BorgWarner Reports Second Quarter 2023 Results, Reports Additional Progress Towards Charging Forward 2027

Auburn Hills, Michigan, August 2, 2023 – BorgWarner Inc. (NYSE: BWA) today reported second quarter results.

Charging Forward Update:

• In June, BorgWarner unveiled Charging Forward 2027, which included the following 2027 targets:
• eProduct sales of over $10 billion,
• eProducts adjusted operating margin of approximately 7%, and
• Maintaining double-digit margins for Foundational products.
• BorgWarner agreed to acquire the Electric Hybrid Systems (EHS) segment of Eldor for €75 million at closing with a potential additional amount due subject to an earnout. The acquisition is expected to enhance BorgWarner’s capabilities in engineering compact and efficient 400V and 800V on-board chargers while also bringing innovative and cost-effective, high-frequency DC/DC converter technology to the portfolio.
• BorgWarner has been selected by a major East Asian OEM to supply inverters and eMotors for the automaker’s new electric vehicle platform, scheduled to enter production mid-2025.
• BorgWarner has secured a contract with a global automotive thermal and energy management solutions supplier to deliver high voltage coolant heaters (HVCH) for use on a series of three electric vehicle (EV) platforms for a major OEM, expected to start production in 2025.
• BorgWarner has been selected by a leading Chinese domestic OEM to supply its iDM for advanced hybrid vehicles expected to start production in 2024.
• BorgWarner completed the strategic spin-off of PHINIA on July 3, 2023. This transaction completes the disposition pillar of the Company’s Charging Forward strategy.
• BorgWarner issued its 2023 Sustainability Report: Accelerating Action, highlighting the progress the Company has made toward meeting its environmental stewardship, social responsibility and governance (ESG) objectives and outlining additional goals for 2023 and beyond.
• BorgWarner expects its 2023 eProduct sales to be $2.3 billion to $2.4 billion, up from approximately $1.5 billion in 2022.
  

 

• U.S. GAAP net sales of $4,520 million, an increase of 20% compared with second quarter 2022.
• Excluding the impact of foreign currencies and the acquisitions of Santroll’s light vehicle eMotor business, Rhombus Energy Solutions, Drivetek and SSE, organic sales were up 21% compared with the second quarter 2022.
• Pro forma for the spin-off of PHINIA, BorgWarner’s organic sales were $3,671 million, up 22% compared with the second quarter 2022.
• U.S. GAAP net earnings of $0.87 per diluted share.
• Excluding $(0.48) per diluted share related to non-comparable items (detailed in the table below), adjusted net earnings were $1.35 per diluted share.
• Excluding non-comparable items and pro forma for the spin-off of PHINIA, adjusted net earnings were $1.05 per diluted share.
• U.S. GAAP operating income of $383 million, or 8.5% of net sales.
• Excluding $91 million of pretax expenses related to non-comparable items, adjusted operating income was $474 million, or 10.5% of net sales.
• Excluding non-comparable items and pro forma for the spin-off of PHINIA, adjusted operating income was $369 million, or 10.1% of net sales.
• Net cash generated by operating activities of $280 million.
• Free cash flow was positive $38 million.
• Pro forma for the spin-off of PHINIA and excluding the one-time spin-off-related cash costs, free cash flow was a usage of $42 million.
  

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 and the impact of the spin-off of PHINIA. 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.

 

Net sales were $4,520 million for the second quarter 2023, an increase of 20% compared with $3,759 million for the second quarter 2022, primarily due to increased demand for the Company’s products and recoveries from the Company’s customers of material cost inflation. Net earnings for the second quarter 2023 were $204 million, or $0.87 per diluted share, compared with net earnings of $216 million, or $0.91 per diluted share, for the second quarter 2022. Pro forma adjusted net earnings per diluted share for the second quarter 2023 were $1.05, up from pro forma adjusted net earnings per diluted share of $0.74 for the second quarter 2022. Pro forma adjusted net earnings for the second quarter 2023 excluded net noncomparable items and the pro forma impact of the PHINIA spin-off of $0.18 per diluted share, while pro forma adjusted net earnings for the second quarter 2022 excluded net non-comparable items and the pro forma impact of the PHINIA spin-off of $(0.17) 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 pro forma adjusted net earnings was primarily due to the benefit of higher sales and customer recoveries, partially offset by higher input costs due to inflation.

Full Year 2023 Guidance: The Company has updated full year sales, margin and EPS guidance. Starting in the third quarter of 2023, the Company will no longer consolidate its Fuel Systems and Aftermarket segments, and results of those segments for all periods prior to the PHINIA spin-off will be reflected as discontinued operations. The Company’s guidance and 2022 sales reflect its continuing operations. Net sales for 2023 are expected to be in the range of $14.2 billion to $14.6 billion, compared with 2022 sales of approximately $12.6 billion. This implies a year-over-year increase in organic sales of 13% to 16%. Foreign currencies are expected to result in a year-over-year decrease in sales of approximately $35 million primarily due to the weakening of the Chinese Renminbi against the U.S. dollar, partially offset by the strengthening of the Euro against the U.S. dollar. The acquisitions of Santroll’s light vehicle eMotor business, Rhombus Energy Solutions, Drivetek and SSE are expected to increase year-over-year sales by an aggregate of approximately $75 million.

Operating margin from continuing operations for the full year is expected to be in the range of 7.6% to 8.0%. Excluding the impact of non-comparable items, adjusted operating margin from continuing operations is expected to be in the range of 9.2% to 9.6%. Net earnings from continuing operations are expected to be within a range of $2.58 to $2.75 per diluted share. Excluding the impact of noncomparable items, adjusted net earnings from continuing operations are expected to be within a range of $3.50 to $3.85 per diluted share. Full-year operating cash from continuing operations is expected to be in the range of $1,000 million to $1,150 million, while free cash flow from continuing operations is expected to be in the range of $400 million to $500 million, excluding one-time cash costs associated with the
PHINIA spin-off.

At 9:30 a.m. ET today, a brief conference call concerning second 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.