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Why Is BorgWarner (BWA) Up 9.1% Since Last Earnings Report?

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It has been about a month since the last earnings report for BorgWarner (BWA - Free Report) . Shares have added about 9.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is BorgWarner due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

BorgWarner Delivers Weak Y/Y Results in Q2

BorgWarner reported adjusted loss of 14 cents per share in second-quarter 2020, much narrower than the Zacks Consensus Estimate of loss of 47 cents. Higher revenues across both of the company’s segments aided the results. BorgWarner had reported earnings of $1 per share in the year-ago quarter.

Net loss amounted to $98 million in the second quarter, as against the income of $172 million reported in the prior-year quarter.

BorgWarner’s net sales slid 44% year over year to $1,426 million due to production disruptions arising from the coronavirus crisis. The reported figure, however, beat the Zacks Consensus Estimate of $1,175 million.

In the June-end quarter, operating loss amounted to $78 million, as against the prior-year quarter’s profit of $285 million.

Segmental Performance

Net sales in the Engine segment fell to $826 million from the year-ago quarter’s $1,569 million. The sales figure, however, surpassed the Zacks Consensus Estimate of $665 million. Excluding the impact of foreign-currency translation, net sales were down 46% year over year and adjusted EBIT (earnings before interest, income taxes and non-controlling interest) plummeted 89% to $28 million chiefly on lower revenues.

In the Drivetrain segment, net sales decreased to $607 million from the $998 million reported in the year-earlier quarter. The figure, however, beat the Zacks Consensus Estimate of $391million. Excluding the impact of foreign-currency translations, net sales declined 38%, year over year, and adjusted EBIT slumped 99% to $1 million on dismal revenues.

Financial Position

As of Jun 30, 2020, BorgWarner had $2,003 million in cash compared with $832 million as of Dec 31, 2019. In the April-June quarter, long-term debt was $2,762 million, up from the $1,674 million recorded at the end of 2019.

Net cash provided by operating activities was $64 million as of Jun 30, 2020, compared with $427 million as of Jun 30, 2019. Investment in capital expenditure, including tooling outlays was $54 million in the June-end quarter compared with the year-ago quarter’s $127 million.

Outlook

For 2020, the company projects net sales of $8-$8.4 billion, up from the previous estimate of $7.25-$8 billion. Free cash flow is expected in the band of $300-$400 million this year, up from the prior projection of $100-$300 million.

Moreover, current-year operating cash flow is expected in the range of $700 million to $850 million, up from the prior guidance of $530-$780 million. Capex is expected in the range of $400-$450 million in the ongoing year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, BorgWarner has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, BorgWarner has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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