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BORGWARNER INC (BWA)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered resilient execution: net sales $3.64B (+1.0% YoY), adjusted operating margin 10.3%, adjusted EPS $1.21; light-vehicle eProduct sales rose 31% YoY, offsetting foundational production softness and a 40 bps net tariff headwind .
  • Guidance raised across the board: FY25 net sales to $14.0–$14.4B (from $13.6–$14.2B), adjusted operating margin to 10.1–10.3% (from 9.6–10.2%), adjusted EPS to $4.45–$4.65 (from $4.00–$4.45), FCF to $700–$800M (from $650–$750M) .
  • Capital returns accelerated: dividend hiked 55% to $0.17/share and buyback authorization increased to $1B through 2028; ~$108M repurchased in Q2, >$130M returned including dividends .
  • Estimate context: Q2 adjusted EPS and revenue were above S&P Global consensus; EBITDA was below consensus due to tariff timing and mix; management expects tariff recoveries in H2 to mitigate Q2 headwind (approx. $15M) .
  • Stock narrative catalysts: stronger eProduct growth and margin consistency (fifth straight quarter ≥10% adjusted margin), plus tangible capital return raise and improved FY outlook .

What Went Well and What Went Wrong

What Went Well

  • “Our light vehicle e-product sales increased 31% year-over-year,” significantly outgrowing hybrid/BEV production growth and supporting mix and margins .
  • Adjusted operating margin of 10.3% despite a net 40 bps tariff headwind; “This also represents the fifth quarter in a row with a margin at or above 10%” .
  • Capital return actions underscore confidence: “We returned over $130 million to shareholders… increased our quarterly cash dividend per share by 55% and… share repurchase authorization to $1 billion” .

What Went Wrong

  • Battery & Charging Systems (BCS) contracted: Q2 segment sales fell to $159M (–$34M YoY) and remained loss-making (segment AOI –$12M) as customer demand softened, especially in North America .
  • Foundational segments (TTT, DMS) tracked negative organic growth YoY given weaker combustion production: TTT –4.2% organic, DMS –2.5% organic in Q2 .
  • GAAP EPS declined YoY to $1.03 from $1.39 on higher restructuring, accelerated depreciation and other non-comparable items; adjusted EPS up just ~2% YoY mainly on share count .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$3,439 $3,515 $3,638
GAAP Diluted EPS ($)$(1.84) $0.72 $1.03
Adjusted EPS ($)$1.01 $1.11 $1.21
Operating Margin (%)(9.2)% 6.7% 7.9%
Adjusted Operating Margin (%)10.2% 10.0% 10.3%
Free Cash Flow ($USD Millions)$539 $(35) $507

Q2 2025 YoY comparison (vs Q2 2024):

  • Revenue: $3,638M vs $3,603M (+1.0%) .
  • GAAP EPS: $1.03 vs $1.39 (decline) .
  • Adjusted EPS: $1.21 vs $1.19 (+2%) .
  • Operating Margin: 7.9% vs 8.2% (–30 bps) .
  • Adjusted Operating Margin: 10.3% vs 10.4% (–10 bps) .

Q2 2025 actual vs S&P Global consensus:

MetricConsensusActualSurprise
Adjusted EPS ($)1.084*1.21 +0.126 (Beat)*
Revenue ($USD Millions)3,617.5*3,638 +20.5 (+0.6%)*
EBITDA ($USD Millions)501.6*482*–19.6 (Miss)*

Values with asterisk (*) retrieved from S&P Global.

Segment breakdown (Q2 2025 vs Q2 2024):

SegmentNet Sales ($MM) Q2’24Net Sales ($MM) Q2’25Segment Adj. Op. Inc. ($MM) Q2’24Segment Adj. Op. Inc. ($MM) Q2’25Q2’25 Organic Net Sales Change %
Turbos & Thermal Technologies (TTT)$1,515 $1,481 $224 $227 (4.2)%
Drivetrain & Morse Systems (DMS)$1,442 $1,429 $266 $260 (2.5)%
PowerDrive Systems (PDS)$464 $581 $(49) $(33) +23.5%
Battery & Charging Systems (BCS)$193 $159 $(10) $(12) (20.2)%
Inter-segment Eliminations$(11) $(12) ——+9.1%
Total$3,603 $3,638 $431 $442 (0.9)%

KPIs (Q2 2025):

  • Light-vehicle eProduct sales: +31% YoY .
  • Tariff headwind: ~40 bps; ~$15M in Q2; recoveries expected in H2 .
  • Net cash from operations: $579M; Free cash flow: $507M .
  • Weighted average diluted shares: 218.2M .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales ($B)FY 2025$13.6–$14.2 $14.0–$14.4 Raised
GAAP Operating Margin (%)FY 20258.1–8.6 8.3–8.5 Raised midpoint; narrowed
Adjusted Operating Margin (%)FY 20259.6–10.2 10.1–10.3 Raised
Adjusted EPS ($)FY 2025$4.00–$4.45 $4.45–$4.65 Raised
Free Cash Flow ($MM)FY 2025$650–$750 $700–$800 Raised
Weighted LV/CV market (%)FY 2025Down 4% to Down 2% Down 2.5% to Down 0.5% Less negative
Tariff recoveries (% of sales)FY 2025Up to ~1.6% (recoveries) Up to ~1.0% Lower recoveries
Adjusted margin dilution from tariffs (bps)FY 2025~20 bps ~10 bps Less dilution
Operating Cash Flow ($MM)FY 2025$1,323–$1,375 $1,368–$1,418 Raised
Dividend per quarter ($/share)Ongoing$0.11 (Feb 2025) $0.17 (July 2025) Raised
Share Repurchase Authorization ($)Through 2028Prior remaining $359M $1,000M total authorization Increased

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’24, Q1’25)Current Period (Q2’25)Trend
Tariffs/macroNoted tariff risks and macro uncertainty; 2025 margin guide above 10% despite market down 1–3% . Q1 included ~20 bps tariff dilution and raised outgrowth due to recoveries .Net tariff headwind ~$15M (~40 bps) in Q2; expect recoveries in H2; FY tariff dilution ~10 bps; recoveries lowered to ~1% of sales .Headwind peaked in Q2, recoveries shift to H2; dilution improving.
eProduct growth (PDS)Q4 saw EV losses; transitioning portfolio; Q1 eProduct +47% YoY; adjusted margin +60 bps QoQ .Light-vehicle eProduct +31% YoY; PDS loss narrowed (–$33M vs –$49M) and mid-teens conversion on growth .Sustained high growth; improving profitability trajectory.
Battery & ChargingQ4 impairment charges; BCS growing in 2024 but volatile . Q1 announced exit of Charging, consolidation of NA Battery Systems; targeted savings .Q2 BCS sales down to $159M; AOI –$12M; teams acted quickly; slightly EBITDA-positive and cash flow breakeven in Q2 .Near-term demand headwinds; restructuring stabilizing economics.
Capital allocation2024 FCF strong; 2025 guide strong; buybacks ongoing . Q1: exit Charging; focus on profitable growth .Dividend +55%; repurchase authorization to $1B; liquidity target ~20% of sales; intend consistent buybacks in H2 .More assertive capital returns; disciplined liquidity stance.
Supply chain/productivityOngoing cost controls and restructuring highlighted .Continued cost discipline; 20% reduction of poor-quality costs (warranty, freight, scrap); margin stability .Structural cost improvement supporting margins.
M&A disciplinePortfolio pivoting; selective deals .Tightened criteria: strong industrial logic, near-term EPS accretion, fair price; passed on deals not meeting hurdles .Higher hurdle rate; earnings-focused M&A.
Hybrid demandVCT, turbo, DCT awards in 4Q/1Q .Multiple turbo/inverter/motor/HVCH wins; increased hybrid RFQ flow; ability to serve hybrid with both combustion and eProducts .Hybrid momentum building; supports mid-term mix/earnings.

Management Commentary

  • CEO: “Our sales performance was supported by a 31% increase in light vehicle e-product sales… Our adjusted operating margin performance was strong… at 10.3%, which includes a 40 basis point tariff headwind” .
  • CFO: “This also represents the fifth quarter in a row with a margin at or above 10%… strong free cash flow in the quarter of $507 million, a 71% increase from a year ago” .
  • CEO on capital returns: “We returned over $130 million to shareholders… increased our quarterly cash dividend per share and… share repurchase authorization to $1 billion” .
  • CFO on FY outlook: “We are increasing our full-year adjusted operating margin to 10.1–10.3%… adjusted EPS to $4.45–$4.65… free cash flow to $700–$800 million” .

Q&A Highlights

  • Outgrowth and battery headwind: Management reiterated BCS headwind is ~100 bps to FY outgrowth; excluding BCS, organic sales up modestly with ~100 bps outgrowth driven by 31% light-vehicle eProducts growth .
  • Capital allocation pacing and liquidity: Liquidity target ~20% of sales; expect consistent buybacks in Q3/Q4 alongside the 55% dividend increase; flexibility from $1B authorization .
  • FX conversion and margin “conversion”: FX converts ~$0.10 on the dollar; margin guide-up driven by Q2 outperformance, higher production outlook, and lower tariff dilution .
  • Foundational segments path: Combustion production down ~4% in Q2; strategy is to outgrow C&H segments via share gains and features (e.g., turbos, VCT); hybrid RFQ flow is strong .
  • Tariff costs location/timing: ~$15M Q2 drag was primarily in combustion businesses (TTT, DMS); offset by cost controls; recoveries expected in H2 .

Estimates Context

  • Q2 2025 adjusted EPS beat: $1.21 vs $1.084* (+$0.126), and revenue beat: $3,638M vs $3,617.5M* (+0.6%); EBITDA missed: $482M* vs $501.6M* (–$19.6M)*. Management cited tariff timing, mix and strong cost controls, with expected H2 recoveries .
  • FY25 estimates likely to drift higher following raised guidance, dividend, and buyback authorization, reinforcing the margin-and-cash trajectory .
    Values retrieved from S&P Global.

Key Takeaways for Investors

  • Sustained margin discipline: five consecutive quarters ≥10% adjusted margin despite tariffs supports a higher-quality earnings profile into H2 .
  • eProducts are the growth engine: strong double-digit growth with improving PDS conversion and China cycle-time advantages; watch continued program ramps and RFQ momentum .
  • Battery segment is stabilizing post-Charging exit: BCS still soft near term, but restructuring actions moved Q2 to slightly EBITDA positive and cash breakeven .
  • Capital returns now a stronger pillar: 55% dividend raise and $1B authorization provide tangible return-of-cash cadence in H2; liquidity remains above the 20% of sales target .
  • FY25 guide-up is material: raised sales, margin, EPS, and FCF with lower tariff dilution vs prior guide—monitor H2 tariff recoveries and foundational volumes .
  • Near-term trading set-up: Positive narrative on guidance and capital return could support sentiment; any updates on tariff recoveries, hybrid program launches, and eProduct conversion are stock-moving catalysts .
  • Medium-term thesis: Balanced portfolio across combustion, hybrid, and eProducts with disciplined M&A and cost controls positions BWA to outgrow end markets while sustaining double-digit adjusted margins .

Citations: Press release and 8-K Q2 2025 .
Earnings call transcript Q2 2025 .
Prior quarters 8-Ks .
Estimates are from S&P Global (marked with *).