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BorgWarner Inc. (BWA - Analyst Report) posted a 10.3% increase in adjusted earnings to $1.50 per share in the second quarter of 2013 compared with $1.36 in the second quarter of 2012. Earning per share surpassed the Zacks Consensus Estimate by 9 cents.

Revenues increased 2% to $1.89 billion, but missed the Zacks Consensus Estimate of $1.92 billion. The improvement in revenues was driven by a 3% increase in Global light vehicle production and a 1% increase in light vehicle production in Europe.

Rising demand for fuel efficiency and improved emissions standards benefited the company. Excluding the impact of foreign currencies and dispositions in 2012, revenues went up 3% year over year.

Operating income increased 25.8% to $243.4 million, or 12.9% of net sales, from $193.5 million or 10.4% in the second quarter of 2012. Operational efficiency and cost controls methods enabled the company to record higher operating income.

Segment Details

Revenues in the Engine segment rose 1.5% to $1.3 billion. Excluding the favorable impact of foreign currencies and dispositions, net sales went up 4% in the segment, driven by higher sales of turbochargers, exhaust gas recirculation coolers and engine timing systems in China and turbochargers in Brazil.

Adjusted earnings before interest, income taxes and non-controlling interest (adjusted EBIT) increased 4.7% to $220.3 million in the quarter from $210.5 million in the second quarter of 2012.

Revenues in the Drivetrain segment rose 3.3% to $613.5 million. Excluding the favorable impact of foreign currencies, net sales increased 2%, primarily driven by higher sales of all-wheel drive systems in North America and all-wheel drive systems and transmission components in Korea. Adjusted EBIT increased 9.5% to $59.8 million from $54.6 million in the second quarter of 2012.

Financial Position

BorgWarner had $817.0 million in cash as of Jun 30, 2013, compared with $715.7 million as of Dec 31, 2012. Total debt including notes payable was $1.2 billion as of Jun 30, 2013, compared with $1.1 billion as of Dec 31, 2012. Consequently, debt-to-capitalization ratio deteriorated to 27.8% from 25.3% as of Dec 31, 2012.

In the first half of 2013, net cash provided by operating activities decreased to $300.0 million from $310.1 million in the same period of 2012. Capital expenditures, including tooling outlays, went up to $194.8 million from $188.4 million in the 2012-period.

Dividend

The board of directors declared a quarterly dividend of 25 cents per share. The dividend is payable on Aug 15, 2013 to shareholders of record as of Aug 5, 2013.

Outlook

For 2013, BorgWarner anticipates that annual sales will improve between 3% and 5% as compared with previous expectation of 2% and 6%. Excluding the impact of 2012 dispositions, net sales are expected to increase between 4% and 6%.

The company increased their net earnings expectation to $5.40 and $5.55 from the prior estimate of $5.15 and $5.45 per share for the year. Operating margin guidance for 2013 has been raised to 12% from the prior guidance of 11.5%.

Our Take

BorgWarner is a leading manufacturer of powertrain products for the world's major automakers. The company’s products are capable of improving vehicle performance while meeting fuel-efficiency and emission standards. It currently retains a Zacks Rank #3 (Hold).

The company operates in 57 locations in 19 countries. These products are manufactured and sold worldwide, primarily to original equipment manufacturers of passenger cars, SUVs, trucks and commercial transportation products. The company’s largest customers include Ford Motor Co. (F - Analyst Report), Toyota Motor Corp. (TM - Analyst Report) and Honda Motor Co. (HMC - Analyst Report).
 

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