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AUBURN HILLS, Mich., May 4, 2023 /PRNewswire/ -- BorgWarner Inc. (NYSE: BWA) today reported first quarter results.
Charging Forward Update:
First Quarter Highlights:
Financial Results:
The Company believes the following table is useful in highlighting non-comparable items that impacted its U.S. GAAP net earnings per diluted share. The Company defines adjusted earnings per diluted share as earnings per diluted share adjusted to eliminate the impact of restructuring expense, merger, acquisition and divestiture expense, other net expenses, discontinued operations, other gains and losses not reflective of the Company's ongoing operations, and related tax effects.
Three Months Ended March 31, | |||
2023 | 2022 | ||
Earnings per diluted share | $ 0.93 | $ 0.84 | |
Non-comparable items: | |||
Merger, acquisition and divestiture expense, net | 0.10 | 0.09 | |
Restructuring expense | 0.02 | 0.06 | |
Unrealized loss on debt and equity securities | 0.05 | 0.14 | |
Gain on sale of business | — | (0.08) | |
Tax adjustments | (0.01) | — | |
Adjusted earnings per diluted share | $ 1.09 | $ 1.05 |
Net sales were $4,180 million for the first quarter 2023, an increase of 8% compared with $3,874 million for the first quarter 2022. Net earnings for the first quarter 2023 were $217 million, or $0.93 per diluted share, compared with net earnings of $200 million, or $0.84 per diluted share, for the first quarter 2022. Adjusted net earnings per diluted share for the first quarter 2023 were $1.09, up from adjusted net earnings per diluted share of $1.05 for the first quarter 2022. Adjusted net earnings for the first quarter 2023 excluded net non-comparable items of $(0.16) per diluted share. Adjusted net earnings for the first quarter 2022 excluded net non-comparable items of $(0.21) per diluted share. These items are listed in the table above, which is provided by the Company for comparison with other results and the most directly comparable U.S. GAAP measures. The increase in adjusted net earnings was primarily due to the benefit of higher sales, partially offset by inflationary impacts on cost, higher R&D investment in the Company's electrification portfolio and the impact of lower industry production in China.
Full Year 2023 Guidance: The Company has updated full year sales, margin and EPS guidance. Net sales are expected to be in the range of $17.1 billion to $17.9 billion, compared with 2022 sales of $15.8 billion. This implies a year-over-year increase in organic sales of 7.5% to 12.5%. The Company expects its weighted light and commercial vehicle markets to increase in the range of approximately 0% to 3% in 2023. Foreign currencies are expected to result in a year-over-year increase in sales of approximately $55 million primarily due to the strengthening of the Euro against the U.S. dollar, partially offset by the weakening of the Chinese Renminbi against the U.S. dollar. The acquisitions of Santroll's light vehicle eMotor business, Rhombus Energy Solutions, Drivetek and the electric vehicle solution, smart grid and smart energy businesses of Hubei Surpass Sun Electric are expected to increase year-over-year sales by an aggregate of approximately $70 million.
Operating margin for the full year is expected to be in the range of 8.7% to 9.0%. Excluding the impact of non-comparable items, adjusted operating margin is expected to be in the range of 10.0% to 10.4%. Net earnings are expected to be within a range of $3.87 to $4.24 per diluted share. Excluding the impact of non-comparable items, adjusted net earnings are expected to be within a range of $4.60 to $5.15 per diluted share. Full-year operating cash flow is expected to be in the range of $1,400 million to $1,550 million, while free cash flow is expected to be in the range of $550 million to $650 million.
At 9:30 a.m. ET today, a brief conference call concerning first quarter 2023 results and guidance will be webcast at: https://www.borgwarner.com/investors. Additionally, an earnings call presentation will be available at https://www.borgwarner.com/investors.
For more than 130 years, BorgWarner Inc. (NYSE: BWA) has been a transformative global product leader bringing successful mobility innovation to market. Today, we're accelerating the world's transition to eMobility -- to help build a cleaner, healthier, safer future for all.
Forward-Looking Statements: This press release contains forward-looking statements as contemplated by the 1995 Private Securities Litigation Reform Act that are based on management's current outlook, expectations, estimates and projections. Words such as "anticipates," "believes," "continues," "could," "designed," "effect," "estimates," "evaluates," "expects," "forecasts," "goal," "guidance," "initiative," "intends," "may," "outlook," "plans," "potential," "predicts," "project," "pursue," "seek," "should," "target," "when," "will," "would," and variations of such words and similar expressions are intended to identify such forward-looking statements. Further, all statements, other than statements of historical fact contained or incorporated by reference in this press release that we expect or anticipate will or may occur in the future regarding our financial position, business strategy and measures to implement that strategy, including changes to operations, competitive strengths, goals, expansion and growth of our business and operations, plans, references to future success and other such matters, are forward-looking statements. Accounting estimates, such as those described under the heading "Critical Accounting Policies and Estimates" in Item 7 of our most recently-filed Annual Report on Form 10-K ("Form 10-K"), are inherently forward-looking. All forward-looking statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate under the circumstances. Forward-looking statements are not guarantees of performance, and the Company's actual results may differ materially from those expressed, projected or implied in or by the forward looking statements.
You should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Forward-looking statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed, projected or implied in or by the forward-looking statements. These risks and uncertainties, among others, include supply disruptions impacting us or our customers, such as the current shortage of semiconductor chips that has impacted original equipment manufacturer ("OEM") customers and their suppliers, including us; commodity availability and pricing, and an inability to achieve expected levels of recoverability in commercial negotiations with customers concerning these costs; competitive challenges from existing and new competitors including OEM customers; the challenges associated with rapidly-changing technologies, particularly as relates to electric vehicles, and our ability to innovate in response; uncertainties regarding the extent and duration of impacts of matters associated with the COVID-19/coronavirus pandemic, including additional production disruptions; the difficulty in forecasting demand for electric vehicles and our electric vehicles revenue growth; potential disruptions in the global economy caused by Russia's invasion of Ukraine; the ability to identify targets and consummate acquisitions on acceptable terms; failure to realize the expected benefits of acquisitions on a timely basis; our ability to effect the intended tax-free spin-off of our Fuel Systems and Aftermarket segments into a separate, publicly traded company on a timely basis or at all; the potential that uncertainty during the pendency of the spin-off transaction could affect our financial performance; the possibility that the spin-off transaction will not achieve its intended benefits; the failure to promptly and effectively integrate acquired businesses; the potential for unknown or inestimable liabilities relating to the acquired businesses; our dependence on automotive and truck production, both of which are highly cyclical and subject to disruptions; our reliance on major OEM customers; fluctuations in interest rates and foreign currency exchange rates; our dependence on information systems; the uncertainty of the global economic environment; the outcome of existing or any future legal proceedings, including litigation with respect to various claims; future changes in laws and regulations, including, by way of example, taxes and tariffs, in the countries in which we operate; impacts from any potential future acquisition or disposition transactions; and the other risks noted under Item 1A, "Risk Factors" in our most recently-filed Form 10-K and/or Quarterly Report on Form 10-Q. We do not undertake any obligation to update or announce publicly any updates to or revisions to any of the forward-looking statements in this press release to reflect any change in our expectations or any change in events, conditions, circumstances, or assumptions underlying the statements.
BorgWarner Inc | |||
Condensed Consolidated Statements of Operations (Unaudited) | |||
(in millions, except per share amounts) | |||
Three Months Ended March 31, | |||
2023 | 2022 | ||
Net sales | $ 4,180 | $ 3,874 | |
Cost of sales | 3,430 | 3,124 | |
Gross profit | 750 | 750 | |
Gross margin | 17.9 % | 19.4 % | |
Selling, general and administrative expenses | 384 | 388 | |
Restructuring expense | 7 | 15 | |
Other operating expense (income), net | 19 | (5) | |
Operating income | 340 | 352 | |
Equity in affiliates' earnings, net of tax | (4) | (8) | |
Unrealized loss on debt and equity securities | 15 | 39 | |
Interest expense, net | 10 | 15 | |
Other postretirement expense (income) | 2 | (9) | |
Earnings before income taxes and noncontrolling interest | 317 | 315 | |
Provision for income taxes | 87 | 91 | |
Net earnings | 230 | 224 | |
Net earnings attributable to noncontrolling interest, net of tax | 13 | 24 | |
Net earnings attributable to BorgWarner Inc | $ 217 | $ 200 | |
Earnings per share attributable to BorgWarner Inc. — diluted | $ 0.93 | $ 0.84 | |
Weighted average shares outstanding — diluted | 234.4 | 239.0 |
BorgWarner Inc | |||
Net Sales by Reporting Segment (Unaudited)* | |||
(in millions) | |||
Three Months Ended March 31, | |||
2023 | 2022 | ||
Air Management | $ 1,979 | $ 1,768 | |
Drivetrain & Battery Systems | 955 | 895 | |
Fuel Systems | 568 | 591 | |
ePropulsion | 487 | 440 | |
Aftermarket | 330 | 307 | |
Inter-segment eliminations | (139) | (127) | |
Net sales | $ 4,180 | $ 3,874 | |
Segment Adjusted Operating Income (Loss) (Unaudited)* | |||
(in millions) | |||
Three Months Ended March 31, | |||
2023 | 2022 | ||
Air Management | $ 285 | $ 251 | |
Drivetrain & Battery Systems | 110 | 113 | |
Fuel Systems | 48 | 66 | |
Aftermarket | 45 | 39 | |
ePropulsion | (34) | (17) | |
Segment Adjusted Operating Income | 454 | 452 | |
Corporate, including stock-based compensation | 58 | 63 | |
Merger, acquisition and divestiture expense, net | 25 | 23 | |
Intangible asset amortization expense | 24 | 23 | |
Restructuring expense | 7 | 15 | |
Gain on sale of business | — | (24) | |
Equity in affiliates' earnings, net of tax | (4) | (8) | |
Unrealized loss on debt and equity securities | 15 | 39 | |
Interest expense, net | 10 | 15 | |
Other postretirement expense (income) | 2 | (9) | |
Earnings before income taxes and noncontrolling interest | 317 | 315 | |
Provision for income taxes | 87 | 91 | |
Net earnings | 230 | 224 | |
Net earnings attributable to noncontrolling interest, net of tax | 13 | 24 | |
Net earnings attributable to BorgWarner Inc | $ 217 | $ 200 |
____________________________
* | In the first quarter of 2023, the Company elected to disaggregate the former e-Propulsion & Drivetrain reporting segment into two separate reporting segments of Drivetrain & Battery Systems and ePropulsion. In the first quarter of 2022, the Company announced that the Americas starter and alternator business, previously reported in its former e-Propulsion & Drivetrain segment, would transition to the Aftermarket segment. The Company also announced in 2022 that the canisters and fuel delivery modules business, previously reported in its Air Management segment, would transition to the Fuel Systems segment. Both of these transitions were completed during the second quarter of 2022. Additionally, in the fourth quarter of 2022, the Company moved its battery systems business, previously reported in its Air Management segment, to the e-Propulsion & Drivetrain segment.The reporting segment disclosures have been updated accordingly which included recasting prior period information for the new reporting structures. |
BorgWarner Inc | |||
Condensed Consolidated Balance Sheets (Unaudited) | |||
(in millions) | |||
March 31, | December 31, | ||
ASSETS | |||
Cash, cash equivalents and restricted cash | $ 950 | $ 1,338 | |
Receivables, net | 3,566 | 3,323 | |
Inventories, net | 1,800 | 1,687 | |
Prepayments and other current assets | 291 | 269 | |
Total current assets | 6,607 | 6,617 | |
Property, plant and equipment, net | 4,463 | 4,365 | |
Other non-current assets | 6,047 | 6,012 | |
Total assets | $ 17,117 | $ 16,994 | |
LIABILITIES AND EQUITY | |||
Notes payable and other short-term debt | $ 62 | $ 62 | |
Accounts payable | 2,676 | 2,684 | |
Other current liabilities | 1,410 | 1,490 | |
Total current liabilities | 4,148 | 4,236 | |
Long-term debt | 4,175 | 4,166 | |
Other non-current liabilities | 1,115 | 1,084 | |
Total liabilities | 9,438 | 9,486 | |
Total BorgWarner Inc. stockholders' equity | 7,441 | 7,224 | |
Noncontrolling interest | 238 | 284 | |
Total equity | 7,679 | 7,508 | |
Total liabilities and equity | $ 17,117 | $ 16,994 |
BorgWarner Inc | |||
Condensed Consolidated Statements of Cash Flows (Unaudited) | |||
(in millions) | |||
Three Months Ended March 31, | |||
2023 | 2022 | ||
OPERATING | |||
Net cash (used in) provided by operating activities | $ (12) | $ 116 | |
INVESTING | |||
Capital expenditures, including tooling outlays | (278) | (177) | |
Payments for businesses acquired, net of cash acquired | (19) | (157) | |
Proceeds from settlement of net investment hedges, net | 13 | 12 | |
Proceeds from investments in debt and equity securities, net | — | 30 | |
Proceeds from the sale of business, net | — | 25 | |
Proceeds from asset disposals and other, net | 2 | 13 | |
Net cash used in investing activities | (282) | (254) | |
FINANCING | |||
Additions to debt | 1 | — | |
Repayments of debt, including current portion | (2) | (2) | |
Payments for purchase of treasury stock | — | (40) | |
Payments for stock-based compensation items | (25) | (17) | |
Purchase of noncontrolling interest | — | (59) | |
Dividends paid to BorgWarner stockholders | (39) | (41) | |
Dividends paid to noncontrolling stockholders | (25) | (36) | |
Net cash used in financing activities | (90) | (195) | |
Effect of exchange rate changes on cash | (4) | (7) | |
Net decrease in cash, cash equivalents and restricted cash | (388) | (340) | |
Cash, cash equivalents and restricted cash at beginning of year | 1,338 | 1,844 | |
Cash, cash equivalents and restricted cash at end of period | $ 950 | $ 1,504 | |
Supplemental Information (Unaudited) | |||
(in millions) | |||
Three Months Ended March 31, | |||
2023 | 2022 | ||
Depreciation and tooling amortization | $ 159 | $ 157 | |
Intangible asset amortization | $ 24 | $ 23 |
Non-GAAP Financial Measures
This press release contains information about BorgWarner's financial results that is not presented in accordance with accounting principles generally accepted in the United States ("GAAP"). Such non-GAAP financial measures are reconciled to their closest GAAP financial measures below and in the Financial Results table above. The provision of these comparable GAAP financial measures for 2023 is not intended to indicate that BorgWarner is explicitly or implicitly providing projections on those GAAP financial measures, and actual results for such measures are likely to vary from those presented. The reconciliations include all information reasonably available to the Company at the date of this press release and the adjustments that management can reasonably predict.
Management believes that these non-GAAP financial measures are useful to management, investors, and banking institutions in their analysis of the Company's business and operating performance. Management also uses this information for operational planning and decision-making purposes.
Non-GAAP financial measures are not and should not be considered a substitute for any GAAP measure. Additionally, because not all companies use identical calculations, the non-GAAP financial measures as presented by BorgWarner may not be comparable to similarly titled measures reported by other companies.
Adjusted Operating Income and Adjusted Operating Margin
The Company defines adjusted operating income as operating income adjusted to exclude the impact of restructuring expense, merger, acquisition and divestiture expense, intangible asset amortization expense, other net expenses, discontinued operations, and other gains and losses not reflective of the Company's ongoing operations. Adjusted operating margin is defined as adjusted operating income divided by net sales.
Adjusted Net Earnings
The Company defines adjusted net earnings as net earnings attributable to BorgWarner Inc. 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. The impact of intangible asset amortization expense will continue to be included in adjusted net earnings.
Adjusted Earnings per Diluted Share
The Company defines adjusted earnings per diluted share as earnings per diluted share adjusted to eliminate the impact of restructuring expense, merger, acquisition and divestiture expense, other net expenses, discontinued operations, other gains and losses not reflective of the Company's ongoing operations, and related tax effects. The impact of intangible asset amortization expense continues to be included in adjusted earnings per share.
Free Cash Flow
The Company defines free cash flow as net cash provided by operating activities minus capital expenditures and is useful to both management and investors in evaluating the Company's ability to service and repay its debt.
Organic Net Sales Change
The Company defines organic net sales changes as net sales change year over year excluding the estimated impact of foreign exchange (FX) and the acquisitions of Santroll's light vehicle eMotor business, Rhombus Energy Solutions, Drivetek and the electric vehicle solution, smart grid and smart energy businesses of Hubei Surpass Sun Electric.
Adjusted Operating Income and Adjusted Operating Margin (Unaudited) | |||
Three Months Ended March 31, | |||
(in millions) | 2023 | 2022 | |
Net sales | $ 4,180 | $ 3,874 | |
Operating income | $ 340 | $ 352 | |
Operating margin | 8.1 % | 9.1 % | |
Non-comparable items: | |||
Merger, acquisition and divestiture expense, net | $ 25 | $ 23 | |
Intangible asset amortization expense | 24 | 23 | |
Restructuring expense | 7 | 15 | |
Gain on sale of business | — | (24) | |
Adjusted operating income | $ 396 | $ 389 | |
Adjusted operating margin | 9.5 % | 10.0 % | |
Free Cash Flow Reconciliation (Unaudited) | |||
Three Months Ended March 31, | |||
(in millions) | 2023 | 2022 | |
Net cash (used in) provided by operating activities | $ (12) | $ 116 | |
Capital expenditures, including tooling outlays | (278) | (177) | |
Free cash flow | $ (290) | $ (61) | |
First Quarter 2023 Organic Net Sales Change (Unaudited) | |||||||||||
(in millions) | Q1 2022 | FX | Q1 2023 | Organic Net | Q1 2023 | Organic Net | |||||
Air Management | $ 1,768 | $ (81) | $ 2 | $ 290 | $ 1,979 | 16.4 % | |||||
Drivetrain & Battery Systems | 895 | (32) | — | 92 | 955 | 10.3 % | |||||
Fuel Systems | 591 | (24) | — | 1 | 568 | 0.2 % | |||||
ePropulsion | 440 | (19) | 20 | 46 | 487 | 10.5 % | |||||
Aftermarket | 307 | (6) | — | 29 | 330 | 9.4 % | |||||
Inter-segment eliminations | (127) | — | — | (12) | (139) | — | |||||
Net sales | $ 3,874 | $ (162) | $ 22 | $ 446 | $ 4,180 | 11.5 % | |||||
Adjusted Operating Income and Adjusted Operating Margin Guidance Reconciliation (Unaudited) | |||
Full-Year 2023 Guidance | |||
(in millions) | Low | High | |
Net sales | $ 17,100 | $ 17,900 | |
Operating income | 1,480 | 1,610 | |
Operating margin | 8.7 % | 9.0 % | |
Non-comparable items: | |||
Intangible asset amortization expense | $ 95 | $ 95 | |
Merger, acquisition and divestiture expense, net | 90 | 100 | |
Restructuring expense | 40 | 50 | |
Adjusted operating income | $ 1,705 | $ 1,855 | |
Adjusted operating margin | 10.0 % | 10.4 % | |
Adjusted Earnings Per Diluted Share Guidance Reconciliation (Unaudited) | |||
Full-Year 2023 Guidance | |||
Low | High | ||
Earnings per Diluted Share | $ 3.87 | $ 4.24 | |
Non-comparable items: | |||
Merger, acquisition and divestiture expense, net | 0.56 | 0.70 | |
Restructuring expense | 0.13 | 0.17 | |
Unrealized loss on debt and equity securities | 0.05 | 0.05 | |
Tax adjustments | (0.01) | (0.01) | |
Adjusted Earnings per Diluted Share | $ 4.60 | $ 5.15 | |
Free Cash Flow Guidance Reconciliation (Unaudited) | ||||
Full-Year 2023 Guidance | ||||
(in millions) | Low | High | ||
Net cash provided by operating activities | $ 1,400 | $ 1,550 | ||
Capital expenditures, including tooling outlays | (850) | (900) | ||
Free cash flow | $ 550 | $ 650 | ||
One-time cash costs for spin-off transaction | 150 | 150 | ||
Free cash flow excluding one-time cash costs for spin-off transaction | $ 700 | $ 800 | ||
Full Year 2023 Organic Net Sales Change Guidance Reconciliation (Unaudited) | |||||||||||
(in millions) | FY 2022 Net | FX | FY 2023 | Organic Net | FY 2023 Net | Organic Net | |||||
Low | $ 15,801 | $ 55 | $ 70 | $ 1,174 | $ 17,100 | 7.4 % | |||||
High | $ 15,801 | $ 55 | $ 70 | $ 1,974 | $ 17,900 | 12.5 % |
Recast Segment Information
In the first quarter of 2023, the Company elected to disaggregate the former e-Propulsion & Drivetrain reporting segment into two separate reporting segments of Drivetrain & Battery Systems and ePropulsion. The Drivetrain & Battery Systems segment's technologies include battery management systems and control modules, software, friction and mechanical products for automatic transmissions and torque-management products. The ePropulsion segment primarily includes rotating electrical components, power electronics, inverters and electric motors.
In the first quarter of 2022, the Company announced that the Americas starter and alternator business, previously reported in its former e-Propulsion & Drivetrain segment, would transition to the Aftermarket segment. The Company also announced in 2022 that the canisters and fuel delivery modules business, previously reported in its Air Management segment, would transition to the Fuel Systems segment. Both of these transitions were completed during the second quarter of 2022. Additionally, in the fourth quarter of 2022, the Company moved its battery systems business, previously reported in its Air Management segment, to the former e-Propulsion & Drivetrain segment.
The reporting segment disclosures have been updated accordingly which included recasting prior period information for the new reporting structures. For informational purposes only, in the following tables, the Company has recast the quarterly segment information for fiscal 2022 to align with this presentation.
2022 Net Sales by Reporting Segment (Unaudited) | |||||||||
(in millions) | Three Months | Three Months | Three Months | Three Months | Year Ended | ||||
Air Management | $ 1,768 | $ 1,724 | $ 1,841 | $ 1,796 | $ 7,129 | ||||
Drivetrain & Battery Systems | 895 | 896 | 954 | 991 | 3,736 | ||||
Fuel Systems | 591 | 516 | 600 | 607 | 2,314 | ||||
ePropulsion | 440 | 432 | 489 | 545 | 1,906 | ||||
Aftermarket | 307 | 326 | 327 | 325 | 1,285 | ||||
Inter-segment eliminations | (127) | (135) | (151) | (156) | (569) | ||||
Net sales | $ 3,874 | $ 3,759 | $ 4,060 | $ 4,108 | $ 15,801 | ||||
2022 Segment Adjusted Operating Income (Loss) (Unaudited) | |||||||||||||||||||
Three Months | Three Months | Three Months | Three Months | Year Ended | |||||||||||||||
(in millions) | % | % | % | % | % | ||||||||||||||
Air Management | $ 251 | 14.2 % | $ 244 | 14.2 % | $ 294 | 16.0 % | $ 279 | 15.5 % | $ 1,068 | 15.0 % | |||||||||
Drivetrain & Battery Systems | 113 | 12.6 % | 113 | 12.6 % | 101 | 10.6 % | 135 | 13.6 % | 462 | 12.4 % | |||||||||
Fuel Systems | 66 | 11.2 % | 44 | 8.5 % | 83 | 13.8 % | 56 | 9.2 % | 249 | 10.8 % | |||||||||
ePropulsion | (17) | (3.9) % | (42) | (9.7) % | (32) | (6.5) % | 8 | 1.5 % | (83) | (4.4) % | |||||||||
Aftermarket | 39 | 12.7 % | 51 | 15.6 % | 49 | 15.0 % | 57 | 17.5 % | 196 | 15.3 % |
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SOURCE BorgWarner