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BorgWarner Inc. (BWA - Analyst Report) posted a 1.6% increase in adjusted earnings to $1.30 per share (excluding non-recurring items) in the first quarter of 2013 from $1.28 in the first quarter of 2012. Earning per share surpassed the Zacks Consensus Estimate by 8 cents.

Revenues dipped 3.2% to $1.85 billion, but were marginally ahead of the Zacks Consensus Estimate of $1.84 billion. The decrease in revenues was driven by 9% decline in light vehicle production in Europe, which accounts for over half of the company’s sales. Global light vehicle production went down 1%. Excluding the impact of foreign currencies and dispositions in 2012, revenues declined 1% year over year.

Operating income (excluding non-recurring items) declined 4.3% to $216.0 million or 11.7% of net sales from $225.7 million or 11.8% in the first quarter of 2012.

Segment Details

Revenues in the Engine segment dropped 3.9% to $1.3 billion, driven by lower volumes in Europe due to the economic weakness, which offset the favorable impacts from higher sales of variable cam timing systems in Japan and emissions systems in Asia and the Americas.

Excluding the negative impact of foreign currencies and dispositions, net sales went down 1% in the segment. Adjusted earnings before interest, income taxes and non-controlling interest (adjusted EBIT) decreased 3.6% to $202.3 million in the quarter from $209.8 million in the first quarter of 2012.

Revenues in the Drivetrain segment decreased 1.6% to $601.4 million on lower production volumes in Europe, offsetting the benefits from higher sales of all-wheel drive systems in North America and all-wheel drive systems and transmission components in Korea. Adjusted EBIT decreased 8.5% to $56.0 million from $61.2 million in the first quarter of 2012.

Financial Position

BorgWarner had $695.4 million in cash as of Mar 31, 2013 compared with $715.7 million as of Dec 31, 2012. Total debt including notes payable was $1.2 billion as of Mar 31, 2013 compared with $1.1 billion as of Dec 31, 2012. Consequently, debt-to-capitalization ratio deteriorated to 27.5% from 25.3% as of Dec 31, 2012.

In the first three months of 2013, net cash provided by operating activities decreased to $16.3 million from $30.8 million in the same period of 2012. Capital expenditures, including tooling outlays, went down to $87.4 million from $95.0 million in the 2012-quarter.

Outlook

For 2013, BorgWarner anticipates that annual sales will improve between 2% and 6%. Excluding the impact of 2012 dispositions, net sales are expected to increase between 3% and 7%.

The company also expects net earnings between $5.15 and $5.45 per share for the year and operating margin to be higher than 11.5% in 2013.

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 and stability 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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