Yahoo Finance BorgWarner Inc (BWA) Q1 2024 Earnings Call Transcript Highlights: Strong Performance Amidst ...
Sales: $3.6 billion, 7% organic growth despite industry decline.
Incremental Margin: Strong performance, 9.4% margin achieved.
Net Income: Adjusted operating income $339 million, up from $305 million year-over-year.
Earnings Per Share (EPS): Adjusted EPS up $0.22 from previous year.
Free Cash Flow: Usage of $308 million in Q1, affected by timing of customer collections and tax payments.
Share Repurchases: $100 million in Q1, with increased authorization up to $500 million.
Full Year Sales Forecast: Expected to be between $14.4 billion to $14.9 billion.
Full Year Adjusted Operating Margin: Forecasted to be 9.2% to 9.6%.
Full Year Adjusted EPS: Projected range of $3.80 to $4.15 per diluted share.
Full Year Free Cash Flow: Anticipated to be between $475 million to $575 million.
Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
BorgWarner Inc (NYSE:BWA) reported a strong first quarter with approximately $3.6 billion in sales and 7% organic growth despite a modest industry decline.
The company achieved a 9.4% margin due to strong incremental performance on an all-in basis.
BorgWarner Inc (NYSE:BWA) secured multiple new eProduct awards, demonstrating continued leadership in electric vehicle technology.
The company efficiently deployed capital by repurchasing $100 million of stock and received an increased share repurchase authorization of $500 million.
BorgWarner Inc (NYSE:BWA) is well-positioned for various electrification adoption scenarios, supporting both combustion and electric powertrains with its diverse product portfolio.
Negative Points
The company faces risks and uncertainties as detailed in their 10-K, which could lead to actual results differing significantly.
Foreign exchange rates posed a headwind, decreasing sales by almost 1% or $32 million year-over-year.
The net impact of M&A was a $12 million drag on operating income year-over-year.
Free cash flow from continuing operations was a usage of $308 million during the first quarter, higher than the previous year due to timing of customer collections and tax payments.
The company's full year guidance assumes a sales headwind from weaker foreign currencies of $100 million compared to 2023.
Q & A Highlights
Q: You started off very strong here, I think, something like 8% growth over market in Q1. Your margins seem to be in the midpoint of your full year guidance. But the guide for the year is -- has implied sort of growth over market, but actually moderate a bit and maybe at the midpoint, margins wouldn't change. Anything sort of onetime in nature we should be thinking about in Q1 that kind of boosted results? And then any reasons we should be thinking about things moderating a bit as we go through the rest of the year? A: (Craig D. Aaron - CFO, Executive VP & Controller) Thanks, Colin, for the question. Nothing unique in the quarter. It was just a really strong operational performance for our business units. They did an exceptional job. As you think about our full year guide, it implies a 13% to 16% incremental conversion, 13% on the low end, 16% on the high end. We feel really good about our first quarter performance, sets us up quite well for the remainder of the year. We're just focused on executing towards the near term, and we're going to keep doing that as we into the second quarter. It's just a really good operational performance for -- the company.
Q: Maybe in the quarter, you could just break out what was the split of revenue between eProducts and foundational? And then foundational, I assume, is still putting up pretty solid growth of the market. Maybe you could just talk about some of the dynamics driving that, please? A: (Craig D. Aaron - CFO, Executive VP & Controller) Yes. So Dan, the breakout of eProducts and foundational in the quarter was about $500 million, a little over $500 million eProducts. The rest was foundational. And I'm sorry, your other question just was growth in the quarter?
Q: Okay. That sounds good. Slide 8 was pretty helpful. Maybe if you could talk a little about your plug-in -- PHEV opportunity. The content there, how much of your sales today are there? And have you seen any change yet, I guess, quite early on interest in that given the EPA rules seem to be more favorable towards PHEV? A: (Frederic B. Lissalde - President, CEO & Director) Colin, that the PHEV is one architecture where we have our foundational products coming in and also most of our eProducts coming in. I don't think we have given the granularity of our per -- plug-in hybrid content. But on the hybrid overall, full hybrid, plug-in hybrid and range-extended EV, about 40% of our light vehicle eProduct, which is guided at the midpoint at $1.9 billion this year is going into those advanced hybrids.
Q: Craig, after the dividend and the repurchases you've done year-to-date, kind of leads me around $250 million, $300 million in deployable free cash flow based off of the guide for the year. And I think we would certainly say that shares are trading below intrinsic value. So how are you thinking about the pace of buybacks for the rest of the year? Is this going to be more ratable? Or are you remaining opportunistic? A: (Craig D. Aaron - CFO, Executive VP & Controller) Yes. Thanks for the question, Noah. So I just want to take a step back. We repurchased $277 million of the company's shares over the last 2 quarters. So $177 million in the fourth quarter of last year. $100 million in the first quarter of this year. Obviously, pleased with our Board of Directors, we got that additional authorization, takes our total authorization up to -- a little over $760 million. We're going to continue to repurchase opportunistically, just like we did in Q4 and just like we did in Q1.
Q: Fred, I know you sort of already touched on plug-ins a little bit in the Q&A. In your comments, you also sort of talked about turbos and other sort of core BorgWarner technology that can help with what's seemingly an increasingly choppy powertrain transition. But presumably, your customers would need to do at least some engineering, and it's going to take time to sort of have a greater adoption. So what are -- what's the conversations like with customers on some of the traditional sort of core foundational products? And how quickly can we really see potentially greater levels of adoption there? A: (Frederic B. Lissalde - President, CEO & Director) And Joe, I guess you were thinking about North America here in your question, aren't you? Okay. Yes, because in the rest of the world, as I alluded to before, it's happening, right? I think we have all the building blocks to support our customers here in North America as they also want to have those advanced hybrids. I feel that it's still a little bit early to get into the specific cities or which products they need from BorgWarner. We are in the early phases of discussions about architecture. So I think it's going to take a little bit more time.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
