BorgWarner Earnings: Margins Expand, but Net Income Declines

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BorgWarner Inc. (NASDAQ:BWA) reported its results for the third quarter. BorgWarner is a global supplier of engineered automotive systems and components, mainly for powertrain applications.

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BorgWarner Inc. Earnings Cheat Sheet

Results: Net income for BorgWarner Inc. fell to $101.1 million (85 cents per share) vs. $141.6 million ($1.15 per share) a year earlier. This is a decline of 28.6% from the year-earlier quarter.

Revenue: Fell 5.4% to $1.7 billion from the year-earlier quarter.

Actual vs. Wall St. Expectations: BorgWarner Inc. fell short of the mean analyst estimate of $1.19 per share. It fell short of the average revenue estimate of $1.97 billion.

Quoting Management: “Our operations were very efficient in the quarter,” said Timothy Manganello, Chairman and CEO of BorgWarner. “Despite declines in light vehicle production in Europe, our largest market, the focus on fuel economy and improved emissions around the globe continued to drive growth for BorgWarner. Excluding the impact of foreign currencies and 2011 dispositions, our net sales were up approximately 2% in the third quarter compared with third quarter 2011, in line with global light vehicle production growth of 2%. Light vehicle production in Europe, a geographic market that comprises over half of our sales, was down 6%. In a challenging sales environment, we did an excellent job managing costs, which resulted in a solid operating income margin of 11.3%, excluding non-comparable items.”

Key Stats:

Last quarter marked the fifth consecutive quarter of increasing gross margins, as the company’s gross margin expanded 0.7 percentage point from the year-earlier quarter to 20.3%. During this time, margins have grown an average of 0.6 percentage point per quarter on a year-over-year basis.

A year-over-year revenue decrease last quarter breaks a four-quarter streak of revenue increases. The best quarter in that span was the third quarter of the last fiscal year, which saw revenue rise 27%.

The company’s net income has fallen for two quarters in a row. In the second quarter, net income fell 25.6% from the year-earlier quarter.

The company has now come in under analyst forecasts for three quarters in a row. It missed the mark by one cent in the second quarter and by one cent in the first quarter.

Looking Forward: Analysts appear increasingly negative about the company’s results for the next quarter. The average estimate for the fourth quarter has moved down from $1.29 a share to $1.27 over the last sixty days. For the fiscal year, the average estimate has moved down from $5.13 a share to $5.11 over the last ninety days.

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(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)

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