In the paragraph, Wyatt, the conference specialist, welcomes participants to the BorgWarner 2025 First Quarter Results Conference Call and introduces Patrick Nolan, the Vice President of Investor Relations. Patrick notes that the company's earnings release is available on their website and mentions upcoming conferences listed on their Investor Relations page. He highlights that forward-looking statements with associated risks may be discussed, and actual results may differ. The discussion will include non-GAAP measures for better clarity and comparison, defining terms like "on a comparable basis," "adjusted," "organic," and "incremental margin performance." Finally, he notes that the earnings call presentation is available on their website.

In the second paragraph, Joseph Fadool discusses BorgWarner's first-quarter 2025 results and company updates. Despite flat organic sales of over $3.5 billion due to market production declines, the company saw significant sales growth of 3.7%, driven by a 47% increase in light vehicle eProduct sales. This growth surpassed the 25% rise in global hybrid and BEV production, highlighting the company's product leadership and technology. BorgWarner secured multiple new product awards supporting long-term growth. The company reported a strong adjusted operating margin of 10%, driven by eProducts growth and cost control. Two major portfolio decisions were made: exiting the charging business due to lack of shareholder value and consolidating capacity in their North American battery systems business to enhance competitiveness.

In this paragraph, the CEO of BorgWarner reflects positively on their first 90 days, emphasizing excitement for the future due to the company's strong product portfolio and operational performance. The paragraph highlights BorgWarner's new product awards as key indicators of future growth. These include a Hybrid eMotor Award with a major North American OEM, expected to launch in 2028, and a High-Voltage Coolant Heater Award with a global OEM in North America, expected to launch in 2027. Additionally, the company is extending programs for exhaust gas recirculation components with a North American OEM, continuing production through 2029, and securing dual clutch transmission awards in China, with production starting at the end of 2025.

The paragraph discusses BorgWarner's decision to exit its charging business due to slower-than-expected market growth in North America and Europe, alongside a competitive landscape that challenges scale and profitability. The company plans to shut down or sell five locations globally, aiming to eliminate $30 million in annual operating losses. Although the exit will result in a $30 million sales reduction, it is expected to boost operating income by $15 million. This move is intended to streamline BorgWarner's product portfolio and enhance its profitability. The paragraph also mentions lower than anticipated demand in North America's battery systems business.

BorgWarner is consolidating its North American battery production to its Seneca, South Carolina plant, moving operations from Hazel Park and Warren, Michigan, to align with market dynamics. This restructuring, with an estimated cumulative cost of $10 million through 2026, is expected to save $20 million annually by then. Alongside strong first-quarter results, which included a 47% sales increase in the light vehicle eProducts business and a 60 basis point expansion in adjusted operating margin despite tariff challenges, the company is targeting improved near-term earnings and long-term success. BorgWarner secured multiple new business awards across its product range and is strategically managing its cost structure to respond to market changes. Despite a challenging environment, the company remains optimistic about navigating these uncertainties effectively.

The company reported first-quarter sales of just over $3.5 billion, consistent with the previous year when excluding the effects of foreign exchange and mergers and acquisitions. Market production declined by 3.6%, but the company achieved a 3.7% sales growth driven by substantial growth in light vehicle eProducts across major regions and strong growth outside China. They maintained a strong adjusted operating margin of 10%, marking the fourth consecutive quarter at or above this level, despite facing a $6 million tariff headwind. Free cash flow also improved significantly by $270 million, or 89%, year-over-year. A weaker U.S. dollar led to an $85 million decrease in year-over-year sales, but organic sales saw a 3.7% increase above market production due to robust eProduct growth and foundational growth across Europe, North America, and other regions.

In the first quarter, the company reported an adjusted operating income of $352 million, achieving a 10.0% adjusted operating margin despite a 20 basis point impact from tariff costs. This is an improvement from the previous year's $339 million and 9.4% margin. The increase was driven by higher sales and effective cost controls. Adjusted earnings per share rose by $0.08, aided by strong operating income and share repurchases. Free cash flow from continuing operations was a negative $35 million, an improvement from the previous year, due to better operating income, working capital efficiency, and lower capital spending. For 2025, the company revised its sales forecast to $13.6-$14.2 billion, up from previous estimates, due to stronger foreign currencies and anticipated tariff cost recoveries, despite a lower market production outlook and exiting the charging business. The forecast accounts for a $160 million sales headwind from weaker foreign currencies compared to 2024.

The paragraph discusses the company's updated financial outlook for 2025. It highlights a sales tailwind of $250 million due to currency strengthening and a reduction in market assumptions due to tariffs, particularly impacting North American customer demand. A $30 million sales headwind is noted from exiting their charging business, and a tariff-related sales recovery of up to 1.6% is expected. The company's sales outgrowth is anticipated to be 200 to 400 basis points, with organic sales projected to change by -2% to 2% year-over-year. The adjusted operating margin forecast has been revised to a range of 9.6% to 10.2% due to tariff impacts. Full year adjusted EPS is expected to be $4 to $4.45 per share, and free cash flow is projected to be $650 million to $750 million. The paragraph concludes with confidence in the continuation of the strong first quarter performance throughout the year.

The paragraph discusses a company's strong financial performance at the start of the year, despite challenges such as tariffs. It mentions confidence in global teams' ability to manage uncertainties and outlines expectations for 2025, which include outperforming market production, maintaining EPS guidance, and achieving strong free cash flow. The company plans to deliver on financial priorities despite headwinds, aiming for full-year sales outgrowth and consistent free cash flow. The company's strong balance sheet supports shareholder value creation through a balanced capital allocation approach. Finally, the paragraph transitions to a question-and-answer session, where John Murphy from Bank of America asks about the impact of business extensions on reinvestment needs and their effect on returns and margins.

The paragraph discusses the expectations and strategies related to eProduct awards, highlighting strong portfolio performance and margin consistency. Joseph Fadool expresses optimism about recent wins, particularly in hybrids, and notes increasing clarity from OEMs about their plans. The paragraph also addresses concerns about rare earth elements used in their products, particularly magnets, and mentions efforts to manage supply constraints, including a licensing process in China and exploring alternative options. John Murphy acknowledges the promising returns from these portfolio actions.

In the excerpt, Joseph Fadool discusses the company's strategic review and adjustments to its portfolio as he assumes a leadership role. He explains that they are assessing areas of their business that are not meeting their scale and return targets, leading to decisions like exiting the battery sector in North America due to lower volume expectations. This move is projected to save $10 million in cash costs and generate a $20 million benefit in operating income next year. Fadool emphasizes their commitment to making decisive actions in response to market dynamics to enhance competitiveness and achieve short-term cost reductions. Colin Langan from Wells Fargo inquires about growth in the Chinese market, noting it's a concern for investors and whether recent positive trends could continue. Fadool declines to predict the year's outcomes but acknowledges the recent improvements.

The paragraph discusses the company's positive outlook for Q1 growth, particularly highlighting their performance in the China market and the light vehicle segment. The company outgrew the industry by 3.7%, with significant growth in the light vehicle portfolio, especially the eProduct section, which increased by over 60% year-over-year. This growth was noted across multiple regions, including North America, Europe, and China. Joseph Fadool shares insights from the Shanghai Auto Show, noting strong demand for their competitive technology in China and highlighting their rapid market operations, mentioning a recent successful dual inverter launch. Colin Langan then references the company's traditionally conservative market outlook, discussing slides that align with industry projections, expressing interest in their confidence in these estimates.

In the paragraph, Joseph Fadool explains that the company's adjusted guidance for light vehicle production reflects increased concern specifically in North America, with expected declines now between 7% to 12% compared to an earlier estimate of 3% to 4%. This shift is primarily due to macroeconomic uncertainties and potential impacts from tariffs. Despite strong initial quarter production and good order forecasts for the second quarter, the company is cautiously adjusting its guidance to account for these uncertainties. James Picariello questions this conservative approach but acknowledges its alignment with the guidance framework. Additionally, James seeks clarification on whether foreign exchange rates present an added challenge in the revised guidance and whether tariff recoveries are included in their sales expectations, to which Joseph Fadool and Craig confirm that they are.

In the paragraph, Craig Aaron discusses the impact of foreign exchange (FX) and tariffs on their financial guidance. FX has resulted in a $250 million tailwind, mainly due to the euro and Chinese renminbi's performance against the U.S. dollar. The company expects to recover tariff-related costs from customers, aiming for full recovery by addressing timing issues in the recovery process. Joseph Spak questions the stated impact of tariffs, suggesting it seems high relative to the company's disclosed import figures. Aaron explains that the guidance includes all known tariffs, and they are implementing mitigation plans and customer recovery efforts where necessary. Overall, he considers this a manageable issue.

The paragraph discusses the impact of tariffs and production outlook on the company's costs and operations. It highlights that a significant portion of the cost of goods sold (COGS) is material-related, and USMCA compliance is already in place for certain imports from Canada and Mexico. The speaker expresses confidence in the team's ability to handle production challenges. Joe Spak questions whether the increase in component costs is due to tariff pressures, which Joseph Fadool confirms, explaining both direct and indirect impacts of tariffs on their supply chain. The conversation concludes with a note on the company's strong cash position and expected free cash flow for the year.

The paragraph is a discussion during an earnings call where Craig Aaron addresses questions about cash deployment strategies in an uncertain market environment. He highlights the company's strong balance sheet and significant free cash flow generation, with a particular focus on creating shareholder value through inorganic investments, dividends, and share buybacks. The company repurchased $400 million worth of shares last year and plans to continue buybacks opportunistically throughout the year. Additionally, Dan Levy from Barclays questions the outcomes of past M&A deals, noting that charging has been deemed unprofitable, and inquires about the effectiveness of other acquisitions like AKASOL.

In the article paragraph, the speaker discusses their strategy for handling acquisitions and investments. They emphasize that they continuously review their portfolio to identify areas for strengthening. In the context of their charging business, market outlook changes and challenges in achieving scale to meet a 15% return on invested capital prompted a reevaluation. The speaker stresses the importance of critical assessment when situations change and applying disciplined decision-making for future mergers and acquisitions (M&A). Dan Levy then inquires about the path to breakeven for power drive and battery margins, considering their restructuring efforts. Craig Aaron responds by highlighting strong growth in power drive systems, with a 30% year-over-year increase and 60% growth in light vehicle eProducts. He notes the effective cost structure with conversions at $0.15 on the dollar, projecting future growth. However, the battery business saw a 15% decline due to falling battery cell prices, with decrements at $0.26 on the dollar, which they find suboptimal.

The paragraph discusses a company's strategy for driving revenue growth in the medium to long term by leveraging their product portfolio, which includes both foundational and eProducts applicable to all powertrains. Joseph Fadool highlights the benefits of hybrid vehicles that utilize both types of products, which enhances content per vehicle and offers high opportunities for the company. He mentions winning solid business with advanced hybrids and focuses on expanding margins and generating strong cash flow to outperform end markets. Mark Delaney then shifts the topic to the company's business in China, noting reported growth and positive feedback from the Shanghai Auto Show.

The paragraph discusses BorgWarner's positive outlook on its business operations in China, despite potential geopolitical and tariff challenges. Joseph Fadool highlights the company's competitive technology, strong relationships with domestic OEMs, and speed to market as key strengths. BorgWarner is optimistic about opportunities in the growing hybrid and new energy vehicle markets in China. In terms of tariffs, Fadool mentions that while semiconductors and possibly some other commodities face higher tariff costs, the company is actively working on mitigation strategies and considers these challenges manageable.

In the paragraph, Emmanuel Rosner questions the $200 million tariff costs and seeks clarity on their breakdown. Craig Aaron explains that these costs constitute about 1.6% of sales, with 50% related to IEPA and auto parts 232, and the other 50% to China retaliatory tariffs. He mentions ongoing customer negotiations for cost recovery. Joseph Fadool adds that they're working on USMCA compliance, currently at 70% in Mexico, and have recovered or have visibility on 50% of the non-compliant part from customers, aided by a well-practiced negotiation strategy.

The paragraph is part of a discussion involving company executives about their eProduct business and its growth. Joseph Fadool mentions that while they aren't providing specific guidance details for eProducts, they have over 20 product launches planned and expect these to drive growth. Craig Aaron reports that eProduct sales for Q1 were around $640 million, up from last year's $500 million. Emmanuel Rosner acknowledges the information, and then Luke Junk asks about tariff recoveries in different business segments, particularly regarding supply chains involving China and rare earth elements. Fadool responds that they won't provide a segment-specific breakdown.

The paragraph discusses the impact of tariffs on a business and the steps being taken to address them, including achieving USMCA compliance, mitigating impacts, and initiating customer recovery discussions. There is specific concern about the battery business, which involves components affected by tariffs, particularly cells from Korea. The company is confident in their mitigation strategies and expects full recovery from customers in the short term. Additionally, Winnie Dong from Deutsche Bank inquires about the company's outgrowth figures for the year, but Craig Aaron states they do not break down the outgrowth between foundational and eProduct portfolios.

In the conference call paragraph, Joseph Fadool discusses BorgWarner's approach to mergers and acquisitions (M&A) in the current turbulent market environment. The company is actively reviewing its M&A pipeline, looking for opportunities that align with its core competencies and can drive growth and shareholder value. BorgWarner has set specific criteria for potential acquisitions, including industrial logic, near-term accretion, and reasonable valuation. The company is in a strong cash position and is open to using various financial strategies, such as buybacks. They have already rejected several targets that didn't meet their criteria. The conversation concludes with an invitation for follow-up questions and a wrap-up of the conference call.

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