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What's in Store for BorgWarner (BWA) This Earnings Season?

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BorgWarner Inc (BWA - Free Report) is scheduled to release second-quarter 2019 earnings on Jul 25, before market open. In the last reported quarter, the company delivered positive earnings surprise of 6.38%. In fact, the company’s earnings surpassed estimates in each of the trailing four quarters, at an average beat of 6.94%.

In the past three months, shares of BorgWarner have underperformed the  industry it belongs to. The stock has plunged 8.3% compared with the industry’s decline of 4.3%.



Let’s discuss the factors that are likely to make an impact on the upcoming quarterly announcement.

Factors to Influence Q2

Strong backlogs along with increasing demand for hybrid and electric propulsion engines are likely to bolster BorgWarner’s market presence in 2019. The company projects backlog for 2019 in the range of $430-$580 million.

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. The figure indicates rise of 350-400 basis points versus the market forecast of down 4-6%. Further, the company estimates net earnings between 99 cents and $1.05 per share.

BorgWarner is witnessing decline in light-vehicle production across all of its major markets. In China and Europe, the industry’s light-vehicle production witnessed year-over-year declines of 15% and 6%, respectively. Soft demand in China and concerns related to WLTP certification in Europe contributed to the decline.

The company expects the on-going challenging conditions in China and Europe to continue for the rest of the year. Amid these conditions, the company expects to be able to deliver full year earnings and cash flow guidance. BorgWarner aims to continue to outgrow the market in 2019 on the back of consistent demand for their products.

The prototype spending is expected to be lumpy throughout 2019, with some of the largest impacts in the second quarter. Also, as with the case in last quarter, the upcoming quarterly results will be impacted by tariffs and supplier bankruptcy costs. Further, higher R&D spending will affect year-over-year margin performance. On a full-year basis, it is expected that R&D will be in the low 4% range, but timing of spending will vary from quarter to quarter.

Teaser: BorgWarner’s (BWA - Free Report) Q2 results will be impacted by tariffs and supplier bankruptcy costs. Also, higher R&D spending is likely to affect margins. What’s in Store for BorgWarner (BWA - Free Report) This Earnings Season?

BorgWarner Inc. Price and EPS Surprise

 

BorgWarner Inc. Price and EPS Surprise

BorgWarner Inc. price-eps-surprise | BorgWarner Inc. Quote

 

What the Zacks Model Says

Our proven model does not conclusively show that the company is likely to beat earnings estimates in the quarter to be reported. This is because a stock needs to have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. This is not the case here as you will see below:

Earnings ESP: BorgWarner has an Earnings ESP of -0.66%. The Most Accurate Estimate and the Zacks Consensus Estimate are currently pegged at $1.00 and $1.01, respectively. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank #3. However, a negative Earnings ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Here are some auto stocks worth considering, which have the right combination of elements to deliver an earnings beat this time around:

Dana Incorporated (DAN - Free Report) has an Earnings ESP of +0.45% and carries a Zacks Rank #3. It is slated to release second-quarter 2019 results on Jul 31. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cummins Inc (CMI - Free Report) has an Earnings ESP of +3.48% and currently carries a Zacks Rank of 3. It is slated to release second-quarter 2019 results on Jul 30.

Penske Automotive Group, Inc (PAG - Free Report) has an Earnings ESP of +0.42% and currently carries a Zacks Rank of 3. The company is slated to release second-quarter 2019 results on Jul 30.

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