BorgWarner(US:BWA)2026-02-11 15:30Financial Data and Key Metrics Changes - BorgWarner reported approximately $14.3 billion in net sales for 2025, an increase of about $200 million year-over-year, supported by a 23% increase in light vehicle e-product sales [4][5] - The adjusted operating margin expanded by 60 basis points to 10.7%, despite a 20 basis points net tariff headwind [5][15] - The company achieved a 14% year-over-year growth in EPS and generated over $1.2 billion in free cash flow, a 66% increase compared to 2024 [5][19] Business Line Data and Key Metrics Changes - Light vehicle e-product sales increased by 23%, contributing significantly to overall sales growth [4][5] - Organic sales growth was approximately 1.6% year-over-year when excluding the decline in the battery and charging system segment [4] - The battery systems business experienced a revenue decline of 35%-40% year-over-year, primarily due to challenges in North America and weaker demand in Europe [40][41] Market Data and Key Metrics Changes - The company expects its light vehicle business, which comprises over 80% of sales, to perform broadly in line with the weighted light vehicle market, which is projected to be flat to down 3% for 2026 [20][22] - The battery business is anticipated to represent a 150 basis point headwind to year-over-year sales growth due to a lack of North American incentives and weaker European demand [21][41] Company Strategy and Development Direction - BorgWarner is focusing on long-term profitable growth by investing in new product developments, including a Turbine Generator System for the data center market [6][10][16] - The company secured a record number of new product awards across its foundational and e-product portfolios, indicating a robust pipeline for future growth [5][16] - The strategic focus includes leveraging core competencies and exploring inorganic opportunities to enhance capabilities and shareholder value [44][45] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to expand margins, grow adjusted EPS, and generate strong free cash flow in 2026, despite anticipated declines in markets and battery sales [5][16][27] - The company expects to see top-line benefits from new product launches starting in 2027 and beyond, driven by recent business wins [34][47] - Management acknowledged the challenges in the EV market but remains optimistic about future growth opportunities from new product developments [34][46] Other Important Information - BorgWarner announced a Master Supply Agreement with TurboCell for the Turbine Generator System, expected to generate over $300 million in sales during the first year of production [10][12] - The company has repurchased over $400 million of its stock in the second half of 2025, returning approximately 52% of free cash flow to shareholders [24][25] Q&A Session Summary Question: Can you elaborate on the data center opportunity and its margins? - Management indicated that the $300 million in revenues from the data center business is expected to have a mid-teens incremental conversion margin, consistent with the automotive business [29] Question: What is the size of the recovery in the PowerDrive segment? - Management noted a 100 basis point benefit in the fourth quarter, with expectations for continued growth in light vehicle e-products in the low double digits for 2026 [30][31] Question: What is the outlook for the battery systems business? - The battery systems business is expected to face continued sales headwinds, with management taking actions to minimize losses and adjust the cost structure [40][41] Question: How does the company view its M&A strategy in light of current market conditions? - Management emphasized a disciplined approach to M&A, focusing on acquisitions that leverage core competencies and provide near-term accretion [44][45]