Shares of BorgWarner Inc. (BWA) fell 2.2% and closed at $60.91 on Aug 1, despite posting an 18.7% increase in adjusted earnings on Jul 31, owing to the impact of overall market movement. Adjusted earnings improved to 89 cents per share in the second quarter of 2014 from 75 cents in the prior-year quarter. Also, earning per share outpaced the Zacks Consensus Estimate of 87 cents.
Including the impact of non-comparable items, BorgWarner recorded earnings of $190.2 million or 83 cents per share in the second quarter of 2014, reflecting an increase from $174.1 million or 75 cents per share a year ago.
Revenues improved 16% year over year to $2.2 billion, in line with the Zacks Consensus Estimate. The sales improvement was driven by global adoption of the powertrain technology, together with benefits from the recent Wahler takeover. Excluding the impact of foreign currencies in both 2013 and 2014 and the Gustav Wahler acquisition in 2014, revenues went up 8% year over year.
Operating income increased 15.3% to $280.6 million from $243.4 million in the second quarter of 2013. Adjusted operating income stood at $296 million, or 13.5% of net sales.
Segment Details
Revenues in the Engine segment rose 16.3% to $1.49 billion. Excluding the impact of foreign currencies and synergies from the Gustav Wahler acquisition, net sales went up 6% in the segment, driven by higher sales of turbochargers and engine timing devices.
Adjusted earnings before interest, income taxes and non-controlling interest (adjusted EBIT) increased 10% to $242 million in the quarter from $220 million in the second quarter of 2013.
Revenues in the Drivetrain segment rose 15.5% to $709 million. Excluding the impact of foreign currencies, net sales increased 13% on increased global sales of all-wheel drive systems, traditional transmission components and dual clutch transmission modules. Adjusted EBIT increased 48.3% to $89 million from $60 million in the second quarter of 2013.
Financial Position
BorgWarner had $771.4 million in cash as of Jun 30, 2014, compared with $939.5 million as of Dec 31, 2013. Total debt, including notes payable, stood at $1.24 billion as of Jun 30, 2014, compared with $1.22 billion as of Dec 31, 2013.
In the first half of 2014, net cash from operating activities increased to $326.2 million from $300 million in the comparable prior-year period. Capital expenditures, including tooling outlays, went up to $257.3 million from $194.8 million in the first half of 2013.
Outlook
For 2014, BorgWarner’s organic sales are expected to increase 13–15%, up from the previous guidance of 12–15%. Further, the company expects net earnings (excluding non-comparable items) for the year in the band of $3.25–$3.35 per share, up from the previous projection of $3.15–$3.30 a share. Operating margin for 2014 will likely be up 13%, improving from the previous guidance of 12.5% or more.
Zacks Rank
BorgWarner is a leading manufacturer of powertrain products for major automakers. The company’s products are capable of improving vehicle performance while meeting fuel-efficiency and emission standards. BorgWarner operates in 60 locations across 19 countries. Also, the company’s products are sold worldwide, primarily to original equipment manufacturers of passenger cars, SUVs, trucks and commercial transportation products.
BorgWarner currently carries a Zacks Rank #3 (Hold). Better-ranked stocks worth considering in the same industry are Meritor Inc. (MTOR), China Automotive Systems Inc. (CAAS) and Magna International Inc. (MGA). Both Meritor and China Automotive sport a Zacks Rank #1 (Strong Buy), while Magna International carries a Zacks Rank #2 (Buy).
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