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Why Is BorgWarner (BWA) Down 26.9% 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 26.9% 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 catalysts.

BorgWarner Beats Q4 Earnings & Revenue Estimates

BorgWarner delivered adjusted earnings of $1.17 per share in fourth-quarter 2019, beating the Zacks Consensus Estimate of $1.05. This was mainly driven by the better-than-anticipated performance of the Drivetrain and Engine segments. However, the reported figure came in lower than the year-ago quarter’s $1.21 per share. Net income amounted to $220 million compared with the $230 million reported in the prior-year quarter.

BorgWarner’s net sales edged down 0.6% year over year to $2,559 million, due to the unfavorable impact of the thermostat product line divestiture and foreign-currency fluctuations. The reported figure, however, beat the Zacks Consensus Estimate of $2,533 million.

In the fourth quarter, operating income amounted to $478 million compared with the prior-year quarter’s figure of $266 million.

Segmental Performance

Net sales in the Engine segment fell to $1,533 million from the year-ago quarter’s $1,541 million. The figure, however, surpassed the Zacks Consensus Estimate of $1,480 million. Excluding impact of foreign-currency translation and divestiture of the thermostat product line, net sales went up 3.5% year over year and adjusted EBIT (earnings before interest, income taxes and non-controlling interest) climbed 8.6% to $264 million. This was primarily aided by higher revenues, excluding the impact of weaker currencies, and lower SG&A and R&D expense.

In the Drivetrain segment, net sales decreased to $1,042 million from the $1,047 million reported in the prior-year quarter. The figure, however, outpaced the Zacks Consensus Estimate of $1,041 million. Excluding impacts of foreign currencies, net sales inched up 1.5% on a year-over-year basis and adjusted EBIT rose 4.6% to $136 million owing to supplier cost savings and lower R&D costs.

Financial Position

As of Dec 31, 2019, BorgWarner had $832 million in cash compared with $739 million as of Dec 31, 2018. Long-term debt was $1.67 billion, down from the $1.94 billion recorded at the end of 2018. The debt-to-capital ratio stands at 25.68%.

Net cash provided by operating activities was $1,008 million as of Dec 31, 2019, compared with $1,126 million as of Dec 31, 2018. Investment in capital expenditure, including tooling outlays, declined to $481 million from the $546 million recorded as of Dec 31, 2018.

Outlook

For full-year 2020, net sales are expected in the range of $9,750 million to $10,075 million, suggesting a year-over-year fall of 2.5% at the mid-point of the guidance. Further, it envisions adjusted net earnings between $3.85 and $4.15 per diluted share. In addition, adjusted operating margin is expected in the range of 10-11% and full-year free cash flow is estimated between $675 million and $725 million.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -7.28% due to these changes.

VGM Scores

At this time, BorgWarner has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. 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

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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