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BorgWarner Q3 Earnings Beat, Revs Miss

BWA F HMC TM

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BorgWarner Inc. (BWA - Analyst Report) posted a 17.7% increase in adjusted earnings to $1.40 per share in the third quarter of 2013 compared with $1.19 in the third quarter of 2012. Earning per share outpaced the Zacks Consensus Estimate by 6 cents.

On reported basis, BorgWarner reported earnings per share of $1.45 in the third quarter of 2013 compared with 85 cents per share a year ago.

Revenues increased 6.6% year on year to $1.81 billion, but missed the Zacks Consensus Estimate of $1.84 billion. Revenues benefited from favorable impact of the Euro, partially offset by unfavorable impact of the Japanese Yen.

Excluding the impact of foreign currencies in both years and dispositions in 2012, revenues went up 6% year over year. Rising demand for fuel efficient vehicles and improved emission standards benefited the company.

Operating income increased 38.4% to $225.6 million or 12.5% of net sales from $163 million or 9.6% in the third quarter of 2012. The improvement in operating margin was driven by enhanced operational efficiency and the impact of cost control methods.

Segment Details

Revenues in the Engine segment rose 3.6% to $1.2 billion. Excluding the favorable impact of foreign currencies and 2012 dispositions, net sales went up 4% in the segment, driven by higher global sales of turbochargers; exhaust gas recirculation coolers and variable cam timing devices.

Adjusted earnings before interest, income taxes and non-controlling interest (adjusted EBIT) increased 6.2% to $195.5 million in the quarter from $184.1 million in the third quarter of 2012.

Revenues in the Drivetrain segment rose 13% to $604 million. Excluding the favorable impact of foreign currencies, net sales increased 10%, driven by increased sales of all-wheel drive systems and transmission components in North America and Korea. Adjusted EBIT increased 49.4% to $65.9 million from $44.1 million in the third quarter of 2012.

Financial Position

BorgWarner had $920.4 million in cash as of Sep 30, 2013, compared with $621.5 million as of Sep 30, 2012. Total debt including notes payable was $1.3 billion as of Sep 30, 2013, compared with $1.1 billion as of Sep 30, 2012. Consequently, debt-to-capitalization ratio was 27.4% compared with 26.6% as of Sep 30, 2012.

In the first nine months of 2013, net cash provided by operating activities decreased to $514.8 million from $542.6 million in the same period of 2012. Capital expenditures, including tooling outlays, went up to $297.9 million from $283 million in the 2012-period.

Dividend & Share Repurchase

The board of directors declared a quarterly dividend of 25 cents per share. The dividend is payable on Nov 15, 2013 to shareholders of record as of Nov 1, 2013.

BorgWarner spent $75 million on repurchase of shares during the quarter. During the first nine months of 2013, the company made an expenditure of $226 million to repurchase shares.

Outlook

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

BorgWarner increased its net earnings expectation (excluding non-comparable items) for the year to $5.55–$5.65 a share from the prior guidance of $5.40–$5.55 per share. Operating margin guidance for 2013 is 12% or more, excluding non-comparable items.

Our Take

BorgWarner is a leading manufacturer of powertrain products for 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 #2 (Buy).

The company operates in 56 locations in 19 countries. Its products are 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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