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Why Is BorgWarner (BWA) Down 14.3% Since Last Earnings Report?

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A month has gone by since the last earnings report for BorgWarner (BWA - Free Report) . Shares have lost about 14.3% in that time frame, underperforming the S&P 500.

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

BorgWarner Q1 Earnings Surpass Estimates, Down Y/Y

BorgWarner has delivered adjusted earnings of $1 per share in first-quarter 2019, beating the Zacks Consensus Estimate of 94 cents. However, the figure decreased from $1.10 per share recorded in the year-ago quarter. Net income was $160 million compared with $225 million in the prior-year quarter.

BorgWarner’s net sales declined 7.8% year over year to $2.57 billion, beating the Zacks Consensus Estimate of $2.47 billion. Net sales decreased roughly $127 million, owing to foreign currency fluctuations.

In the reported quarter, operating income amounted to $264 million compared with the prior-year figure of $333 million.

Segment Details

Net sales from the Engine segment decreased to $1.6 billion from $1.71 billion in the prior-year quarter. Excluding impacts of foreign currencies, the segment’s net sales edged down 1.8% year over year and adjusted EBIT (earnings before interest, income taxes and non-controlling interest) declined 10% to $252 million.

At the Drivetrain segment, net sales decreased to $982 million in first-quarter 2019 from $1.08 billion in the prior-year quarter. Excluding impacts of foreign currencies, net sales declined 5.64% on a year-over-year basis and adjusted EBIT decreased 9.9% to $109 million.

Financial Position

As of Mar 31, 2019, BorgWarner had $494 million in cash compared with $739 million as of Dec 31, 2018. Long-term debt was $1.92 billion, decreasing from $1.94 billion recorded at the end of 2018.

Net cash provided by operating activities was $40 million at the end of 2019 compared with $35 million in the prior year. During the reported quarter, capital expenditure, including tooling outlays, decreased to $117 million from $160 million in first-quarter 2018.

Outlook

For second-quarter 2019, the company’s net organic sales are likely to be down 2.5% to flat from net sales of $2.69 billion in the year-ago quarter. Further, it envisions net earnings between 99 cents and $1.05 per share.

For 2019, BorgWarner reaffirmed its guidance. It anticipates net sales of $9.90-$10.37 billion and net earnings of $4-$4.25 per share. Further, operating margin is expected to be 11.9-12.2%.

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, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% 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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