BorgWarner (BWA) Tops Q1 EPS by 5c, Revenues Beat; FY19 EPS/Revenue Mid-Point Guidance Below Estimates, 2Q EPS Outlook Below Consensus, Initiates Cost Restructuring Plan

BorgWarner (NYSE: BWA) reported Q1 EPS of $1.00, $0.05 better than the analyst estimate of $0.95. Revenue for the quarter came in at $2.57 billion versus the consensus estimate of $2.48 billion.

• U.S. GAAP net sales of $2,566 million, down 7.8% compared with first quarter 2018.
  • Excluding the impact of foreign currencies, net sales were down 3.3% compared with first quarter 2018.
• U.S. GAAP net earnings of $0.77 per diluted share.
  • Excluding the $(0.22) per diluted share related to non-comparable items (detailed in the table below), adj. net earnings were $1.00 per diluted share.
• U.S. GAAP operating income of $264 million, 10.3% of net sales.
  • Excluding the $31 million of pretax expenses related to non-comparable items, adj. operating income was $295 million. Excluding the impact of non-comparable items, adj. operating income was 11.5% of net sales.

Cost Restructuring Plan: Over the course of the next two years, the company plans to take several actions to reduce existing structural costs. These actions are expected to result in restructuring costs in the $80 million to $100 million range through the end of 2020. The resulting annual gross cost reduction is expected to be in the range of $40 million to $50 million by 2021. The company plans to utilize these savings to sustain the company\'s overall operating margin profile as it simultaneously increases investment to support future growth in hybrid and electric propulsion.

GUIDANCE:

BorgWarner sees Q2 2019 EPS of $0.99-$1.05, versus the consensus of $1.07.

BorgWarner sees FY2019 EPS of $4.00-$4.35, versus the consensus of $4.20. BorgWarner sees FY2019 revenue of $9.9-10.37 billion, versus the consensus of $10.29 billion.

Full Year 2019 Guidance: The company has reaffirmed its 2019 full year guidance. Full year organic growth over the company's market is expected to be 250 to 400 basis points. Net sales are expected to be in the range of $9.90 billion to $10.37 billion. This implies year over year organic sales change of down 2.5% to up 2.0%. The company expects its market to decline in the range of 2.0% to 5.0% in 2019. Foreign currencies are expected to decrease sales by $280 million, primarily due to the depreciation of the Euro and Chinese Renminbi. The divestiture of the thermostat product line will decrease sales by approximately $98 million. Excluding the impact of non-comparable items, adj. operating margin is expected to be in the range of 11.9% to 12.2%. Excluding the impact of non-comparable items, adj. net earnings are expected to be within a range of $4.00 to $4.35 per diluted share. 2019 full year free cash flow is expected to be in the range of $550 million to $600 million.

Second Quarter 2019 Guidance: The company expects a second quarter 2019 organic net sales change in the range of down 2.5% to flat, compared with second quarter 2018 net sales of $2.69 billion. Foreign currencies are expected to decrease sales by $100 million. The divestiture of the thermostat product line will decrease sales by approximately $33 million. Excluding the impact of non-comparable items, adj. net earnings are expected to be within a range of $0.99 to $1.05 per diluted share.

For earnings history and earnings-related data on BorgWarner (BWA) click here.

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