It has been about a month since the last earnings report for BorgWarner (BWA). Shares have lost about 2.6% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is BorgWarner due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
BorgWarner’s Q2 Earnings & Sales Beat Estimates
BorgWarner reported adjusted earnings of $1.05 per share for second-quarter 2022 declined from $1.08 recorded in the prior-year quarter. The bottom line, however, beat the Zacks Consensus Estimate of 86 cents per share. Higher-than-anticipated revenues from Fuel Systems and Aftermarket segments resulted in the outperformance. The automotive equipment supplier reported net sales of $3,759 million, outpacing the Zacks Consensus Estimate of $3,690 million. The top line was at the same level with the year-ago quarter.
Segmental Performance
Air Management: Net sales totaled $1,790 million in the reported quarter compared with $1,754 million in the year-ago period. The sales figure lagged the Zacks Consensus Estimate of $1,834 million. Adjusted EBIT of $235 million declined from $263 million recorded in the year-ago quarter and also missed the consensus metric of $240 million.
e-Propulsion & Drivetrain: Sales from the segment were $1,272 million, up from $1,229 million a year ago. The sales figure, however, fell short of the Zacks Consensus Estimate of $1,329 million. The segment generated an adjusted EBIT of $80 million compared with $132 million in the corresponding period of 2021. The figure missed the consensus metric of $112 million.
Fuel Systems: Sales from the segment totaled $516 million, down from $582 million generated in the year-ago quarter. The metric, however, surpassed the consensus estimate of $463 million. The segment generated an adjusted EBIT of $44 million, down from $60 million recorded in the corresponding period of 2021. The metric, however, crossed the consensus mark of $42.82 million.
Aftermarket: Sales from the segment totaled $312 million, down from $332 million in the year-ago quarter. The figure, however, outpaced the Zacks Consensus Estimate of $213 million. The segment generated an adjusted EBIT of $51 million, up from $44 million as well as beat the consensus estimate of $22.29 million.
Financial Position
As of Jun 30, 2022, BorgWarner had $1,390 million in cash equivalents compared with $1,844 million on Dec 31, 2021. In the June quarter, long-term debt was $4,156 million, down from $4,261 million recorded on Dec 31, 2021.
Net cash provided by operating activities was $216 million in the quarter under review. Capital expenditure and FCF totaled $154 million and $62 million, respectively.
2022 Projections
For full-year 2022, the company anticipates net sales within $15.5-$16 billion, indicating an increase from $14.8 billion generated in 2021.Importantly, BorgWarner envisions electric vehicle revenues of more than $850 million for 2022, more than doubling from 2021 levels. Adjusted operating margin is expected in the band of 9.8-10.2%. Adjusted net earnings are estimated to be within $4-$4.40 per share. Free cash flow is projected in the band of $650-$750 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
Currently, BorgWarner has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, BorgWarner has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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