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BorgWarner Misses by a Penny

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BorgWarner Inc. (BWA - Free Report) reported a 21% boost in adjusted earnings per share to $1.36 in the second quarter of 2012 compared to $1.12 per share in the corresponding quarter last year. The company’s focus on fuel-efficient vehicles in the midst of strict emission standards has led to the year over year growth in earnings. However, the profit missed the Zacks Consensus Estimate by a penny.

The company’s revenues for the quarter came in at $1.85 billion, up 2% compared with $1.81 billion in the year-ago quarter. Appreciation of Euro adversely affected the revenues by $135 million. Revenues were lower than the Zacks Consensus Estimate of $1.98 billion.    

Gross profit increased 7.3% to $383.2 million from $357.1 million in the year ago quarter. Operating income went down 15.2% to $193.5 million from $228.3 million recorded in the second quarter of 2011. Consequently, operating margin declined to 10.4% from 12.6% recorded in the last year.

Revenues from the Engine segment fell 2% to $1.3 billion in the quarter. Excluding the impact of foreign currencies, revenues increased about 7% due to higher sales of engine timing systems, including variable cam timing products, larger sales of emissions products and increased adoption of turbocharger technology around the world. Adjusted earnings before interest, income taxes and non-controlling interest (EBIT) went up 7%, to $211 million from $197 million in the corresponding quarter of 2011.

Revenues from the Drivetrain segment surged 13% to $594 million. Excluding the impact of foreign currencies, revenues increased about 20% driven by strong all-wheel drive system sales around the world, growth in traditional transmission component sales in North America and Korea and higher dual clutch transmission module sales in Europe. EBIT boosted by 40% to $55 million from $39 million in the comparable quarter of 2011.    

BorgWarner’s cash balance rose to $481.9 million as of June 30, 2012 from $359.6 million as of December 31, 2011. Total debt decreased to $966.4 million as of June 30, 2012 from $1.1 billion as of December 31, 2012.

For the first six months of 2012, the company had cash flow from operating activities of $310.1 million compared with a cash outflow of $249.6 million in the same period of 2011. Capital expenditures, including tooling outlays, increased to $188.4 million from $160.0 million in the first half of 2011.

BorgWarner is a leading manufacturer of powertrain products for the world's major automakers. Its products include four-wheel-drive and all-wheel-drive transfer cases (primarily for light trucks and sport utility vehicles or SUVs), as well as automatic transmission and timing chain systems. The company's products are capable of improving vehicle performance and stability meeting fuel-efficiency and emission standards.

The company operates in 59 locations in 19 countries, providing products that increase fuel efficiency and reduction in emission. 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 - Free Report) , Toyota Motor Corp. (TM - Free Report) and Honda Motor Co. (HMC - Free Report) .

However, the company faces tough competition from its peers, as any advanced technology developed by them will adversely affect its business. Currently, it retains a Zacks #4 Rank, which translates into a short-term (1 to 3 months) Sell rating.

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