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BORGWARNER INC (BWA)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 revenue declined 2.4% YoY to $3.44B as industry volumes fell ~4%, but adjusted operating margin improved to 10.2% (GAAP margin -9.2% due to $646M impairments), and free cash flow was strong at $539M .
  • Management guided FY25 net sales to $13.4–$14.0B with adjusted operating margin of 10.0–10.2% and free cash flow of $650–$750M, despite a 1–3% decline in weighted LV/CV markets and a ~$410M FX headwind; implied outgrowth of 100–300 bps .
  • Strategic wins continued (VCT for a major East Asian OEM; turbo extensions with a major North American OEM; transfer cases for SAIC Maxus) supporting longer-term profitable growth; quarterly dividend of $0.11 declared .
  • S&P Global consensus estimates were unavailable via our feed at time of writing; beat/miss analysis vs the Street cannot be determined (see Estimates Context) [GetEstimates error].

What Went Well and What Went Wrong

  • What Went Well

    • Adjusted margin resiliency: Q4 adjusted operating margin rose to 10.2% (from 9.4% in Q4’23) on cost control and restructuring benefits; adjusted EPS rose to $1.01 (from $0.90) .
    • Strong cash generation: Q4 operating cash flow of $682M and free cash flow of $539M, enabling full-year FCF of $729M, above initial expectations .
    • Strategic awards underpin growth: New VCT award (SOP 1Q26), turbo program extensions (SOP 2026), SAIC Maxus transfer cases (SOP 2026), and four eMotor awards in China (2025–2026) .
    • Quote: “We expect to…outgrow industry production, deliver an adjusted operating margin above 10% and continue to generate strong free cash flow [in 2025]” — CFO Craig Aaron .

  • What Went Wrong

    • GAAP loss from impairments: $646M goodwill and fixed asset impairments in PowerDrive Systems and Battery & Charging drove GAAP operating margin to -9.2% and diluted EPS to -$1.84 in Q4 .
    • EV friction pockets: BEV adoption delays in the West reduced long-term cash flow estimates for certain e-segments; China also saw lower volumes on an existing EV program in Q4 .
    • Tariff/FX headwinds ahead: FY25 guide embeds ~$410M FX sales headwind and 1–3% lower weighted LV/CV markets with additional tariff uncertainty not yet quantified in P&L .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Revenue ($USD Billions)$3.52 $3.45 $3.44
GAAP Operating Margin8.0% 7.8% -9.2%
Adjusted Operating Margin9.4% 10.1% 10.2%
GAAP Diluted EPS (cont. ops)$0.64 $1.08 -$1.84
Adjusted Diluted EPS$0.90 $1.09 $1.01
Gross Margin18.7% 18.4% 19.9%
Operating Cash Flow ($M)$887 $356 $682
Free Cash Flow ($M)$679 $201 $539

Segment revenue and profitability (Q4 2024 vs Q4 2023):

  • Net Sales by Segment ($M)
SegmentQ4 2023Q4 2024
Turbos & Thermal Technologies1,442 1,412
Drivetrain & Morse Systems1,403 1,351
PowerDrive Systems542 525
Battery & Charging Systems151 162
Inter-segment(16) (11)
Total3,522 3,439
  • Segment Adjusted Operating Income ($M)
SegmentQ4 2023Q4 2024
Turbos & Thermal Technologies214 223
Drivetrain & Morse Systems258 240
PowerDrive Systems(16) (14)
Battery & Charging Systems(40) (14)
Segment AOI Total416 435

Notes:

  • Organic sales -1.6% YoY in Q4; segment organic: Battery & Charging +8.6%, others modest declines; company outgrew weighted market by ~220 bps in Q4 .
  • Q4 impairment charges total $646M (goodwill $577M; PP&E $69M) in PDS and BCS .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net SalesFY 2025N/A$13.4B–$14.0B New
GAAP Operating MarginFY 2025N/A9.1%–9.2% New
Adjusted Operating MarginFY 2025N/A10.0%–10.2% New
GAAP EPS (Diluted)FY 2025N/A$3.84–$4.12 New
Adjusted EPS (Diluted)FY 2025N/A$4.05–$4.40 New
Operating Cash FlowFY 2025N/A$1,325M–$1,375M New
Free Cash FlowFY 2025N/A$650M–$750M New
FX Headwind (Sales)FY 2025N/A~$(410)M New
Weighted LV/CV MarketFY 2025N/ADown 1%–3% New
Outgrowth vs MarketFY 2025N/A+100–300 bps New
DividendQuarterly$0.11 prior$0.11 declared (payable Mar 17, 2025) Maintained

Management noted tariff risks not embedded in P&L guidance (timing, scope, sharing with customers/suppliers remain uncertain) .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024, Q3 2024)Current Period (Q4 2024)Trend
Margin discipline/cost actionsRaised FY24 adj margin to 9.6–9.8%; announced PDS restructuring to save ~$100M by 2026 FY24 adj margin 10.1%; Q4 adj margin 10.2%; continuing cost control into 2025 Improving/stable above 10%
BEV adoption delay impactLower eProduct growth; restructuring PDS; North American BEV program headwinds Impairments ($646M) tied to BEV adoption delays in West; reiterated portfolio resilience Western BEV slower; portfolio hedge emphasized
Outgrowth vs marketH1 outgrowth ~350 bps; FY24 guide 350–450 bps Q4 outgrowth ~220 bps; FY25 plan +100–300 bps Moderating near-term
China exposureeProducts launches; strong with domestic OEMs ~20% of sales in China; 75% to Chinese OEMs; ~90% of that NEV; cautious on volumes Solid positioning; watch exports/tariffs
Battery systems (CV)Scaling in EU/NA; strong incrementals; capacity build largely complete FY24 BCS AOI less negative; Q4 revenue +8% YoY; revenue impacted by cell price pass-through Scaling, margin path improving
Tariffs/macroEmbedded lower production; FX headwinds FY25: 1–3% lower weighted LV/CV; FX -$410M; tariff P&L impact not modeled Continued headwind risk
Capital allocation$300M buyback H2’24; all FCF to shareholders in ’24 Dividend maintained; FY25 FCF guided $650–$750M; buybacks not in guide Balanced; optionality preserved
M&A stanceMore stringent/prudent; near-term focus on organic, buybacks CEO: organic first, inorganic selectively amid industry turbulence Opportunistic, disciplined

Management Commentary

  • Strategy and resilience: “We have a strong product portfolio that is resilient to the varied pace of propulsion mix changes… Our financial strength…allows us to continue to invest…regardless of near-term fluctuations” — CEO Joseph Fadool .
  • Margin/cash priorities: “We expect to once again deliver an adjusted operating margin above 10%…and have another year of strong free cash flow [in 2025]” — CFO Craig Aaron .
  • Impairments rationale: “Due to the continuing delay of BEV adoption across the Western world…[we] recorded a goodwill impairment charge of $577 million… and $69 million primarily related to…property, plant and equipment” — CFO Craig Aaron .
  • China positioning: “China is about 20% of our global sales…75% of our total sales are with the Chinese OEMs…90% of that business is on NEV” — CEO Joseph Fadool .

Q&A Highlights

  • Outgrowth drivers and EV program delays: Outgrowth tempered in 2025 by a delayed North American EV program and battery pack sale price pass-through; focus remains on growing both foundational and ePortfolios .
  • Battery systems dynamics: Battery unit volumes roughly flat YoY with revenue down on cell pricing pass-through; business >$600M and structurally ahead of acquisition plan; scaling to drive margins .
  • Tariff sensitivity: ~${875}M imported value into the U.S. in 2024 (~50% Mexico, 10% Canada, 5% China); any impact would be shared with customers/suppliers .
  • Capex and capital returns: Capex expected ~4–5% of sales; no buybacks embedded in FY25 guide; $3.4B deployed to shareholders since 2020 .
  • EREV pipeline: Positive traction in China; early-stage interest in U.S./Europe, especially in trucks, but not yet large volumes .

Estimates Context

  • S&P Global consensus data was unavailable via our feed at the time of analysis; therefore, we cannot assess Q4 revenue/EPS vs consensus or quantify beats/misses. We anchored all performance commentary to company-reported actuals. (Consensus retrieval attempt returned a daily request limit error from S&P Global.) [GetEstimates error]

Key Takeaways for Investors

  • Underlying operations remained solid (10.2% Q4 adjusted margin; strong FCF) despite macro softness and eProduct headwinds; FY25 guide targets another year >10% adjusted margin .
  • GAAP results were materially impacted by $646M impairments tied to slower Western BEV adoption; non-cash and not expected to materially change future margin profile per management .
  • Segment mix is constructive: foundational businesses continue to fund growth; Battery & Charging losses narrowed materially YoY; PDS losses modestly improved .
  • 2025 outlook prudently embeds lower industry volumes and significant FX drag (~$410M) yet still targets sales outgrowth of 100–300 bps and $650–$750M FCF — a supportive setup for balanced capital allocation if macro cooperates .
  • China remains a critical growth and diversification pillar (~20% of sales; strong domestic OEM exposure), but tariff and export dynamics require monitoring .
  • New awards (VCT, turbo extensions, SAIC Maxus transfer cases, China eMotors) extend revenue visibility into 2025–2028 across propulsion architectures, reinforcing the “portfolio hedge” narrative .
  • Near-term stock drivers: confidence in sustaining >10% adjusted margin and FCF delivery in 2025 versus macro/tariff/FX risks; any sign of resumed EV program momentum or additional cost takeout could be catalysts .

Appendix: Additional Data Points

  • Q4 free cash flow reconciliation: CFOA $682M; capex $(161)M; customer advances +$18M → FCF $539M .
  • FY24 free cash flow $729M; CFOA $1,382M; capex $(671)M; advances +$18M .
  • Balance sheet (12/31/24): Cash $2.09B; LT debt $3.76B; equity $5.53B .

All figures are from company filings and transcripts as cited.