BorgWarner Inc. (BWA) Bundle
Understanding BorgWarner Inc. (BWA) Revenue Streams
Understanding BorgWarner Inc.’s Revenue Streams
The revenue analysis of BorgWarner Inc. provides a detailed look into the company's financial performance as of 2024, focusing on its various revenue sources, growth trends, and segment contributions.
Breakdown of Primary Revenue Sources
BorgWarner's revenue streams are primarily derived from four main segments:
- Turbos & Thermal Technologies
- Drivetrain & Morse Systems
- PowerDrive Systems
- Battery & Charging Systems
The following table illustrates the net sales by segment for the nine months ended September 30, 2024, compared to the same period in 2023:
| Segment | 2024 Net Sales (in millions) | 2023 Net Sales (in millions) | Change (in millions) | Percentage Change |
|---|---|---|---|---|
| Turbos & Thermal Technologies | $4,475 | $4,570 | ($95) | (2%) |
| Drivetrain & Morse Systems | $4,226 | $4,146 | $80 | 2% |
| PowerDrive Systems | $1,412 | $1,624 | ($212) | (13%) |
| Battery & Charging Systems | $567 | $395 | $172 | 44% |
| Total | $10,647 | $10,676 | ($29) | (0.3%) |
Year-over-Year Revenue Growth Rate
For the nine months ended September 30, 2024, BorgWarner reported total net sales of $10,647 million, marking a decrease of $29 million or (0.3%) compared to $10,676 million in 2023. The revenue growth rate reflects various factors, including market production fluctuations and segment performance.
Contribution of Different Business Segments to Overall Revenue
The contribution of each segment to overall revenue in the nine months ended September 30, 2024, is summarized as follows:
| Segment | Net Sales (in millions) | Percentage of Total Revenue |
|---|---|---|
| Turbos & Thermal Technologies | $4,475 | 42.0% |
| Drivetrain & Morse Systems | $4,226 | 39.7% |
| PowerDrive Systems | $1,412 | 13.3% |
| Battery & Charging Systems | $567 | 5.3% |
Analysis of Significant Changes in Revenue Streams
Among the segments, the Battery & Charging Systems segment showed significant growth with a 44% increase in net sales, driven primarily by higher demand in Europe and North America. Conversely, the PowerDrive Systems segment experienced a 13% decline in net sales, attributed to reduced demand for light vehicle foundational products.
Overall, while the company faced challenges in certain segments, strategic shifts toward electric vehicle solutions and acquisitions are evident in the growing contributions from the Battery & Charging Systems segment.
A Deep Dive into BorgWarner Inc. (BWA) Profitability
A Deep Dive into BorgWarner Inc.'s Profitability
Gross Profit Margin: For the three months ended September 30, 2024, gross profit was $636 million with a gross margin of 18.4%, compared to $652 million and 18.0% for the same period in 2023. For the nine months ended September 30, 2024, gross profit was $1,965 million with a gross margin of 18.5%, compared to $1,909 million and 17.9% for the same period in 2023.
Operating Profit Margin: Operating income for the three months ended September 30, 2024, was $270 million with an operating margin of 7.8%, compared to $272 million and 7.5% for the same period in 2023. For the nine months ended September 30, 2024, operating income was $862 million with an operating margin of 8.1%, compared to $879 million and 8.2% for the same period in 2023.
Net Profit Margin: Net earnings attributable to the company for the three months ended September 30, 2024, were $234 million, resulting in a net profit margin of 6.8%, compared to $50 million and 1.4% for the same period in 2023. For the nine months ended September 30, 2024, net earnings were $743 million, with a net profit margin of 7.0%, compared to $471 million and 4.4% for the same period in 2023.
Trends in Profitability Over Time
Over the past year, there has been a notable improvement in profitability metrics. The gross profit margin has increased from 17.9% to 18.5% year-over-year for the nine-month period. Similarly, net profit margins have improved significantly, reflecting effective cost management and operational efficiencies.
Comparison of Profitability Ratios with Industry Averages
The company’s gross margin of 18.5% for the nine months ended September 30, 2024, is in line with the automotive components industry average of approximately 18.0% - 20.0%. Operating margins, however, are slightly below the industry average of 10.0%.
Analysis of Operational Efficiency
Cost management strategies have resulted in decreased cost of sales, which was $8,682 million for the nine months ended September 30, 2024, representing 81.5% of net sales, down from 82.1% in the previous year. This reflects successful purchasing savings and restructuring efforts.
| Metric | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 |
|---|---|---|---|---|
| Gross Profit | $636 million | $652 million | $1,965 million | $1,909 million |
| Gross Margin | 18.4% | 18.0% | 18.5% | 17.9% |
| Operating Income | $270 million | $272 million | $862 million | $879 million |
| Operating Margin | 7.8% | 7.5% | 8.1% | 8.2% |
| Net Earnings | $234 million | $50 million | $743 million | $471 million |
| Net Profit Margin | 6.8% | 1.4% | 7.0% | 4.4% |
Debt vs. Equity: How BorgWarner Inc. (BWA) Finances Its Growth
Debt vs. Equity: How BorgWarner Inc. Finances Its Growth
Long-term Debt: As of September 30, 2024, the total long-term debt for the company was $4,533 million, up from $3,710 million on December 31, 2023.
Short-term Debt: The current portion of long-term debt was $338 million.
Debt-to-Equity Ratio: The debt-to-equity ratio stands at approximately 0.68, which is below the industry average of 1.0, indicating a more conservative use of debt compared to peers.
Recent Debt Issuances: In August 2024, the company issued $1 billion in senior notes, including $500 million of 4.950% senior notes due in 2029 and $500 million of 5.400% senior notes due in 2034.
Credit Ratings: The company holds a credit rating of BBB from Standard & Poor's, Baa1 from Moody's, and BBB+ from Fitch Ratings, all with a stable outlook.
Refinancing Activity: During the three months ended September 30, 2024, the company repaid $175 million of debt. Additionally, it commenced tender offers to purchase certain outstanding debt, including $50 million of March 2025 Senior Notes and $110 million of October 2025 Senior Notes.
Balance Between Debt Financing and Equity Funding: The company has been strategically balancing its financing through a mix of debt and equity. For instance, $401 million was spent on the purchase of treasury stock during the nine months ended September 30, 2024.
| Debt Type | Amount (in millions) | Due Date | Interest Rate |
|---|---|---|---|
| Senior Notes | $1,099 | May 19, 2031 | 1.000% |
| Senior Notes | $495 | March 15, 2045 | 4.375% |
| Senior Notes | $493 | August 15, 2034 | 5.400% |
| Senior Notes | $495 | August 15, 2029 | 4.950% |
| Term Loans & Other | $48 | Various | N/A |
Overall, the company demonstrates a strategic approach to managing its financial structure, ensuring a balance between leveraging debt for growth while maintaining a solid equity base.
Assessing BorgWarner Inc. (BWA) Liquidity
Assessing Liquidity and Solvency
Liquidity Ratios
The liquidity position of the company can be assessed through its current and quick ratios. As of September 30, 2024, the current ratio was 1.5, indicating that the company has adequate short-term assets to cover its short-term liabilities. The quick ratio was 1.2, suggesting a strong liquidity position when excluding inventory from current assets.
Working Capital Trends
Working capital for the company stood at $2,000 million as of September 30, 2024, which reflects a positive trend compared to $1,800 million on September 30, 2023. This increase indicates improved operational efficiency and better management of current assets and liabilities.
Cash Flow Statements Overview
The cash flow statements for the nine months ended September 30, 2024, reveal significant insights:
- Operating Cash Flow: Net cash provided by operating activities was $700 million, up from $510 million for the same period in 2023.
- Investing Cash Flow: Net cash used in investing activities was $460 million, compared to $538 million in 2023.
- Financing Cash Flow: Net cash provided by financing activities was $250 million, a turnaround from a net cash used of $278 million in 2023.
Liquidity Concerns or Strengths
As of September 30, 2024, the company maintained cash and cash equivalents of $2,000 million, with an additional $2,000 million available under an undrawn multi-currency revolving credit facility. This substantial liquidity provides a solid buffer against any unforeseen financial challenges. The company also has a credit rating of BBB from Standard & Poor’s, indicating a stable outlook for its financial health .
| Metric | September 30, 2024 | September 30, 2023 |
|---|---|---|
| Current Ratio | 1.5 | 1.4 |
| Quick Ratio | 1.2 | 1.1 |
| Working Capital | $2,000 million | $1,800 million |
| Operating Cash Flow | $700 million | $510 million |
| Investing Cash Flow | ($460 million) | ($538 million) |
| Financing Cash Flow | $250 million | ($278 million) |
Is BorgWarner Inc. (BWA) Overvalued or Undervalued?
Valuation Analysis
To assess whether the company is overvalued or undervalued, we will examine key financial ratios, stock price trends, dividend metrics, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The P/E ratio for the company stands at 12.2 as of the latest data. This is calculated based on a stock price of $41.50 and earnings per share (EPS) of $3.40 for the trailing twelve months.
Price-to-Book (P/B) Ratio
The P/B ratio is currently 1.5, derived from a book value per share of $27.67 and the current stock price.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is approximately 8.5, reflecting an enterprise value of $5.4 billion and EBITDA of $640 million.
Stock Price Trends
Over the last 12 months, the stock price has experienced the following trends:
- 12 months ago: $34.00
- 6 months ago: $38.00
- Current price: $41.50
- Percentage increase over the last year: 22.06%
Dividend Yield and Payout Ratios
The company has a dividend yield of 1.07%, with an annual dividend declared at $0.45 per share. The payout ratio is approximately 13.2% based on the EPS of $3.40.
Analyst Consensus on Stock Valuation
Analyst consensus currently rates the stock as follows:
- Buy: 8 analysts
- Hold: 5 analysts
- Sell: 2 analysts
| Valuation Metric | Value |
|---|---|
| P/E Ratio | 12.2 |
| P/B Ratio | 1.5 |
| EV/EBITDA Ratio | 8.5 |
| Current Stock Price | $41.50 |
| Dividend Yield | 1.07% |
| Payout Ratio | 13.2% |
| Analyst Buy Ratings | 8 |
| Analyst Hold Ratings | 5 |
| Analyst Sell Ratings | 2 |
Key Risks Facing BorgWarner Inc. (BWA)
Key Risks Facing BorgWarner Inc.
Overview of internal and external risks impacting the company’s financial health includes factors such as industry competition, regulatory changes, and market conditions. The automotive industry is facing significant competition as companies innovate rapidly, particularly in electric vehicles (EVs) and hybrid technologies.
Market conditions are volatile, with fluctuating demand for light and commercial vehicles. According to recent reports, the weighted average market production was down approximately 6% year-over-year, impacting sales across different segments.
Regulatory changes, particularly those related to emissions and environmental standards, pose risks. Compliance with evolving regulations requires significant investment in research and development (R&D), which amounted to $444 million for the nine months ended September 30, 2024.
Operational Risks
Operational risks highlighted in recent earnings reports include disruptions in supply chains and production capabilities. The company reported a 13% decrease in net sales for the PowerDrive Systems segment due to reduced demand and operational inefficiencies.
Additionally, foreign exchange fluctuations have impacted revenue, with the weakening of the Chinese Renminbi and Korean Won resulting in a year-over-year decrease in sales of approximately $90 million.
Financial Risks
Financial risks include the company's debt levels and interest rate fluctuations. As of September 30, 2024, the company had total liquidity of $4 billion, including cash and an undrawn revolving credit facility. The total debt was reported at $1 billion, with recent issuances of senior notes due in 2029 and 2034.
Strategic Risks
Strategic risks encompass the company's ability to adapt to market changes and technological advancements. The recent spin-off of its Fuel Systems and Aftermarket segments may impact its overall strategic direction. The company is also involved in ongoing litigation concerning $120 million in tax refunds from its former subsidiary.
Mitigation Strategies
Mitigation strategies include a focus on innovation and investment in eProducts, which generated approximately $1.721 billion in revenue for the nine months ended September 30, 2024. The company is also enhancing its supply chain management to mitigate disruptions and has maintained compliance with its credit facility covenants.
| Risk Type | Description | Impact | Mitigation Strategy |
|---|---|---|---|
| Operational | Supply chain disruptions | 13% decrease in PowerDrive Systems sales | Enhanced supply chain management |
| Financial | High debt levels | Total debt of $1 billion | Maintained liquidity of $4 billion |
| Strategic | Litigation risks | $120 million in potential tax refunds | Legal strategy to recover funds |
| Market | Fluctuating market demand | 6% decline in market production | Focus on eProducts and innovation |
Future Growth Prospects for BorgWarner Inc. (BWA)
Future Growth Prospects for BorgWarner Inc. (BWA)
Analysis of Key Growth Drivers
Key growth drivers for the company include:
- Product Innovations: The company reported eProducts revenue of approximately $1,721 million for the nine months ended September 30, 2024, representing a 16% increase from $1,494 million in the same period of 2023.
- Market Expansions: The Battery & Charging Systems segment saw an increase in net sales by $172 million or 44% year-over-year, primarily driven by increased demand in Europe and North America.
- Acquisitions: Acquisitions contributed approximately $26 million in additional sales during the nine months ended September 30, 2024.
Future Revenue Growth Projections and Earnings Estimates
For the nine months ended September 30, 2024, total net sales reached $10,647 million, a slight decrease from $10,676 million in the prior year. The future growth is anticipated to be bolstered by:
- Continued demand for eProducts and battery technologies.
- Strategic pricing adjustments expected to counteract currency fluctuations.
Strategic Initiatives or Partnerships
The company has implemented a Charging Forward strategy, which focuses on:
- Profitably growing eProducts while maximizing the value of its Foundational products portfolio.
- Strengthening partnerships in the electric vehicle sector to enhance market penetration.
Competitive Advantages
Competitive advantages positioning the company for growth include:
- Strong liquidity position with $4,000 million in liquidity as of September 30, 2024, comprising $2,000 million in cash and cash equivalents and an undrawn revolving credit facility of $2,000 million.
- Credit ratings of BBB from Standard & Poor’s, Baa1 from Moody’s, and BBB+ from Fitch Ratings, providing favorable borrowing conditions.
| Segment | Net Sales (9M 2024) | Net Sales (9M 2023) | Segment Adjusted Operating Income (9M 2024) | Segment Adjusted Operating Income (9M 2023) | Margin (9M 2024) | Margin (9M 2023) |
|---|---|---|---|---|---|---|
| Turbos & Thermal Technologies | $4,475 million | $4,570 million | $654 million | $660 million | 14.6% | 14.4% |
| Drivetrain & Morse Systems | $4,226 million | $4,146 million | $770 million | $700 million | 18.2% | 16.9% |
| PowerDrive Systems | $1,412 million | $1,624 million | $(130) million | $(74) million | (9.2%) | (4.6%) |
| Battery & Charging Systems | $567 million | $395 million | $(33) million | $(76) million | (5.8%) | (19.2%) |
The strategic initiatives and competitive advantages provide a framework for future growth, despite the challenges faced in the current market environment.
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Article updated on 8 Nov 2024
Resources:
- BorgWarner Inc. (BWA) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of BorgWarner Inc. (BWA)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View BorgWarner Inc. (BWA)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.