BorgWarner Inc. Q4 FY2025 earnings call

• Thanked employees, customers, and suppliers for their trust and efforts. - Ended 2025 with strong results, including $14.3 billion in net sales and a 10.7% adjusted operating margin. - Secured a record number of new product awards across foundational and e-product portfolios. - Announced a master supply agreement with TurboCell for a turbine generator system targeting the data center and microgrid markets. - Highlighted the turbine generator system's advantages such as unmatched adaptability, lower emissions, and flexible fuel types, leveraging BorgWarner's automotive supply base and manufacturing capabilities.

In 2025, BorgWarner delivered approximately $14.3 billion in net sales, up ~$200 million year over year. Light vehicle e-product sales increased by 23%, demonstrating strong demand for hybrid and BEV products. Excluding the battery and charging system segment, organic sales were up approximately 1.6% year over year. Adjusted operating margin was 10.7%, which was 60 basis points higher compared to 2024. Fourth-quarter adjusted operating income was $427 million, equating to a 12% adjusted operating margin, and free cash flow from continuing operations was $470 million.

• Projected 2026 total sales in the range of $14 to $14.3 billion, compared to $14.3 billion in 2025. - Expected organic sales change to be down 3.5% to down 1.5% year over year, with a sales decline in the battery business due to lack of North American incentives and weaker European demand. - Anticipated full-year adjusted operating margin in the range of 10.7% to 10.9%. - Forecasted full-year adjusted EPS in the range of $5 to $5.2 per diluted share, a ~4% increase versus 2025. - Expected full-year free cash flow in the range of $900 million to $1.1 billion, with increased capital spending due to upcoming turbine generator system and other light vehicle launches.

• Decline in the battery business due to challenges in North America and weaker European demand, which acts as a headwind to growth. - Potential impacts from market volume fluctuations and external factors like DRAM shortages (currently no significant impact noted).

Q: Can we dig in a little bit more into the data center opportunity? How should we think about the margins of that business as it launches? Is the $300 million a target, or is that already booked with an upside if you book more business? And is there any CapEx that we should be worried about as you need to invest to develop this business?

A: Sure, Colin. Thanks for the question. So we announced the data center win of $300 million in revenue as we look out to 2027. As you think about the margin profile, what you should assume is a mid-teens incremental conversion on an extra $300 million of sales, which is consistent with our automotive business. What you should think about from an EPS perspective, we believe it will be EPS accretive immediately, and we see a strong return on invested capital for that program. From a CapEx perspective, you could see our CapEx guide is four and a half percent of sales, which is up from 2025. And that's because we're investing in the 30 plus wins we've announced publicly last year as well as the turbine generator system that Joe spoke about in his script.

Q: Going back to the auto side, growth over market minus one, you talked about the battery drag, which is a multiyear unclear when we hit sort of bottom there. But I think you said that's 150 basis points. If you ex that out, you're still only really growing 50 basis points on the other three divisions, where there's basically good secular tailwinds in both ICE and hybrid. So can you just an order of magnitude when we may see those get back to that sort of low single digit that we were doing sort of consistently? And what would get us back to that level? What is the market driver?

A: Sure. As I look back first at the last couple of years, 2024, 2025, it's clear to me that our outgrowth was impacted by EV programs that we booked several years ago. And as we know, the volume of many of these programs, at least in the Western world, has been lower than we expected. So what I can see now is that dynamic's gonna continue into '26, and that's what we're living with at this point. And I can also say I'm not satisfied with the outgrowth we've been seeing. So what I am pleased about, however, is all the booking strength in both the foundational and e-product side we've announced over the last eighteen months or so. So I expect these bookings to support our midterm objective. For our foundational e-product businesses to outgrow their respective markets, and we'll start seeing that top-line benefit in 2027 and further in 2028 and beyond.

Q: Hi, everybody. I want to double click on the business, the battery systems business. So yes, revenue down 35% to 40% year over year. Just what's next for this business? I assume there's an additional restructuring effort in place or underway to address the declines and yes, curious how you're thinking about the loss rate relative to what we saw in 2025. You know, with the business down as much as it is.

A: So we continue to see sales headwind in this business. As we've talked about today, mainly due to the challenges in North America, but to a lesser degree, demand in Europe is also down. So we expect the decline in this business to be about a 150 basis point headwind in our '26 growth. And in the near term, sales trends are a little bit difficult to predict. But what I'm very pleased at are the tough decisions and the actions that our team has taken to really minimize the losses and adjust the cost structure in this business. What that does for us is it also poises us well for future growth. So near-term sales trends are difficult to predict. However, I'm pleased with the actions we're taking, and I do feel still optimistic about this business. I believe we've got opportunities not only to continue as one of the market leaders in CV battery packs but also look outside of the commercial vehicle space for other opportunities for battery storage.