BorgWarner (BWA, Financial) illustrated impressive fourth-quarter results with robust sales growth and solid operational efficiency across the Engine segment with an excellent cost control throughout the organization which drove exceptional operating performance.
Strong sales across the board
For the Engine segment, BorgWarner reported fourth-quarter sales of $1.4 billion, an increase of 9% from last year. These solid results were primarily driven by robust turbocharger sales in Korea, China and Europe.
The outstanding results for the company’s engine segment illustrates the effective cost-cutting strategies implemented coupled with a solid operational performance.
For the Drivetrain segment, BorgWarner witnessed a 2% increase in sales to $615 million compared to last year, after excluding the foreign currencies. This expansion in sales growth for Drivetrain after excluding currency impact was due to enhanced dual-clutch transmission volumes in Europe which was however partially balanced by a strategic and sluggish growth of a key program by a major North American customer. Drivetrain is growing continuously with the company keenly focused on executing its strategic restructuring plan.
BorgWarner started shifting the equipment from its current operations in Western Europe to Poland late this July with these strategic activities key to the segment’s long-term success. The review of this key segment signifies the core strengths of BorgWarner, robustness of its product portfolio and significant market demand across the globe, solid execution of the Drivetrain restructuring plant, robust operational performance of the Engine segment intended to enhance its long-term performance.
The eye-catching performance of the Drivetrain segment depicts the growing customer traction for the innovatively designed products of BorgWarner and the gainful restructuring activities implemented at the Drivetrain plant.
Better times ahead
James Verrier, president and CEO at BorgWarner, states that the company’s backlog of overall innovative business is forecast to expand the total sales growth in the 9.5% to 12% range during 2015 compared to last year post excluding the effect of declining foreign currencies with an improving demand for its product technologies that enhance performance, emissions and fuel economy that continues to be increasingly accepted across the globe.
Being an exporter, BorgWarner has notable declining revelation to the dollar as compared to certain other foreign currencies. If the American dollar strengthens, the values of the yen, the euro and other major currencies fall compared to the U.S. dollar. BorgWarner then earns less money for sales executed in foreign currencies. Going forward into 2015, the underlying growth rate of BorgWarner remains nearly solid and completely depended on the U.S. dollar value in 2015.
BorgWarner is highly vulnerable to the currency exchange rates and seeks to devise a method to hedge the negative impact of the weaker U.S. dollar value in 2015.
BorgWarner is estimated to be all set for a solid 2015 with the company offering its investors an exciting mix of projections, with lasting revenue expansion prospects slightly offset by the restructuring plan to lower costs and expand margins all through the Wahler integration. Moreover, it also allows investors a technique to evade the likelihood of a weaker U.S. dollar.
BorgWarner is believed to gain significantly from the worldwide trend shift towards cleaner, greater fuel-efficient vehicles. The company estimates an expanding demand for its innovative technologies due to an accelerated implementation of cleaner emissions and superior fuel-efficiency laws across the globe.
The key acquisition of Wahler, currency fluctuation-evading techniques and the shifting of global trend towards purchasing cleaner and highly fuel-efficient vehicles is believed to significantly benefit BorgWarner through expanding its market share and thus improving the company’s top line as well as shareholder’s value.
In addition, BorgWarner has decided to offer its newest turbocharging technology to Volkswagen to expand its solid partnership with latter.
The new and deeper business relationships made by BorgWarner with its major customers such as Volkswagen is forecast to benefit the duo in a long run in line with BorgWarner’s key efforts to expand its reach into the South American markets.
BorgWarner has declared $0.13 per share of quarterly dividend payable on March 16 and converging with the company’s focus of delivering improved shareholder returns.
Conclusion
Overall, investors are advised to invest into BorgWarner Inc. looking at the logical company valuations with the trailing P/E and forward P/E ratios of 21.03 and 14.06 respectively and comparable to the industry’s average P/E of 19.44. The PEG ratio of 1.23 signifies marginally expensive company growth compared to the industry’s average of 0.99. The profit margin of 7.90% is satisfactory. However, BorgWarner needs to optimize its debt-laden balance sheet with huge total debt of $1.34 billion compared to weaker total cash of $797.80 million only to plan for future growth investments.
