BORGWARNER INC (BWA)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 delivered an all-around beat: revenue $3.515B (flat organically; +3.7% outgrowth) and adjusted EPS $1.11, with adjusted operating margin at 10.0% despite a 20 bps tariff headwind .
• Management raised full-year sales guidance to $13.6–$14.2B, widened adjusted margin to 9.6–10.2% due to tariff recoveries diluting margin, and kept adjusted EPS at $4.00–$4.45 and FCF at $650–$750M .
• Portfolio actions are a catalyst: exiting charging (removes ~$30M annual losses; +$15M operating income vs prior guide) and consolidating North American battery systems capacity (target ~$20M annual savings by 2026) .
• eProducts are accelerating: light-vehicle eProduct sales +47% YoY; total eProduct sales ~$640M vs ~$500M in Q1 2024, underpinning multi-quarter margin consistency at/above 10% .

What Went Well and What Went Wrong

What Went Well

• Strong execution and outgrowth: sales outgrew weighted industry production by ~3.7% with adjusted operating margin at 10.0% for the fourth consecutive quarter (despite tariffs) .
• eProduct momentum: light-vehicle eProduct growth +47% YoY; total eProduct sales ~$640M versus ~$500M last year, with PDS converting growth at ~$0.15 on the dollar—a sign of improving cost structure .
• Strategic wins: hybrid eMotor (2028 launch), HVCH for PHEV platforms (2027), EGR program extensions through 2029, and two DCT awards in China, supporting mid- to long-term growth visibility .

Management quotes:

• “Our adjusted operating margin performance was strong… 10%. This also represents the fourth quarter in a row with a margin at or above 10%.” (Craig Aaron) .
• “Sales performance once again outperformed industry production supported by a 47% increase in our light vehicle eProducts business.” (Joseph Fadool) .
• “We expect this will… eliminate approximately $30 million of annualized operating losses.” (on exiting charging) (Joseph Fadool) .

What Went Wrong

• Tariffs: ~$6M cost in Q1 (20 bps margin headwind); full-year exposure ~1.6% of sales with timing risk around recoveries in Q2, diluting margin guidance .
• Battery pricing and demand: battery business down ~15% YoY driven by cell price declines; decriment ~$0.26 on the dollar—hence North America restructuring to rightsize capacity .
• Macro softness in North America: LV production outlook revised down to -7% to -12%, driving broader reduction in full-year market assumptions (down 2% to 4%) .

Financial Results

Segment breakdown (Q1 2025):

KPIs (Q1 2025):

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• Strategy and portfolio focus: “We made the difficult decision to exit our charging business… eliminate approximately $30 million of annualized operating losses… +$15 million operating income vs prior guide.” (Joseph Fadool) .
• Cost and margin execution: “Fourth quarter in a row with a margin at or above 10%… achieved despite $6 million tariff headwind.” (Craig Aaron) .
• eProducts scaling: “Light vehicle eProduct growth of 47%… eProduct sales ~$640M in Q1, up from ~$500M last year.” (Craig Aaron) .
• China operations: “Dual inverter launched in 10 months; customer requesting capacity doubling by June… speed sets us apart.” (Joseph Fadool) .
• Tariff approach: “We’ve effectively assumed ~100% recovery from customers; timing may impact Q2.” (Craig Aaron) .

Q&A Highlights

• Tariff quantification and recovery: Full-year impact ~1.6% of sales, split ~50% IEEPA/232 and ~50% China retaliatory; working mitigation and recovery; ~100% recovery assumed with timing lag .
• North America outlook: LV production assumption reduced to −7% to −12%; orders stable near term but macro/tariff uncertainty warrants conservatism .
• PDS and Battery margins: PDS converting growth at ~$0.15 on the dollar (mid-teens increment target); Battery down ~15% YoY (cell price-driven), decrement ~$0.26 on the dollar—hence consolidation actions .
• Capital allocation: Strong FCF (~$700M midpoint) enables opportunistic buybacks (after $400M in 2024) and disciplined M&A .
• Supply risk: Rare earth magnets and semiconductors are manageable; licenses and mitigation plans in place .

Estimates Context

Values retrieved from S&P Global.*

Implications:

• Q1 2025: Clear beat on revenue and adjusted EPS; slight EBITDA beat—supports raised sales guidance and margin resilience amid recovery timing .
• Q3/Q4 2024: Typical pattern of EPS beats with revenue/EBITDA softness—mix and cost control carry results while macro volumes lag.*

Key Takeaways for Investors

• Execution quality: Four consecutive quarters at/above 10% adjusted margin despite tariffs underscores operating discipline and eProduct scaling .
• Portfolio simplification is accretive: Charging exit removes ~$30M losses and adds ~$15M operating income vs prior guidance—near-term margin tailwind .
• eProduct growth is the structural driver: Light-vehicle eProduct +47% YoY and total eProduct ~$640M in Q1 support sustained outgrowth; PDS increment suggests healthy conversion .
• Model tariff timing: Expect Q2 margin dilution from recovery timing; full-year recoveries (up to ~1.6% of sales) are largely pass-through, margin neutral .
• Watch North America demand: Management’s −7% to −12% LV production assumption prudently lowers the market bar; monitor tariff impacts on OEM build schedules .
• Battery business stabilizers: Consolidation (MI → SC) aims to offset cell price pressure; $20M annual savings target by 2026 .
• Capital returns optionality: With ~$700M FCF midpoint, management remains open to opportunistic buybacks alongside a disciplined M&A filter .