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BorgWarner's (BWA) Q4 Earnings Surpass Estimates, Down Y/Y

Zacks Equity Research

BorgWarner Inc. BWA delivered adjusted earnings of $1.17 per share in fourth-quarter 2019, beating the Zacks Consensus Estimate of $1.05. This was mainly driven by the better-than-anticipated performance of the Drivetrain and Engine segments. However, the reported figure came in lower than the year-ago quarter’s $1.21 per share. Net income amounted to $220 million compared with the $230 million reported in the prior-year quarter.

BorgWarner’s net sales edged down 0.6% year over year to $2,559 million, due to the unfavorable impact of the thermostat product line divestiture and foreign-currency fluctuations. The reported figure, however, beat the Zacks Consensus Estimate of $2,533 million.

In the fourth quarter, operating income amounted to $478 million compared with the prior-year quarter’s figure of $266 million.

Segmental Performance

Net sales in the Engine segment fell to $1,533 million from the year-ago quarter’s $1,541 million. The figure, however, surpassed the Zacks Consensus Estimate of $1,480 million. Excluding impact of foreign-currency translation and divestiture of the thermostat product line, net sales went up 3.5% year over year and adjusted EBIT (earnings before interest, income taxes and non-controlling interest) climbed 8.6% to $264 million. This was primarily aided by higher revenues, excluding the impact of weaker currencies, and lower SG&A and R&D expense.

In the Drivetrain segment, net sales decreased to $1,042 million from the $1,047 million reported in the prior-year quarter. The figure, however, outpaced the Zacks Consensus Estimate of $1,041 million. Excluding impacts of foreign currencies, net sales inched up 1.5% on a year-over-year basis and adjusted EBIT rose 4.6% to $136 million owing to supplier cost savings and lower R&D costs.

BorgWarner Inc. Price, Consensus and EPS Surprise

BorgWarner Inc. Price, Consensus and EPS Surprise

BorgWarner Inc. price-consensus-eps-surprise-chart | BorgWarner Inc. Quote

Financial Position

As of Dec 31, 2019, BorgWarner had $832 million in cash compared with $739 million as of Dec 31, 2018. Long-term debt was $1.67 billion, down from the $1.94 billion recorded at the end of 2018. The debt-to-capital ratio stands at 25.68%.

Net cash provided by operating activities was $1,008 million as of Dec 31, 2019, compared with $1,126 million as of Dec 31, 2018. Investment in capital expenditure, including tooling outlays, declined to $481 million from the $546 million recorded as of Dec 31, 2018.

Outlook

For full-year 2020, net sales are expected in the range of $9,750 million to $10,075 million, suggesting a year-over-year fall of 2.5% at the mid-point of the guidance. Further, it envisions adjusted net earnings between $3.85 and $4.15 per diluted share. In addition, adjusted operating margin is expected in the range of 10-11% and full-year free cash flow is estimated between $675 million and $725 million.

Zacks Rank & Stocks to Consider

BorgWarner currently carries a Zacks Rank of 3 (Hold).

Some better-ranked stocks in the Auto-Tires-Trucks sector include Gentherm Inc THRM, Gentex Corporation GNTX and SPX Corporation SPXC. While Gentherm sports a Zacks Rank #1 (Strong Buy), Gentex Corporation and SPX carry a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Gentherm has a projected earnings growth rate of 20.60% for the ongoing year. Its shares have gained 15.7% over the past year.

Gentex Corporation has an estimated earnings growth rate of 6.02% for 2020. The company’s shares have appreciated 57.1% in a year’s time.

SPX has an expected earnings growth rate of 8.09% for the current year. The stock has rallied 62% in the past year.

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