BorgWarner(BWA) - 2025 Q2 - Quarterly Results

Executive Summary Second Quarter 2025 Performance Overview BorgWarner reported strong Q2 2025 results with a slight increase in U.S. GAAP net sales and relatively flat organic sales year-over-year, aligning with market performance. Light vehicle eProduct sales showed significant growth, contributing to a solid adjusted operating margin despite tariff headwinds - U.S. GAAP net sales increased approximately 1.0% year-over-year compared with second quarter 2024, while organic sales were relatively flat[4] - The Company's light vehicle eProduct sales increased 31% year-over-year[4] - Achieved a U.S. GAAP operating margin of 7.9% and an adjusted operating margin of 10.3% in Q2 2025, despite a 40 basis point net headwind from tariffs[4] Capital Allocation and Shareholder Value Actions The company undertook several actions to enhance long-term shareholder value, including significant share repurchases, an increased share repurchase authorization, and a substantial dividend increase - Purchased approximately $108 million of its outstanding shares during the second quarter[4] - BorgWarner's Board of Directors authorized an increase to its share repurchase program to $1 billion, allowing repurchases through 2028[4] - The Company's Board of Directors approved a 55% increase to its quarterly cash dividend per share[4] New Business Awards BorgWarner secured multiple new business awards across its portfolio, including foundational turbocharger contracts and several eProduct awards, which are expected to support long-term profitable growth Foundational Awards - Secured two turbocharger awards with a major global OEM for 1.0-liter gasoline/hybrid platforms in Europe and 3.0-liter gasoline hybrid applications in North America, with production expected to begin in 2027 and 2028[4] - Received a turbocharger award with a major East Asian OEM for hybrid electric vehicle SUV applications, with production expected to begin in 2027[4] - Secured a turbocharger award with a major global OEM for a hybrid powertrain in a sports car platform, with production expected to begin in 2028[4] eProduct Awards - Awarded a dual inverter contract with a major Chinese OEM for its hybrid vehicle lineup, extending a partnership established in 2021, with production expected by the end of 2025[7] - Secured an electric motor award with a major Chinese OEM for a platform-based design compatible across a full range of NEV applications (BEV and hybrid models), with production expected to begin in 2026[7] - Secured contracts with two major global OEMs to supply high-voltage coolant heater technology for plug-in hybrid electric vehicle platforms, with production expected to begin in 2028 for both[7] - Secured a new program for its electric cross differential technology for a leading Chinese OEM's electric vehicles in China[7] Financial Results (Continuing Operations Basis) Second Quarter 2025 Highlights BorgWarner reported Q2 2025 net sales of $3,638 million, a 1% increase YoY, primarily driven by strong eProduct sales. GAAP net earnings were $1.03 per diluted share, while adjusted net earnings were $1.21 per diluted share, up 2% YoY. The company also generated strong operating cash flow of $579 million and free cash flow of $507 million Key Financial Metrics | Metric | Q2 2025 Value | Q2 2024 Value | YoY Change | | :------------------------------------------ | :-------------- | :-------------- | :--------- | | U.S. GAAP Net Sales (Millions USD) | $3,638 | $3,603 | +1% | | Organic Sales | N/A | N/A | Relatively flat | | U.S. GAAP Net Earnings per diluted share (USD) | $1.03 | $1.39 | -26% | | Adjusted Net Earnings per diluted share (USD) | $1.21 | $1.19 | +2% | | U.S. GAAP Operating Income (Millions USD) | $289 | $297 | -2.7% | | Adjusted Operating Income (Millions USD) | $373 | $376 | -0.8% | | Net cash provided by operating activities (Millions USD) | $579 | $462 | +25.3% | | Free cash flow (Millions USD) | $507 | $297 | +70.7% | Detailed Earnings Analysis (GAAP vs. Adjusted) The company provides a detailed reconciliation of GAAP earnings per diluted share to adjusted earnings per diluted share, excluding various non-comparable items such as restructuring expense, impairment charges, and costs to exit the charging business, to offer a clearer view of ongoing operations. The increase in adjusted net earnings per diluted share was primarily due to a lower share count Non-comparable Items Impact on Earnings per Diluted Share | Non-comparable Item | Q2 2025 Impact per diluted share (USD) | Q2 2024 Impact per diluted share (USD) | | :------------------------------------ | :------------------------------- | :------------------------------- | | Restructuring expense | $0.06 | $0.08 | | Impairment charges | $0.01 | — | | Costs to exit charging business | $0.02 | — | | Accelerated depreciation | $0.08 | $0.03 | | Write-off of customer incentive asset | $0.03 | — | | Chief Executive Officer ("CEO") transition compensation | $0.03 | — | | Loss on sale of assets | $0.02 | — | | Adjustments associated with Spin-Off related balances | $0.01 | $0.05 | | Tax adjustments | $(0.08) | $(0.42) | | Other non-comparable items | — | $0.01 | - Adjusted net earnings per diluted share for Q2 2025 were $1.21, up approximately 2% from $1.19 in Q2 2024, primarily due to a lower share count[9] Segment Performance Analysis of net sales and adjusted operating income by segment reveals varied performance. PowerDrive Systems showed significant sales growth, while Battery & Charging Systems experienced a decline. Turbos & Thermal Technologies and Drivetrain & Morse Systems maintained relatively stable sales and operating income Net Sales by Segment | Segment | Q2 2025 Net Sales (Millions USD) | Q2 2024 Net Sales (Millions USD) | YoY Change | | :-------------------------- | :------------------------------- | :------------------------------- | :--------- | | Turbos & Thermal Technologies | $1,481 | $1,515 | -2.2% | | Drivetrain & Morse Systems | $1,429 | $1,442 | -0.9% | | PowerDrive Systems | $581 | $464 | +25.2% | | Battery & Charging Systems | $159 | $193 | -17.6% | | Net sales (Total) | $3,638 | $3,603 | +1.0% | Adjusted Operating Income by Segment | Segment | Q2 2025 Adj. Op. Income (Millions USD) | Q2 2024 Adj. Op. Income (Millions USD) | YoY Change | | :-------------------------- | :------------------------------------- | :------------------------------------- | :--------- | | Turbos & Thermal Technologies | $227 | $224 | +1.3% | | Drivetrain & Morse Systems | $260 | $266 | -2.3% | | PowerDrive Systems | $(33) | $(49) | +32.7% (loss reduction) | | Battery & Charging Systems | $(12) | $(10) | -20.0% (loss increase) | Full Year 2025 Guidance Update Sales and Market Outlook BorgWarner increased its full-year 2025 net sales guidance to $14.0 billion to $14.4 billion, driven by higher industry production expectations and favorable foreign exchange impacts. The company anticipates outgrowing the market by approximately 100 to 150 basis points, despite an expected overall market decline - Increased 2025 full year net sales guidance to a range of $14.0 billion to $14.4 billion (from previous $13.6 billion to $14.2 billion), due to higher industry production expectations and favorable foreign exchange[10] - Expects weighted light and commercial vehicle markets to be in the range of down 2.5% to down 0.5% in 2025 (an increase from the prior range of down 4% to down 2%)[10] - Sales guidance implies a year-over-year change in organic sales of down 1.5% to up 1%, or estimated outgrowth above market production of approximately 100 to 150 basis points[10] Market Production Outlook by Region | Region | Light vehicle | Commercial vehicle | BorgWarner-Weighted | | :-------------- | :------------------ | :----------------- | :------------------ | | North America | (6)% to (1.5)% | ~(20)% | (7.5)% to (3.5)% | | Europe | (3)% to (2)% | ~0% | (2.5)% to (1.5)% | | China | 2.5% to 4.5% | ~4.5% | 3% to 4.5% | | Total | (0.5)% to 1.5% | ~(1)% | (2.5)% to (0.5)% | Profitability and Cash Flow Guidance The company raised its 2025 adjusted operating margin guidance to 10.1% to 10.3% and adjusted net earnings per diluted share to $4.45 to $4.65, reflecting strong year-to-date results and improved market conditions. Full-year free cash flow guidance also increased by $50 million - U.S. GAAP operating margin is expected to be in the range of 8.3% to 8.5% in 2025[11] - Adjusted operating margin is expected to be in the range of 10.1% to 10.3% (increased from previous 9.6% to 10.2%)[11] - Adjusted net earnings are expected to be in the range of $4.45 to $4.65 per diluted share (increased from previous $4.00 to $4.45)[11] - Full-year operating cash flow is expected to be $1,368 million to $1,418 million, and free cash flow is expected to be $700 million to $800 million (a $50 million increase from prior guidance)[11] Non-GAAP Financial Measures Definitions of Non-GAAP Measures This section provides clear definitions for the non-GAAP financial measures used by BorgWarner, including Adjusted Operating Income, Adjusted Operating Margin, Adjusted Net Earnings, Adjusted Earnings per Diluted Share, Free Cash Flow, and Organic Net Sales Change, explaining how each is derived from GAAP measures - Adjusted Operating Income: Operating income adjusted to exclude restructuring, M&A, intangible asset amortization, other net expenses, discontinued operations, and other non-recurring gains/losses[26] - Adjusted Net Earnings: Net earnings attributable to the Company, adjusted to eliminate the impact of restructuring expense, merger, acquisition and divestiture expense, other net expenses, discontinued operations and other gains and losses not reflective of the Company's ongoing operations and related tax effects. Intangible asset amortization expense continues to be included[27] - Free Cash Flow: Net cash provided by operating activities minus capital expenditures, net of customer advances related to capital expenditures[29] - Organic Net Sales Change: Net sales change year-over-year excluding the estimated impact of foreign exchange and net mergers, acquisitions and divestitures[30] Reconciliations of Non-GAAP Measures The report provides detailed reconciliations of key non-GAAP financial measures to their most directly comparable U.S. GAAP measures for both the second quarter and year-to-date periods, illustrating the adjustments made for non-comparable items Adjusted Operating Income Reconciliation | Metric | Q2 2025 (Millions USD) | Q2 2024 (Millions USD) | | :------------------------------------ | :----------------------- | :----------------------- | | Operating income | $289 | $297 | | Non-comparable items (total) | $84 | $79 | | Adjusted operating income | $373 | $376 | | Adjusted operating margin | 10.3% | 10.4% | Free Cash Flow Reconciliation | Metric | Q2 2025 (Millions USD) | Q2 2024 (Millions USD) | | :-------------------------------------------------- | :----------------------- | :----------------------- | | Net cash provided by operating activities from continuing operations | $579 | $462 | | Capital expenditures, including tooling outlays | $(77) | $(165) | | Customer advances related to capital expenditures | $5 | — | | Free cash flow | $507 | $297 | Organic Net Sales Change by Segment | Segment | Q2 2025 Organic Net Sales Change % | | :-------------------------- | :------------------------------- | | Turbos & Thermal Technologies | (4.2)% | | Drivetrain & Morse Systems | (2.5)% | | PowerDrive Systems | 23.5% | | Battery & Charging Systems | (20.2)% | | Net sales (Total) | (0.9)% | Consolidated Financial Statements (Unaudited) Condensed Consolidated Statements of Operations The condensed consolidated statements of operations show BorgWarner's financial performance for the three and six months ended June 30, 2025, detailing net sales, cost of sales, gross profit, operating income, and net earnings, both for continuing and discontinued operations Condensed Consolidated Statements of Operations | Metric | Three Months Ended June 30, 2025 (Millions USD) | Three Months Ended June 30, 2024 (Millions USD) | | :------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Net sales | $3,638 | $3,603 | | Cost of sales | $2,998 | $2,918 | | Gross profit | $640 | $685 | | Operating income | $289 | $297 | | Net earnings attributable to BorgWarner Inc. | $224 | $303 | | Earnings per share from continuing operations — diluted | $1.03 | $1.39 | Condensed Consolidated Balance Sheets The condensed consolidated balance sheets present BorgWarner's financial position as of June 30, 2025, and December 31, 2024, outlining total assets, liabilities, and equity Condensed Consolidated Balance Sheets | Metric | June 30, 2025 (Millions USD) | December 31, 2024 (Millions USD) | | :------------------------------------ | :----------------------------- | :----------------------------- | | Cash, cash equivalents and restricted cash | $2,041 | $2,094 | | Total current assets | $6,778 | $6,521 | | Total assets | $14,399 | $13,993 | | Total current liabilities | $3,352 | $3,646 | | Total liabilities | $8,330 | $8,287 | | Total BorgWarner Inc. stockholders' equity | $5,923 | $5,532 | | Total equity | $6,069 | $5,706 | Condensed Consolidated Statements of Cash Flows The condensed consolidated statements of cash flows detail the cash generated and used by BorgWarner's operating, investing, and financing activities for the six months ended June 30, 2025, and 2024, highlighting a significant increase in net cash provided by operating activities from continuing operations Condensed Consolidated Statements of Cash Flows | Metric | Six Months Ended June 30, 2025 (Millions USD) | Six Months Ended June 30, 2024 (Millions USD) | | :-------------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities from continuing operations | $661 | $344 | | Net cash used in investing activities from continuing operations | $(158) | $(313) | | Net cash used in financing activities from continuing operations | $(606) | $(242) | | Net decrease in cash, cash equivalents and restricted cash | $(53) | $(246) | Forward-Looking Statements Forward-Looking Statements Disclaimer This section serves as a standard legal disclaimer, cautioning readers that the press release contains forward-looking statements based on management's current expectations and projections. It highlights that actual results may differ materially due to various risks and uncertainties, and the company does not undertake to update these statements - This press release may contain forward-looking statements based on management's current outlook, expectations, estimates, and projections[15] - Forward-looking statements are not guarantees of performance, and actual results may differ materially from those expressed, projected, or implied due to various risks and uncertainties[16][17] - The company does not undertake any obligation to update or announce publicly any updates to or revisions to any of the forward-looking statements[17] Company Information & Investor Relations Company Profile and Investor Access This section provides information about BorgWarner's identity as a global product leader in mobility innovation, its focus on eMobility, and details for investors to access the conference call webcast and presentation regarding the second quarter 2025 results and guidance - BorgWarner Inc. (NYSE: BWA) is a transformative global product leader in mobility innovation, accelerating the world's transition to eMobility[13] - A conference call concerning second quarter 2025 results and guidance will be webcast at: https://www.borgwarner.com/investors[12](index=12&type=chunk) - An earnings call presentation will also be available at https://www.borgwarner.com/investors[12](index=12&type=chunk)