Summary of the Conference Call Company Overview - **Company**: BorgWarner - **Industry**: Automotive and Powertrain Supply Key Points and Arguments Supply Chain Disruptions - BorgWarner faced supply disruptions impacting sales, including: - A cyber attack affecting JLR, resulting in a $35 million sales impact in Q3 [3] - Ford's aluminum supplier issue expected to impact BorgWarner by $50-$100 million in Q4 [3][4] - Semiconductor challenges with Nexperia have shown signs of improvement [3] Growth Dynamics - The company has experienced a backlog shift due to changes in the EV market, tariffs, and reshoring [5] - BorgWarner's outgrowth has been around 1% for 2024 and 2025, primarily due to unmaterialized volumes from won programs [6] - The company announced 17 new programs in the last six months, indicating a high level of activity [6] - Under new CEO Joe's leadership, there is a cultural shift encouraging all business units to seek growth opportunities [7] Foundational vs. E-Product Business - The foundational business is expected to see organic growth declines, but there are opportunities in turbochargers and all-wheel drive systems [11][12] - Advanced hybrid vehicles present significant content opportunities, with potential revenue four to five times that of pure combustion engines [15] - The e-products segment, particularly PowerDrive, has shown strong growth, especially in Europe and Asia [19][22] Margin Resilience - Despite organic growth declines, BorgWarner has maintained strong margins through cost controls, restructuring savings, and supply chain efficiencies [28][30] - The company aims for mid-teens earnings per share growth, leveraging cost management strategies [32] Automation and AI - BorgWarner has implemented AI in manufacturing for cost benefits, particularly in visual inspections and R&D processes [34][35] Battery Business Outlook - The battery segment has faced challenges but remains EBITDA positive and free cash flow positive, with a focus on long-term growth [26][41] Free Cash Flow and Capital Allocation - The company expects to generate approximately $900 million in free cash flow, a 20% increase year-over-year [59] - CapEx is currently low at 4% of revenue, but historically it has been around 5-6% [61] - BorgWarner is balancing share buybacks and M&A opportunities, with a focus on accretive investments [66] Regional Dynamics and China Exposure - Approximately 20% of BorgWarner's revenue comes from China, with 75% of that from local OEMs [48] - The company maintains a disciplined approach to ROIC in China, focusing on profitability despite competitive pressures [49][54] - There are opportunities for Chinese OEMs to expand into Europe, which could benefit BorgWarner [56] Conclusion - BorgWarner is navigating supply chain challenges while focusing on growth in both foundational and e-product segments. The company is committed to maintaining strong margins and free cash flow, with strategic investments in automation and a disciplined approach to capital allocation. The outlook for the battery business remains cautiously optimistic, and the company is well-positioned to capitalize on opportunities in the evolving automotive landscape.

Group 1 - The long-term trend of electric vehicle adoption remains intact, but the landscape is fragmented [1] - Norway has reached the late majority stage in electric vehicle adoption, with over 98% of new cars being electric [1] Group 2 - The focus is on small and midcap companies with asymmetric upsides in the investment landscape [1] - The analyst has diverse experience, having worked in the Industrials and chemicals sector and in finance and technology at a charity [1]

Group 1 - The long-term trend of electric vehicle adoption remains intact, but the landscape is fragmented, with Norway being in the late majority stage, where over 98% of new cars are electric [1] - The focus is on small and midcap companies that present asymmetric upsides, indicating a strategy that seeks high potential returns from less established firms [1] - The analyst has diverse experience, having worked in various sectors including Industrials and chemicals, which enriches the analysis and execution capabilities [1] Group 2 - The article emphasizes the importance of continuous learning and how different experiences can reinforce analytical skills [1] - There is a mention of a potential beneficial long position in a specific stock (BWA) within the next 72 hours, indicating a proactive investment strategy [1] - The article does not provide any specific investment recommendations or advice, maintaining a neutral stance on investment suitability [2]

Company Overview - BorgWarner is recognized as a global leader in both legacy combustion technologies, such as turbochargers, and in eProducts [1] - The company is actively involved in vehicle technology and mobility sectors [1] Leadership and Strategy - Joe Fadool, who became CEO earlier this year, has outlined key priorities for the company [2] - The leadership team, including the CFO Craig Aaron and Pat Nolan from Investor Relations, is engaged in discussions to address these priorities [2]

Summary of BorgWarner Conference Call Company Overview - **Company**: BorgWarner - **Industry**: Automotive technology, focusing on both legacy combustion technologies and electric vehicle (EV) products Key Priorities and Strategies - **Financial Performance**: The company aims to drive financial performance by launching new business globally, focusing on both combustion and EV products [2][3] - **RFQ Flow**: There has been a significant increase in Request for Quotations (RFQs) compared to the previous year, with the company winning a fair share across its portfolio, including turbochargers, EGR systems, inverters, and complete drive systems [2][5] - **Growth Expectations**: Anticipated growth is expected to materialize around 2027-2028, with a balanced approach to capital allocation, including shareholder returns and potential inorganic investments [3][14] Market Dynamics - **Geographical Insights**: - **China**: Strong growth in e-products, with a significant portion of combustion programs also present. The company has won numerous awards in this market [5][6][25] - **Europe**: A balanced focus on EVs, advanced hybrids, and combustion technologies, with a slower short-term growth in EVs [5][6] - **North America**: The market is currently facing supply chain issues, particularly with a North American truckmaker, impacting production [9][10] Financial Performance - **Earnings Growth**: The company is focused on growing earnings per share (EPS) and free cash flow, with a target to continue this trend into 2026 and 2027 [14][18] - **Margin Expansion**: Despite flat sales, the company has managed to expand operating margins by 30 basis points year-to-date through cost controls and productivity improvements [16][17] - **Cash Flow**: The company generated $900 million in free cash flow and is committed to returning cash to shareholders through dividends and buybacks [18][50] Challenges and Risks - **Supply Chain Issues**: Ongoing challenges with aluminum supply and semiconductor chips have been noted, but the company has not shut down any customers and is managing these disruptions [9][10] - **Tariffs**: The company has been managing tariff impacts, with expectations for recovery in the fourth quarter as agreements with customers cover about 80% of tariff exposure [19][50] Technological Advancements - **AI and Machine Learning**: The company is exploring the use of AI tools for quality improvement and cost reduction, with positive results from pilot programs [20][21] - **E-Products Growth**: Approximately 50% of light vehicle e-product sales are in China, with a 27% increase in sales year-over-year [25][28] M&A Strategy - **Inorganic Growth**: The company is open to both larger acquisitions and smaller tuck-in deals that align with its core competencies in rotating mechanics, electrics, and system engineering [45][48] - **Valuation Discipline**: A disciplined approach to valuation is emphasized, with a focus on ensuring that any inorganic investment drives earnings growth [47][50] Conclusion BorgWarner is strategically positioned to leverage its diverse portfolio in both combustion and electric vehicle technologies, with a strong focus on financial performance, market expansion, and technological innovation. The company is navigating current challenges while preparing for future growth opportunities, particularly in the rapidly evolving automotive landscape.

Core Insights - BorgWarner (BWA) reported adjusted earnings of $1.24 per share for Q3 2025, exceeding the Zacks Consensus Estimate of $1.16 and up from $1.09 in the prior-year quarter, driven by strong performance in the Turbos & Thermal Technologies segment [1][10] - The company reported net sales of $3.59 billion, a 4.1% year-over-year increase, but fell short of the Zacks Consensus Estimate of $3.63 billion [1] Segment Performance - **Turbos & Thermal Technologies**: Net sales reached $1.44 billion, up from $1.39 billion year-over-year, surpassing the Zacks Consensus Estimate of $1.38 billion. Adjusted operating income increased to $219 million from $202 million, exceeding the estimate of $213.3 million [2] - **Drivetrain & Morse Systems**: Net sales were $1.45 billion, up from $1.37 billion year-over-year, beating the Zacks Consensus Estimate of $1.36 billion. Adjusted operating income rose to $267 million from $251 million but missed the estimate of $299.4 million [3] - **PowerDrive Systems**: Sales totaled $582 million, an increase from $512 million year-over-year, but missed the Zacks Consensus Estimate of $670 million. The segment reported an adjusted operating loss of $35 million, wider than the loss of $19 million in the prior year [4] - **Battery & Charging Systems**: Sales were $132 million, down from $197 million a year ago, missing the Zacks Consensus Estimate of $172 million. The segment incurred an adjusted operating loss of $7 million, which was narrower than the loss of $8 million in the previous year [5] Financial Overview - As of September 30, 2025, BorgWarner had $2.17 billion in cash and equivalents, up from $2.09 billion at the end of 2024. Long-term debt increased to $3.9 billion from $3.8 billion [6] - Net cash provided by operating activities was $368 million, with capital expenditures totaling $111 million and free cash flow at $266 million [6] 2025 Guidance - The company revised its full-year 2025 net sales guidance to a range of $14.1-$14.3 billion, down from the previous estimate of $14-$14.4 billion. Adjusted operating margin is now expected to be between 10.3-10.5%, an increase from the earlier guidance of 10.1-10.3% [7] - Adjusted earnings per share are now estimated to be in the range of $4.60-$4.75, up from $4.45-$4.65. Operating cash flow is forecasted to be between $1,434-$1,484 million, an increase from the prior range of $1,368-$1,418 million. Free cash flow is projected to be $850-$950 million, up from the previous forecast of $700-$800 million [8]

Financial Performance - Net sales for Q3 2025 were $3,591 million, a 4.1% increase from $3,449 million in Q3 2024[13] - Gross profit for Q3 2025 was $664 million, compared to $636 million in Q3 2024, reflecting a gross margin of 18.5%[13] - Net earnings attributable to BorgWarner Inc. for Q3 2025 were $158 million, down from $234 million in Q3 2024, resulting in earnings per share of $0.74[13][14] - Total revenue for the three months ended September 30, 2025, was $3,591 million, a 4.1% increase from $3,449 million in the same period of 2024[45] - For the nine months ended September 30, 2025, total revenue was $10,744 million, a 0.9% increase from $10,647 million in the same period of 2024[45] - Net sales for the nine months ended September 30, 2025, totaled $10,744 million, compared to $10,647 million for the same period in 2024, indicating a growth of approximately 0.9%[122] - The company reported net earnings from continuing operations of $576 million for the nine months ended September 30, 2025, down from $814 million in the same period of 2024, representing a decline of 29.2%[161] - The Company’s earnings per diluted share were $0.73 for the three months ended September 30, 2025, down from $1.08 in 2024, and $2.48 for the nine months ended September 30, 2025, compared to $3.40 in 2024[204] Assets and Liabilities - Total assets increased to $14,496 million as of September 30, 2025, up from $13,993 million at the end of 2024[12] - Total liabilities increased slightly to $8,346 million as of September 30, 2025, from $8,287 million at the end of 2024[12] - The company reported a total long-term debt of $3,897 million as of September 30, 2025, down from $4,100 million at the end of 2024[92] - Total inventories as of September 30, 2025, were $1,231 million, a slight decrease from $1,251 million as of December 31, 2024[80] - The net goodwill balance as of September 30, 2025, was $2,459 million, an increase from $2,357 million as of December 31, 2024[88] Cash Flow and Expenditures - Cash provided by operating activities of continuing operations for the nine months ended September 30, 2025, was $1,029 million, compared to $700 million in the same period of 2024[17] - Capital expenditures for the nine months ended September 30, 2025, were $307 million, down from $510 million in the same period of 2024[17] - The company’s long-lived asset expenditures for the nine months ended September 30, 2025, totaled $500 million, compared to $299 million in 2024, reflecting a substantial increase of 67.2%[160] Restructuring and Expenses - The company reported a restructuring expense of $23 million in Q3 2025, compared to $21 million in Q3 2024[13] - Cumulatively, the company has incurred $42 million in restructuring charges related to the 2024 Structural Cost Plan as of September 30, 2025[49] - The company recorded $34 million in restructuring costs for the nine months ended September 30, 2025, compared to $52 million in the same period of 2024[51] - Employee termination benefits accounted for $19 million of the restructuring costs in Q3 2025[53] - The company continues to evaluate options to reduce structural costs, indicating potential future restructuring expenses[60] Research and Development - Gross R&D expenditures for the three months ended September 30, 2025, were $206 million, a decrease of 5.5% from $218 million in 2024; for the nine months, expenditures were $609 million, down 7.2% from $656 million in 2024[64] - Net R&D expenditures for the three months ended September 30, 2025, were $189 million, slightly down from $190 million in 2024; for the nine months, net expenditures were $553 million, a decrease of 2.3% from $566 million in 2024[64] Segment Performance - Revenue from Foundational products for the three months ended September 30, 2025, was $2,985 million, compared to $2,810 million in 2024, representing a growth of 6.2%[43] - The Company’s net sales for the PowerDrive Systems segment were $582 million for the three months ended September 30, 2025, compared to $576 million in the same period of 2024, reflecting a growth of 1.0%[153] - Net sales for the Turbos & Thermal Technologies segment increased by $51 million, or 4%, to $1,437 million for the three months ended September 30, 2025, with an adjusted operating income of $219 million and a margin of 15.2%[207][209] - The Drivetrain & Morse Systems segment's net sales rose by $87 million, or 6%, to $1,452 million for the three months ended September 30, 2025, with an adjusted operating income of $267 million and a margin of 18.4%[207][210] - PowerDrive Systems segment reported net sales of $582 million with an adjusted operating loss of $(35) million, reflecting a margin of (6.0)% for the three months ended September 30, 2025[207] Legal and Compliance - The company is involved in a lawsuit seeking to recover approximately $120 million in VAT refunds from PHINIA, which may impact future financial results[139] - The Company expects to receive approximately $52 million in VAT refunds as of September 30, 2025, after the Settlement Agreement with PHINIA[140] Taxation - The effective tax rate for the three months ended September 30, 2025, was 30%, significantly higher than 5% in 2024; for the nine months, the effective tax rate was 25% compared to 5% in 2024[75][76] - The provision for income taxes for the nine months ended September 30, 2025, was $188 million, resulting in an effective rate of 25%, compared to $44 million and 5% in 2024[203] Other Comprehensive Income - The company recognized a total of $973 million in other comprehensive income for the nine months ended September 30, 2025, compared to $20 million in the same period of 2024[122] - The accumulated other comprehensive loss decreased from $868 million as of June 30, 2025, to $838 million by September 30, 2025, showing an improvement of about 3.46%[135]

Core Insights - BorgWarner reported revenue of $3.59 billion for Q3 2025, reflecting a 4.1% increase year-over-year, but fell short of the Zacks Consensus Estimate by 1.07% [1] - The company's EPS for the quarter was $1.24, up from $1.09 in the same quarter last year, exceeding the consensus estimate of $1.16 by 6.9% [1] Financial Performance Metrics - Organic Net Sales Change was 2.1%, below the estimated 3.3% by analysts [4] - Net Sales for Turbos & Thermal Technologies reached $1.44 billion, slightly above the average estimate of $1.41 billion [4] - Net Sales for Drivetrain & Morse Systems was $1.45 billion, exceeding the average estimate of $1.39 billion [4] - Net Sales for Battery & Charging Systems was $132 million, significantly below the average estimate of $182.31 million [4] - Net Sales for PowerDrive Systems was $582 million, also below the average estimate of $644.41 million [4] - Adjusted Operating Income for Turbos & Thermal Technologies was $219 million, above the average estimate of $211.44 million [4] - Adjusted Operating Income for Battery & Charging Systems was a loss of $7 million, worse than the average estimate of a loss of $0.71 million [4] - Adjusted Operating Income for PowerDrive Systems was a loss of $35 million, compared to the average estimate of a loss of $21.94 million [4] - Adjusted Operating Income for Drivetrain & Morse Systems was $267 million, slightly above the average estimate of $261.55 million [4] Stock Performance - BorgWarner's shares have returned -3.2% over the past month, contrasting with the Zacks S&P 500 composite's increase of +3.6% [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating expected performance in line with the broader market [3]

Financial Data and Key Metrics Changes - The company reported sales of just under $3.6 billion for Q3 2025, reflecting a 2% year-over-year increase excluding foreign exchange impacts [15][21] - Adjusted operating margin was strong at 10.7%, a 60 basis point improvement year-over-year despite a $17 million net tariff headwind [15][17] - Free cash flow for the quarter was $266 million, a 32% increase from the previous year [15][21] Business Line Data and Key Metrics Changes - Organic sales growth was just over 2%, with a 4% increase in foundational sales, while the CV battery and charging system segment saw a decline [6][15] - Light vehicle eProduct sales increased by 6%, contributing to overall organic sales growth [16] - PowerDrive Systems (PDS) sales grew by 12% year-over-year, driven by growth in China [29] Market Data and Key Metrics Changes - The company expects a full-year sales benefit of $170 million due to the strengthening of the Euro against the U.S. Dollar [19] - The full-year market production outlook has improved to flat to down 1% year-over-year, compared to previous guidance of down 0.5% to down 2.5% [19] Company Strategy and Development Direction - The company aims to drive strong financial performance by launching profitable businesses globally and managing overall cost structures [12][13] - Focus on securing new business across the portfolio to contribute to long-term growth [13] - The company is committed to a balanced capital allocation approach that rewards shareholders while making inorganic investments [13][57] Management's Comments on Operating Environment and Future Outlook - Management acknowledged headwinds from a cyber-related shutdown at a European customer and supply constraints affecting production [15][68] - The company expects adjusted EPS in the range of $4.60 to $4.75 per diluted share, representing an 8% increase year-over-year at the midpoint [21] - Management remains optimistic about the long-term outlook for the battery business despite current sales headwinds [46] Other Important Information - The company returned approximately $136 million to shareholders in Q3, representing over 50% of free cash flow [8][22] - The company secured multiple new business awards across its portfolio, indicating strong demand for its products [12][14] Q&A Session Summary Question: Visibility on Q4 impact from Oswego - Management indicated a $50 to $100 million impact expected in Q4 due to the North American program [26] Question: Divisional margins, particularly PowerDrive Systems - PowerDrive Systems sales were over $580 million, with expectations for mid-teens incrementals as growth continues [29] Question: Unusual items in Q3 margin - No unusual one-time items were reported; strong performance attributed to cost controls and higher sales [36] Question: Battery and charging sales outlook - Management expects the battery business to be slightly EBITDA and free cash flow positive in 2025, despite current challenges [46] Question: Nexperia chip situation - The company has direct exposure to Nexperia and is managing the situation to mitigate impacts on customers [96] Question: Class 8 trucking market outlook - The Class 8 trucking market has been soft, but the company does not expect significant noise by year-end [98] Question: Capital allocation and share repurchases - The company plans to return $135 million in Q4, maintaining a balance between share repurchases and potential organic investments [81]

Group 1 - The article does not provide any relevant content regarding company or industry insights [1]