BorgWarner Expects Higher Earnings - Analyst Blog

BorgWarner Inc. (BWA) announced that it expects to earn between $5.15 and $5.45 per share for 2013. The range is consistent with the Zacks Consensus Estimate of $5.25 per share and reflects a rise of 15.7%–22.5% from 2011.

Further, the company anticipates revenues to go up 2%–6% in the year based on a 1% rise in global light vehicle production, offset partially by a 3% fall in European light vehicle production.

A couple of moths back, the leading manufacturer of powertrain products for the world's major automakers revealed that it expects Asia to account for half of its $2.3 billion in new business from 2013 to 2015, rather than Europe, which is the market leader in new powertrain technology and currently accounts for 45% of its business.

The company plans to reduce its exposure in Europe to 30% of new business due to the economic weakness in the region. The remaining 20% will be drawn from North America.

Asia accounted for 35% of the company’s new business from 2010 to 2012. The company now expects China to account for one-third of new business in the region.

Stringent fuel economy and emissions standard as well as advancement in design, manufacturing and materials have boosted the demand for BorgWarner’s products, including dual-clutch transmissions (DCT) and turbochargers.

The company expects a threefold increase in demand for DCT modules – which improves fuel efficiency by 15% – to 8 million units by 2016. Meanwhile, it anticipates global sales of turbochargers – which improve fuel efficiency by 7.5% according to the U.S. Department of Energy – to surge 50% to 50 million units by 2017.

BorgWarner, a Zacks Rank #3 (Hold) stock, posted a 3.5% increase in profits to $1.19 per share (excluding non-recurring items) in the third quarter of the year from $1.15 in the same quarter of 2011. The profit was in line with the Zacks Consensus Estimate.

Revenues dipped 5% to $1.7 billion due to a 6% fall in light vehicle production in Europe, which comprises over half of the company’s ales. However, excluding the impact of foreign currencies and dispositions in 2011, net sales went up 2% in the quarter.

The company revised its 2012 revenues and earnings guidance downward owing to the economic slowdown in Europe. For the year, the company anticipates annual sales growth between 0% and 1% compared with the prior guidance of 4% to 6%. Excluding the negative impact of foreign currencies, annual net sales growth is expected between 5% and 6% compared with the prior level of 9% to 11%.

The company also expects net earnings between $4.90 and $5.00 per share for the year, excluding special items, which is lower than the prior outlook of $5.05 to $5.25 per share. The company stated that it expects U.S. dollar to euro exchange rate to go down to $1.25 in 2013 till 2015 from $1.35 over the last three years.

BorgWarner operates in 57 locations in 19 countries, providing products that increase fuel efficiency and curb emission. 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 manufactured and sold worldwide, primarily to original equipment manufacturers of passenger cars, SUVs, trucks and commercial transportation products. Its largest customers include Ford Motor Co. (F), Toyota Motor Corp. (TM) and Honda Motor Co. (HMC).
 

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