The operator, Beau, welcomes everyone to the BorgWarner 2024 Second Quarter Results Conference Call and introduces Patrick Nolan, Vice President of Investor Relations. Patrick Nolan informs listeners that forward-looking statements may be made and highlights non-GAAP measures for comparison purposes. He also explains the definitions of terms such as "comparable basis," "adjusted," "organic," and "incremental margin." Finally, he mentions the company's growth compared to the market and defines "market" as the change in light and commercial vehicle production.

The earnings call presentation has been posted to the company's website and the CEO, Frédéric Lissalde, is pleased to share the results for the second quarter of 2024. Sales were relatively flat but outperformed the market, and new product awards were secured. The company also delivered a strong margin and increased earnings per share. Restructuring actions were taken to adjust to market dynamics and a new business unit structure was introduced. The company remains focused on efficient capital deployment and plans to repurchase $300 million of stock in the second half of 2024.

BorgWarner's 2024 sustainability report highlights the company's commitment to a clean and energy-efficient world. The company has made significant progress in reducing greenhouse gas emissions and engaging its supply chain to reduce Scope 3 emissions. Additionally, BorgWarner has received multiple new product awards, including contracts to supply electric cross differentials and high-voltage eFan systems for major global OEMs. These products will help improve stability, dynamic performance, and traction for electrified powertrain applications.

BorgWarner has secured a major eFan business win in North America, with production expected to start in 2027. The eFan system includes a fan, eMotor, and integrated inverter with high power and torque capabilities. The company has also secured two EGR Cooler Awards with a North American commercial vehicle customer, with production expected to start in 2027. BorgWarner's new business unit structure will align with their growth and product portfolio, providing cost synergies and increased focus. The four business units will be Turbos and Thermal Technology, Power Drive System, and a combined Drivetrain and Morse Systems unit.

BorgWarner has combined its Commercial Vehicle Battery and Charging businesses and has seen strong results in the second quarter, with sales outperforming the industry and a high adjusted operating margin. They have secured new business awards and are focused on powertrain efficiency for all types of vehicles. The company is taking steps to manage costs and continue growing globally, while also preserving long-term profitability and value for shareholders. The call is then turned over to Craig for further discussion.

In the second quarter, sales decreased by 2% due to the strengthening US dollar and a decrease in organic sales. However, the acquisition of Eldor added $6 million in sales. Despite these challenges, adjusted operating income increased by $22 million and adjusted EPS was up $0.13. Free cash flow also saw a significant increase of $267 million. The company remains confident in its full year outlook, as shown on Slide 11.

The company is projecting total sales of $14.1 billion to $14.4 billion for 2024, which is a decrease from their previous guidance. This is due to weaker foreign currencies, a lower market production outlook, and eProducts coming in at the low end of their prior guidance range. However, the company still expects to outgrow market production by 350 to 450 basis points, demonstrating the strength of their technology-focused portfolio. The company also expects a sales headwind of $175 million from weaker foreign currencies, and a reduction in their full-year end market assumption. The acquisitions of Eldor and SSE are expected to add $30 million to 2024 sales. Despite these challenges, the company expects organic growth of 0.5% to 2.5% and an overall growth above market production of 350 to 450 basis points. The company is also increasing their full-year margin outlook to 9.6% to 9.8%, reflecting their ability to drive profitability in volatile end markets.

The company expects strong performance in the second half of the year, with an increase in adjusted EPS and plans to allocate all of its cash flow to shareholders through share repurchases and dividends. The ePropulsion segment will undergo restructuring actions to improve its cost structure and generate cost savings of $20-30 million in 2024 and $100 million by 2026.

The company has restructured to improve earnings and position itself for future growth. Despite a decline in market production, the company delivered strong sales performance, margin, and free cash flow. The company has outperformed the market by 350 basis points in the first half of the year and expects to continue outperforming by 350-450 basis points for the full year. The company's margin profile remains strong and they have increased their full year outlook by 30 basis points. They also plan to repurchase 300 million shares in the second half of the year.

The company is expecting to return all of their 2024 free cash flow to shareholders through dividends and share repurchases. They will also continue to invest in their business for long-term growth. The company is proud of their performance in the first half of the year and is excited for the results in the second half. They are now ready to take questions from analysts. The main question asked is about the eProduct restructuring, which only includes North America and China. The restructuring is due to program cancellations and push-outs, and the programs may have been loss-making. The restructuring is sized to account for PDS launching many products globally.

BorgWarner is focused on launching new products and improving long-term product leadership and efficiency. They are seeing benefits from the ICE and hybrid side of the business, but are primarily focused on converting additional revenue from wherever it comes from. The restructuring program is mainly impacting headcount and SC&O spending. The midpoint of full year guidance implies over a 30% decremental from first half to second half, but there will also be some savings from the restructuring program in the second half. This is partially due to normal seasonality.

The speaker discusses the company's performance in the first half and second half of the year, stating that it is better to look at it year-over-year. They mention that their margin is expected to increase in the second half of the year, excluding restructuring benefits. Including restructuring, it is expected to increase even more. The outgrowth for the second quarter was impacted by eProduct revenue and a poorly performing BEV program in North America. The full year growth is slightly lower due to EV-related issues.

The speaker is discussing the company's financial performance in the second quarter and the expected impact of market and foreign exchange changes on revenue. They also mention a $15 million benefit in the quarter and restructuring benefits that have offset the sales decline. The speaker is unable to provide a clear explanation for the company's inability to maintain a 10% plus margin for 2025 and 2026, but attributes it to various factors such as ePropulsion losses and a longer presence of ICE. Overall, the company's operating income is expected to remain unchanged despite the decline in revenue.

Chris McNally asks about the impact of declining volumes on BorgWarner's margins for ICE (internal combustion engine) products. Frédéric Lissalde explains that BorgWarner's products are versatile and can be used in all three segments (combustion, hybrid, and electric vehicles) and that the company has the portfolio to outgrow and convert in all three segments. McNally thanks Lissalde and mentions that the breakdown of the company's four new segments may make it easier for investors to see the trend. Joe Spak from UBS then joins the call.

The restructuring at BorgWarner has reduced the eR&D budget from $40-50 million to $20-30 million for the year, but the eProduct portfolio is still expected to grow by 25%. The company will continue to invest in R&D for new programs with a focus on 15% return on invested capital. The battery ramp is still on track and Europe is also on track for production.

The battery business is performing well and contributing positively to incremental margins for the first half of the year. The drivetrain and Battery Systems segment had a strong quarter, with both the foundational and battery sides contributing to the margin strength. The strength in the foundational side is coming primarily from Asia. The company is also focused on cost savings and restructuring, which is helping to improve the P&L. There have been negative revisions in end markets, but the company is still performing well.

Frédéric Lissalde, CEO of BorgWarner, discusses the company's customer mix and conservative outlook in light of reductions in the end market and production cuts. He reveals that the company expects the market to be down 2-3% year-over-year, with the biggest impact in China, followed by North America and Europe. He also mentions that the company's guide takes into account weaker demand and inventory levels in these regions. In terms of eProduct in China, Lissalde says that the company has seen good design wins with domestic Chinese OEMs and is launching new products for both hybrids and BEVs. The company is also happy with its business in China, with 95% of its eProduct being made with Chinese carmakers.

Adam Jonas of Morgan Stanley asks a couple of questions to BorgWarner's CEO, Frédéric Lissalde, regarding the impact of the tariff and the company's capital allocation strategy. Lissalde mentions that it is too early to anticipate the impact of the tariff, but China is a growing market for the company. He also states that their approach to M&A is more stringent and they plan on prioritizing shareholder returns, with a $300 million share repurchase plan. Adam Jonas notes that BorgWarner ranks low in the S&P 500 companies in terms of PE multiple.

The speaker discusses the low stock price of their company, which they believe is undervalued considering their advanced engineering and high-tech products. They focus on what they can control, such as creating great products and generating cash, and plan to continue growing organically and using cash wisely. They also mention their advertising of share buybacks, which the speaker believes may make them a hostage to their own fortune.

Craig Aaron and Adam Jonas discuss the decision to allocate all of their free cash flow to shareholders in the second quarter, citing transparency to investors. James Picariello asks about eProduct sales and AKASOL's recent sales expectations. Craig Aaron confirms second quarter sales and Fred Lissalde discusses the impact of eProduct in the commercial vehicle market.

BorgWarner's eProducts are growing 25% year-over-year, reaching $2.5 billion. The company is also seeing strong growth in powertrain electrification. There is no change in Eldor's losses for the year and the company is targeting $100 million in cost savings by 2026.

This summary was generated with AI and may contain some inaccuracies.