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BORGWARNER INC (BWA)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 adjusted EPS was $1.24, a beat vs Wall Street consensus of $1.18; GAAP diluted EPS was $0.73. Revenue was $3.591B, slightly below consensus of $3.634B; adjusted operating margin expanded 60 bps YoY to 10.7% despite a 60 bps tariff headwind . EPS/Revenue consensus values retrieved from S&P Global.*
  • Management raised full-year 2025 guidance: adjusted operating margin to 10.3–10.5% (from 10.1–10.3%), adjusted EPS to $4.60–$4.75 (from $4.45–$4.65), and free cash flow to $850–$950M (+$150M); net sales narrowed to $14.1–$14.3B .
  • Free cash flow was $266M (+32% YoY); BorgWarner returned $136M to shareholders ($100M buybacks, $36M dividend) and subsequently declared a $0.17 quarterly dividend payable Dec 15, 2025 .
  • Catalysts: tariff recovery expected in Q4 (~$25M), multiple new awards across foundational and eProducts (China and global OEMs), and tighter Q4 margin profile supported by tariff benefit .

What Went Well and What Went Wrong

What Went Well

  • Strong margin and EPS execution: adjusted operating margin reached 10.7% (+60 bps YoY) despite 60 bps tariff headwind; adjusted EPS rose 14% YoY to $1.24. “This performance represents the sixth quarter in a row with an adjusted operating margin at or above 10%” .
  • Robust cash generation and disciplined capital return: FCF of $266M (+$65M YoY), returning $136M to shareholders in Q3 (>$50% of FCF), and guiding to ~$900M FCF midpoint for 2025 .
  • New business wins across portfolio: 7‑in‑1 iDM for a leading Chinese OEM (2026 start), dual inverter awards with Great Wall (2026), and battery system for HOLON’s Level 4 shuttle (2027). “We secured multiple new business awards across our entire portfolio” .

What Went Wrong

  • Battery & Charging weakness persisted: segment net sales fell to $132M (−35.5% YoY), with adjusted segment loss of $(7)M; management expects battery decline to be a ~100 bps headwind to 2025 outgrowth .
  • Customer/supply disruptions: downtime at a European customer due to a cyber incident and supply-constrained production at a key North American platform; management now assumes Q4 impact of $50–$100M .
  • Tariffs and semis: net tariff costs were a $17M headwind in Q3; Nexperia chip issues could pressure industry volumes in Europe/China, though BorgWarner is mitigating via spot buys and alternative sourcing .

Financial Results

Quarterly performance vs prior year and prior quarter

MetricQ3 2024Q2 2025Q3 2025
Revenue ($USD Millions)$3,449 $3,638 (derived from 9M: $10,744 − Q1: $3,515 − Q3: $3,591) $3,591
GAAP Operating Margin %7.8% —6.9%
Adjusted Operating Margin %10.1% 10.3% 10.7%
Adjusted Operating Income ($USD Millions)$350 $373 $385
GAAP Diluted EPS ($)$1.08 —$0.73
Adjusted Diluted EPS ($)$1.09 —$1.24
Free Cash Flow ($USD Millions)$201 $507 $266

Note: Q2 2025 revenue is derived from the company’s reported nine-month net sales ($10,744M), less Q1 ($3,515M) and Q3 ($3,591M) reported net sales .

Q3 2025 vs Wall Street estimates (S&P Global)

MetricConsensusReported
Adjusted EPS ($)$1.18*$1.24
Revenue ($USD Millions)$3,633.6*$3,591
EBITDA ($USD Millions)$531.4*$461.0*

Values with asterisk retrieved from S&P Global.

Segment breakdown – Q3 2025

SegmentNet Sales ($USD Millions)YoY Organic Change %Adjusted Operating Income ($USD Millions)
Turbos & Thermal Technologies (TTT)$1,437 +0.9% $219
Drivetrain & Morse Systems (DMS)$1,452 +5.1% $267
PowerDrive Systems (PDS)$582 +11.9% $(35)
Battery & Charging Systems (BCS)$132 −35.5% $(7)
Inter-segment eliminations$(12) +9.1% —

KPIs and cash/balance sheet (selected)

MetricQ3 2025
Net Cash from Operating Activities ($USD Millions)$368
Free Cash Flow ($USD Millions)$266
Cash, Cash Equivalents & Restricted Cash ($USD Millions)$2,172
Total Debt ($USD Millions)$3,900 (short-term $6; long-term $3,894)
Total BorgWarner Stockholders’ Equity ($USD Millions)$5,989

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales ($B)FY 2025$14.0–$14.4 $14.1–$14.3 Narrowed
GAAP Operating Margin %FY 20257.8–7.9 7.8–7.9 Maintained
Adjusted Operating Margin %FY 202510.1–10.3 10.3–10.5 Raised
GAAP EPS ($)FY 2025$3.52–$3.63 $3.52–$3.63 Maintained
Adjusted EPS ($)FY 2025$4.45–$4.65 $4.60–$4.75 Raised
Operating Cash Flow ($M)FY 2025$1,323–$1,375 $1,434–$1,484 Raised
Free Cash Flow ($M)FY 2025$700–$800 $850–$950 Raised (+$150M)
Organic Sales Change %FY 2025−1.5% to +1% −1% to ~flat Slightly improved
Market Production (LV/CV weighted)FY 2025Down 0.5% to down 2.5% Down 1% to ~flat Improved

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Current Period (Q3 2025)Trend
Tariffs/recoveriesEmbedded in guidance; dilution to margin; aiming 100% customer recovery; net tariff costs ~1.6% of sales; Q2 headwind $15M $17M headwind in Q3; 60 bps margin drag; expect ~$25M recovery benefit in Q4; raised full-year margins/EPS despite tariffs Recovery improving
Supply chain/semiconductorsMonitoring; general mitigation; China rare earth/license risks manageable Nexperia incidents in EU/China; direct and market exposure; expecting some shutdowns; mitigation via spot buys Elevated risk, mitigated
Product performance (eProducts/Hybrid)Light vehicle eProducts up 47% (Q1), 31% (Q2); strong China traction; mid-teens conversion target PDS sales +12% YoY; margin timing impacted by pricing; full-year PDS conversion mid-teens expected Growth intact; mix/pricing timing
Battery & Charging strategyExit charging (Q2); NA battery consolidation; expected $20M savings by 2026 BCS revenue headwind; EBITDA/FCF slightly positive in 2025; positioning for profitable growth Stabilizing, cautious
Regional trends (China)Strong RFQ/wins; speed-to-market; overweight domestics China drives PDS growth; Chinese OEM export support via integrated solutions (7‑in‑1 iDM) Positive momentum
Capital allocationDividend +55% and buyback authorization to $1B (Q2) Returned $136M in Q3; plan ~$135M in Q4; $420M for FY25 Consistent returns

Management Commentary

  • “Our adjusted operating margin performance was strong in the third quarter, coming in at 10.7%… despite a $17 million net tariff headwind” (Craig Aaron) .
  • “We secured multiple new business awards across our entire portfolio… and continued returning capital to shareholders” (Joe Fadool) .
  • “We are increasing our full year adjusted operating margin to 10.3% to 10.5%… adjusted EPS to $4.60 to $4.75… free cash flow to $850 million to $950 million” (Craig Aaron) .
  • “We expect tariffs to flip to a benefit in Q4 in that $25 million range” (Craig Aaron) .
  • “We believe these awards illustrate the strength of our portfolio and the demand for efficient powertrain technology around the globe” (Joe Fadool) .

Q&A Highlights

  • Tariff/Supply impacts: Management quantified Q4 North American platform impact at $50–$100M and guided tariff benefit in Q4 (~$25M), keeping FY margin trajectory intact .
  • PDS margins: Q3 conversion “upside down” due to pricing/timing and prior-year recovery comp; full-year mid-teens conversion still expected; China drives growth .
  • Battery outlook: Low-$100M quarterly sales run-rate discussed; EBITDA and FCF slightly positive in 2025; actions right-sized cost structure .
  • Semiconductors: Nexperia incidents likely to impact EU/China volumes; BorgWarner mitigating both direct and market exposures .
  • Capital returns: ~$135M planned in Q4; ~$420M total returns in 2025 via buybacks/dividends while retaining M&A firepower .

Estimates Context

  • Q3 2025 adjusted EPS beat: $1.24 vs $1.18 consensus (+$0.06). Revenue slight miss: $3.591B vs $3.634B consensus. EBITDA below consensus: $461M vs $531M. Values retrieved from S&P Global.* Reported figures per company press release .
  • Implications: EPS beat driven by stronger adjusted operating income and lower share count; margin execution and cost controls offset tariff headwinds and customer downtime. Modest top-line shortfall tied to battery & charging declines and European cyber-related downtime .

Key Takeaways for Investors

  • Margin durability: Six consecutive quarters ≥10% adjusted margin; guidance raised for adjusted margin and EPS despite tariff/supply challenges — supports multiple expansion near term .
  • Cash discipline: FCF strength ($266M in Q3; $850–$950M FY) and consistent returns (~$420M FY) provide downside support and optionality for buybacks/M&A .
  • Portfolio wins underpin mid-term growth: New awards (China hybrid iDM, Great Wall dual inverter, HOLON battery) broaden eProduct backlog and hybrid content per vehicle; expect more benefits from 2026–2028 launches .
  • Near-term watch items: Q4 customer/supply impacts ($50–$100M) and Nexperia semi constraints mostly mitigated; tariff recovery flips positive in Q4, aiding margins .
  • Battery segment stabilizing: 2025 EBITDA/FCF slightly positive; actions should improve profitability while macro adoption remains uneven — treat as a call option on autonomous/industrial use cases (e.g., HOLON) .
  • China leverage: Overweight to Chinese domestics with integrated solutions positions BWA to benefit from exports/globalization; monitor geopolitical and tariff backdrop .
  • Trading lens: EPS beat, raised FY guide, and tariff recovery visibility are positive momentum signals; any macro/supply headlines (Nexperia, OEM downtime) are likely transitory relative to margin/FCF trajectory .

Values with asterisk retrieved from S&P Global.