The paragraph introduces the BorgWarner 2024 Third Quarter Results Conference Call, facilitated by Connie who briefly outlines the procedure for the call, including the question-and-answer segment. Patrick Nolan, Vice President of Investor Relations, provides an overview, mentioning the earnings release posted on the company's website and the upcoming conferences listed on their Investor Relations page. He cautions about forward-looking statements that involve risks and uncertainties, and explains some key financial terms like non-GAAP measures, adjusted results, organic measures, and incremental margin performance used in the presentation for clearer financial analysis and comparison against previous periods.

The paragraph discusses BorgWarner's financial performance and strategic achievements in the third quarter. Their Q3 organic sales reached over $3.4 billion, slightly outperforming the market's decline. They achieved a strong 10.1% margin, with earnings per share rising to $1.09, thanks to effective cost controls. Due to robust year-to-date performance, they increased their full-year margin and earnings projections. Additionally, BorgWarner completed its planned 2024 stock repurchase of $400 million and secured new product awards, including extensions with a major North American OEM for transfer cases in full-size pickups.

BorgWarner will supply transfer cases to an OEM for three platforms starting in 2027 and 2028, extending a 40-year relationship. The company has also secured new contracts for high-voltage coolant heaters in Asia, including applications in electric vehicles in China, Korea, and Japan, with production beginning between 2025 and 2028. These initiatives highlight BorgWarner's technological expansion in the Asian electric vehicle market. Additionally, BorgWarner will provide turbochargers for GM's Corvette ZR1, marking a milestone as the largest twin turbochargers to date. These developments enhance BorgWarner's reputation and presence in the automotive industry.

The paragraph discusses BorgWarner's recent business realignment and the breakdown of its net sales across different segments. Their turbos and thermal technologies, along with the Drivetrain and Morse Systems segments, each contribute about 40% to net sales and hold strong market positions. These segments are mature, with robust margins, focusing on efficient combustion and hybrid powertrains. The remaining 20% of sales come from Power Drive Systems, focusing on hybrid and electric vehicles, which are projected to drive future growth. Regionally, sales are evenly distributed among Americas, Europe, Asia, and the Rest of the World, with a diverse customer base.

BorgWarner's sales to Chinese OEMs account for 15% of their net sales, comparable to sales in Europe and North America. The company demonstrated strong third-quarter results with higher sales performance than market production, an adjusted operating margin above 10%, and robust cash generation. This enabled them to accelerate their share repurchase plan to $400 million for the year. BorgWarner secured new business awards, showcasing product leadership and supporting profitable growth. They aim to grow faster than market production by focusing on propulsion efficiency for various vehicle types. The company intends to manage costs while maintaining long-term growth and delivering value to shareholders.

In the third quarter, Craig Aaron reported sales of just over $3.4 billion, a 5% decline from the previous year, excluding FX and M&A. This decline was slightly better than the 6% market contraction, driven mainly by European battery growth. The company achieved a strong margin performance of 10.1%, supported by operational efficiency, restructuring benefits, cost control, and customer recoveries. Free cash flow was $201 million, enabling the acceleration of a $300 million share repurchase plan. Last year's Q3 sales were over $3.6 billion, with a $4 million increase due to a weakening U.S. dollar, a 5% decrease in organic sales, and a $9 million contribution from the Eldor acquisition. Adjusted operating income for the quarter was $350 million, a 10.1% margin, compared to $349 million and a 9.6% margin the previous year.

In the third quarter, the company saw an increase of $15 million in adjusted operating income despite a decline in sales by $186 million, thanks to customer recoveries and restructuring benefits. However, the influence of Eldor negatively impacted operating income by $14 million. Adjusted earnings per share rose by $0.11 due to strong income, a reduced tax rate, and share repurchases totaling $300 million. Free cash flow from continuing operations increased by $165 million to $201 million. For the full year 2024, the company forecasts sales of $14.0 to $14.2 billion, down from previous guidance due to lower market production and eProduct sales projections. Despite these reductions, the company expects to outperform market production by 200-300 basis points, aided by its tech-focused portfolio. The forecast also anticipates a $20 million sales headwind due to weaker foreign currencies and a decrease in market assumptions. Acquisitions of Eldor and SSE are projected to contribute an additional $30 million in sales for 2024.

The updated outlook expects organic sales to be flat to decline by 1.5% year-over-year, with growth above industry production by 200 to 300 basis points. The company has raised its full-year margin forecast to 9.8%-10.0%, up from 9.6%-9.8%, due to strong year-to-date performance and restructuring benefits. Despite a challenging market, they anticipate strong performance in the fourth quarter, with a projected mid-teens decremental conversion and a 5%-7% market production decline. Full-year adjusted EPS is now projected at $4.15 to $4.30 per share, a 4% increase driven by robust third-quarter results, share repurchases, and a lower tax rate. They expect free cash flow between $475 million and $575 million, showcasing effective cost management despite declining global industry volumes.

The paragraph discusses the company's financial strategy and performance. In 2024, they expect to generate $525 million in free cash flow, with $475 million already deployed to shareholders through share repurchases and dividends. The company emphasizes its strong balance sheet, enabling it to invest in long-term growth and maintain a balanced capital allocation strategy. Despite challenging market conditions, they reported a strong third quarter with a 10.1% margin, sales outperformance, and $201 million in free cash flow, facilitating a $300 million share repurchase. The company is confident in its technology-focused portfolio's ability to outgrow industry production, increase margins, and improve EPS outlook despite declining industry volumes.

In the paragraph, Colin Langan from Wells Fargo asks about the company reaching a 10% margin earlier than expected, considering they initially projected it for 2027. Craig Aaron responds by noting the company's strong operational performance in the last quarter, driven by restructuring efforts, cost control, and some positive impacts from customer recovery. He mentions that for the fourth quarter, they expect revenue to decrease by about 3% compared to their annual average, with adjustments for one-time items leading to mid-teen declines. This performance aligns with their guidance target of achieving a 9.6% margin.

The paragraph discusses the financial performance of a company, focusing on their year-over-year results for the fourth quarter. Revenue decreased by about 2%, but the company maintained stable incomes, achieving a 9.6% midpoint performance, which they consider good. Colin Langan asks about the company's long-term 10% target and potential obstacles in achieving it by 2025 or 2026. Frédéric Lissalde emphasizes their current focus on 2024 and managing incremental changes. Dan Levy from Barclays questions the third quarter margin, noting a $50 million positive swing despite a revenue decline. Craig Aaron attributes the success to strong operational performance and the benefits of a previously announced restructuring.

The paragraph discusses the company's financial performance and future expectations. It mentions that a $24 million one-time recovery item was recorded in the quarter, but it should not be expected quarterly. The ongoing restructuring is expected to yield $20 to $30 million for the year. Dan Levy questions the growth of the battery business, whether it is due to strong demand or new supply, and asks about its margin profile. Frédéric Lissalde explains that there was a 36% sales increase, mainly in Europe, and emphasizes their focus on controlling market volatility and improving margin performance. He indicates that the supply and demand capacity is now aligned in North America and Europe, suggesting stability in the future.

In this paragraph, Joe Spak from UBS asks Craig Aaron about the margin improvements in the battery and charging segment and whether achieving positive margins depends on filling remaining capacity or other actions. Craig Aaron responds that scaling the business is key, with revenue in the quarter around $200 million, and as they increase, they aim to reach breakeven and beyond. Joe also inquires if all cash generated will continue to be returned to shareholders as it has been this year. Aaron confirms that they plan to apply about $525 million to shareholders at the midpoint of their guidance and will provide more insight into their 2025 plans in February. The operator then introduces Adam Jonas from Morgan Stanley, who mentions that Joe asked his question about the free cash flow paradigm, leaving him with just one question.

In the paragraph, the discussion centers on BorgWarner's approach to potential recoveries from OEMs due to cancellations of electric vehicle (EV) programs, with particular mention of Ford. The speaker, Frédéric Lissalde, acknowledges that while such recoveries are often specific cases, BorgWarner is focusing on flexibility and transitioning from combustion to electrification in their plant operations. They are committed to adjusting their business strategy based on developments. Additionally, Adam Jonas and John Murphy discuss investment in next-gen products on the internal combustion engine (ICE) side, questioning if returns on these investments could improve, but Lissalde does not provide specific comments on a transfer case program.

The paragraph discusses the current trends in the combustion and electrified powertrain market. There are three main developments in the combustion market: program extensions, program prolongations, and hybrids incorporating combustion engines. These factors contribute to the growth of the combustion market. John Murphy asks about the impact of EVs on the program bidding process. Frédéric Lissalde explains a slowdown in quoting activities for electrified powertrains in the Western world, partly due to numerous electrified hybrid and BEV launches. This scenario creates opportunities for combustion engines in hybrid applications, with no significant impact on mid- to long-term growth prospects.

Frédéric Lissalde emphasizes that their portfolio is adaptable to different propulsion architectures, allowing them to outgrow their markets. In response to a question about the hybrid pipeline, he explains that their combustion products seamlessly integrate into hybrid powertrains, and their eProducts, such as inverters and motors, are compatible with both BEVs and hybrids. This flexibility positions them to serve global customers' various powertrain needs. Craig Aaron adds that the company is focused on cost controls and productivity, with an emphasis on maintaining these efforts into 2025.

In the paragraph, Luke and James engage in a discussion about restructuring and cost-saving strategies that have positively impacted the quarter's performance despite a volatile top line. James questions the industry's Light Vehicle Production (LVP) assumptions, mentioning that some suppliers are projecting a 4% decline, while Frédéric Lissalde responds, stating their own projection of a 3% to 3.5% decrease, with significant reductions in North America and Europe, and a slight increase in China. James also inquires about the demand for hybrid vehicle components in their foundational product suite, particularly between turbos, Thermal segments, drivetrain, and other systems. Frédéric Lissalde does not provide a detailed breakdown in response.

In the paragraph, several industry experts discuss the outlook for advanced hybrid powertrains and market growth expectations. James Picariello, Mark Delaney, and Frédéric Lissalde talk about the reduced growth outlook, citing a drop in growth expectations by 200-300 basis points, partly due to the eProduct portfolio and foundational business issues. They also touch on the potential impact of Western OEM booking activity, speculating that it might accelerate following the U.S. elections once there is clarity on CO2 requirements, although Frédéric Lissalde suggests it is difficult to predict. Lissalde emphasizes that BorgWarner is prepared to adapt to customer needs.

Emmanuel Rosner from Wolfe Research asked about structural cost reductions and their impact on the company's financials. Craig Aaron responded by highlighting the PDS restructuring, indicating a structural change target of $20 to $30 million this year, anticipated to annualize to $40 to $60 million next year, and aiming for $100 million by 2026. He emphasized the company's goals of sales growth, mid-teens income growth, and cash generation. Emmanuel further inquired about BorgWarner's competitive advantages in the commercial vehicle battery business and its operating leverage, noting significant recent incremental gains.

In the paragraph, Frédéric Lissalde from BorgWarner discusses the company's focus on commercial vehicles, specifically trucks and buses, highlighting their flexible approach to production and their involvement in software, cybersecurity, and pack assembly. The company has production capabilities in both the U.S. and Europe. Craig Aaron comments on the strong margin performance of the business, particularly noting a significant growth in the quarter with profits converting at a high rate. However, he emphasizes the importance of sustaining this growth in the mid-teens across their businesses to measure success. Patrick Nolan apologizes for any audio issues during the call, invites follow-up questions, and concludes the conference discussion.

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