BorgWarner Inc. Q2 FY2025 earnings call

• Sales performance: Supported by 31% growth in light vehicle eProduct sales, ahead of global hybrid and BEV production.
• New business awards: Secured 9 new business awards across foundational and eProducts, including turbocharger conquests in Europe and North America, and eProduct contracts for hybrid vehicles, electric motors, and electric cross differential technology.
• Capital allocation: Focused on balanced approach with ~50% of capital to shareholders via repurchases/dividends and ~50% to technology-focused acquisitions. Returned over $3.5 billion to shareholders since 2020, and increased quarterly dividend by 55% and share repurchase authorization to $1 billion.
• Operational performance: Strong adjusted operating margin of 10.3% in Q2, driven by cost controls and turning earnings into free cash flow.

BorgWarner's sales were relatively flat year-over-year excluding foreign exchange, but light vehicle eProduct sales increased 31% year-over-year, well ahead of global hybrid and BEV production growth. Adjusted operating margin was 10.3% in the second quarter, driven by cost controls. The CV battery and charging systems segment was a decline factor in organic sales, but excluding this, organic sales were up modestly. Revenue contribution: Light vehicle eProducts saw a 31% increase, while CV battery and charging systems were a headwind.

• Sales: Projected 2025 sales range $14.0 billion to $14.4 billion, up from prior guidance due to stronger foreign currencies and higher market production, offset by lower tariff cost recoveries.
• Margin: Adjusted operating margin guidance increased to 10.1% to 10.3%.
• EPS: Full year adjusted EPS guidance $4.45 to $4.65 per diluted share, up 8% from prior.
• Free cash flow: Guidance increased to $700 million to $800 million.

• Organic growth volatility: Factors like battery segment decline and tariff cost recoveries impact organic growth.
• Market uncertainty: Fluctuations in market production and regulatory changes affecting combustion and battery segments pose risks.

Q: Joseph Spak at UBS on organic growth and tariff impact A: Joseph F. Fadool noted organic sales excluding CV battery and charging systems increased modestly with 31% growth in light vehicle eProducts, and battery segment decline was a 100 basis point headwind to full year outgrowth Q: Colin Langan with Wells Fargo on sales guidance conversion A: Craig D. Aaron explained sales guidance drivers including industry production increase, FX impact, tariff recoveries change, and battery outgrowth change Q: Dan Meir Levy on foundational segments organic growth A: Joseph F. Fadool stated combustion market was down 4% in quarter, and focus is on outgrowing end markets with award wins in hybrid space Q: Christopher Patrick McNally on tariff impact in combustion businesses A: Craig D. Aaron said majority of tariff costs were in combustion business units, offset by cost controls in those businesses Q: Emmanuel Rosner on market growth framework A: Joseph F. Fadool mentioned focusing on outgrowing end markets, with higher RFQ/RFI activity in first half and bullish on battery business long term Q: Luke Junk on M&A aperture for deals A: Joseph F. Fadool reiterated inorganic investments need strong industrial logic, near-term earnings accretion, and fair pricing Q: James Picariello on battery consolidation savings A: Joseph F. Fadool said battery business is slightly EBITDA positive and cash flow breakeven, with teams acting quickly to manage headwinds