BorgWarner (BWA) Beats Earnings, Revenue Estimates In Q1

BorgWarner Inc. (NYSE:BWA) reported adjusted earnings of 91 cents per share in the first quarter of 2017, beating the Zacks Consensus Estimate of 84 cents. Adjusted earnings also increased from 80 cents per share reported in the year-ago quarter.

Revenues increased 6.1% year over year to $2,407 million, beating the Zacks Consensus Estimate of $2,250 million. Excluding the impact of foreign currencies and the Remy International acquisition, net revenues went up 12.8% year over year.

Operating income amounted to roughly $292.7 million, up from $264.2 million in the first quarter of 2016.

Segment Details

Revenues in the Engine segment were up 7.1% year over year to $1.5 billion. Excluding the impact of foreign currencies, net sales went up 9.5% in the segment.

Adjusted earnings before interest, income taxes and non-controlling interest (adjusted EBIT) improved to $247 million in the reported quarter from $236.7 million a year ago.

Revenues in the Drivetrain segment grew 5.2% year over year to $925 million in the first quarter. Excluding the impact of foreign currencies and the Remy International acquisition, net sales rose 18.8% year over year. Adjusted EBIT improved to $105 million in the first quarter of 2017.

Financial Position

BorgWarner had $358.4 million in cash as of Mar 31, 2017, compared with $443.7 million as of Dec 31, 2016.

Long-term debt was $2.04 billion as of Mar 31, 2017, in line with Dec 31, 2016.

In the first quarter, net cash from operating activities increased to $60.3 million from $34.4 million in the year-ago period.

Capital expenditures, including tooling outlays, rose to $131 million from $104 million in first-quarter 2016.

The company announced dividend of 14 cents per share. The dividend is payable on Jun 15, to shareholders on record as of Jun 1.

Outlook

The company anticipates organic net sales in the second quarter of 2017 to grow at 3–6.5%. The Remy light vehicle aftermarket sale generated revenues of $80 million in second-quarter 2016. Also, foreign currencies are expected to have a negative impact of $115 million or 5.1%.

Net earnings for the first quarter of 2017 are expected in the band of 87–91 per share.

For 2017, the company reiterated its guidance. It expects net sales of around $8.81–$9.04 billion, which translates into organic growth rate of 3.5–6%. The company expects negative impact of foreign currencies due to the depreciation of the Euro, Yuan and Pound of $310 million, lower than the prior expectation of $320 million.

Further, BorgWarner expects net earnings in the range of $3.50–$3.60 per share in 2017, up from the prior expectation of $3.35–$3.45 due to lower tax rate assumption. Operating margin for 2017 is expected to improve by 40 to 50 basis points.

Price Performance

BorgWarner’s shares rallied 1.6% in the last three months, underperforming the Zacks categorized Automotive-Original Equipment industry’s gain of 2.8%.

Zacks Rank & Key Picks

BorgWarner currently carries a Zacks Rank #2 (Buy).

Better-ranked companies in the auto space include Oshkosh Corp. (NYSE:OSK) , Fox Factory Holding Corp (NASDAQ:FOXF) and Lear Corp. (NYSE:LEA) . All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Oshkosh has an expected long-term growth rate of 10.6%.

Fox Factory has an expected long-term growth rate of around 16.1%.

The expected long-term growth rate for Lear is pegged at 8.9%.

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