are expected to be significant growth drivers [20] Market Data and Key Metrics Changes - BorgWarner's sales to Chinese local OEMs accounted for roughly 15% of overall net sales, comparable to sales to German OEMs and North American sales to the Detroit 3 [21] - The company expects to outgrow market production by 200 to 300 basis points in 2024, despite a reduction in overall sales guidance due to lower market production outlook [33][34] Company Strategy and Development Direction - The company remains focused on propulsion efficiency, including both combustion fuel efficiency and electric vehicle (EV) efficiency, which is expected to drive growth [24] - BorgWarner aims to manage its cost structure effectively while preserving long-term profitable growth and product leadership [25] Management's Comments on Operating Environment and Future Outlook - Management highlighted the resilience of the technology-focused portfolio, which is positioned to outgrow market production [8][33] - The company anticipates a challenging production environment but remains committed to delivering strong profitability and free cash flow [39] Other Important Information - BorgWarner completed a planned$ 400 million stock repurchase in 2024, reflecting strong cash generation and capital deployment [10][40] - The company has secured multiple new product awards, including contracts in the electric vehicle market, which support long-term growth [8][13] Q&A Session Summary Question: Thoughts on margin outlook and potential to exceed 10% target - Management acknowledged strong operational performance and cost controls, indicating a focus on maintaining margins around 9.6% for the fourth quarter [46][48] Question: Decomposition of margin performance in Q3 - Management attributed strong margin performance to restructuring actions and cost controls, with a one-time benefit from customer recoveries [54] Question: Growth profile of the battery business - Management indicated strong demand and aligned capacity to meet market needs, expecting continued growth in the battery segment [57] Question: Impact of market dynamics on future bookings - Management noted a slowdown in new quoting activities for electrified powertrains but emphasized ongoing opportunities in combustion and hybrid segments [68] Question: Competitive advantages in the commercial vehicle battery business - Management highlighted the company's unique position in the commercial vehicle market, focusing on software, cybersecurity, and assembly capabilities [90]