TM Toyota Motor Corporation

BorgWarner Inc. (BWA) posted a 2.5% decrease in profits to $1.16 per share (excluding non-recurring items) in the fourth quarter of 2012 from $1.19 in the same quarter of 2011. However, EPS in the quarter surpassed the Zacks Consensus Estimate by 4 cents.

Revenues dipped 3.1% to $1.72 billion, but were ahead of the Zacks Consensus Estimate of $1.69 billion. Global light vehicle production inched up 1%, while production in Europe, which comprises over half of the company’s sales, declined 11%. Excluding the impact of foreign currencies and dispositions in 2011 and 2012, revenues remained flat year over year.

Operating income declined 11.7% to $188.0 million or 10.9% of net sales from $212.8 million or 12.0% in the fourth quarter of 2011 (all excluding non-recurring items).

BorgWarner reported a profit of $4.97 per share for 2012, up 11.7% from $4.45 a year ago. The company’s revenues for the year edged up 1% to $7.2 billion. Excluding the impact of foreign currencies and dispositions, net sales went up 6% in the year.

Segment Details

Revenues in the Engine segment dropped 6.3% to $1.2 billion as increase in light vehicle turbocharger sales in China and variable cam timing systems sales in Japan were more than offset by lower volumes in Europe due to the economic weakness.

Excluding the negative impact of foreign currencies and dispositions, net sales went down 2%. Adjusted earnings before interest, income taxes and non-controlling interest (adjusted EBIT) decreased 10.3% to $182.0 million in the quarter from $202.8 million in the fourth quarter of 2011.

Revenues in the Drivetrain segment increased 4.7% to $559.0 million on better sales volume of all-wheel drive system in North America and India together with improved sales of traditional transmission components in Korea. Excluding the impact of foreign currency, revenues went up 5% in the segment. Adjusted EBIT increased 5.1% to $49.2 million from $46.8 million in the fourth quarter of 2011.

Share Repurchase

In the fourth quarter of 2012, BorgWarner repurchased 1.5 million shares. For the full year 2012, the company repurchased 4.2 million shares of common stock.

Financial Position

BorgWarner had $715.7 million in cash as of Dec 31, 2012 compared with $359.6 million as of Dec 31, 2011. Total debt including notes payable at the end of the quarter decreased to $1.1 billion from $1.3 billion as of Dec 31, 2011. Consequently, debt-to-capitalization ratio deteriorated to 25.7% from 35.8% as of Dec 31, 2011.

For full year 2012, net cash provided by operating activities improved to $878.7 million from $708.2 million in 2011. Capital expenditures, including tooling outlays, increased to $407.4 million from $393.7 million in 2011.

Outlook

For 2013, BorgWarner anticipates annual sales growth between 2% and 6% compared with 2012. Excluding the impact of 2012 dispositions, net sales growth is expected between 3% and 7%.

The company also expects net earnings between $5.15 and $5.45 per share for the year. It expects operating margin to be higher than 11.5% in 2013.

Our Take

BorgWarner is a leading manufacturer of powertrain products for the world's major automakers. The company’s products are capable of improving vehicle performance and stability meeting fuel-efficiency and emission standards. It currently retains a Zacks Rank #3 (Hold).

The company operates in 57 locations in 19 countries. These products are manufactured and sold worldwide, primarily to original equipment manufacturers of passenger cars, SUVs, trucks and commercial transportation products. The company’s largest customers include Ford Motor Co. (F), Toyota Motor Corp. (TM) and Honda Motor Co. (HMC).
 

 
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