BorgWarner Inc. (



Q3 2011 Earnings Call

October 28, 2011 10:00 am ET


Ken Lamb – Director of Investor Relations

Timothy M. Manganello - Chairman and Chief Executive Officer

Robin J. Adams – Executive Vice President, Chief Financial Officer and Chief Administrative Officer


H Peter Nesvold – Jefferies & Co.

Chris Ceraso – Credit Suisse

Rich Kwas – Wells Fargo Securities, Llc

Timothy Denoyer – Wolfe Trahan & Co.

Brian Johnson – Barclays Capital

Ravi Shanker – Morgan Stanley

Patrick Nolan – Deutsche Bank Securities



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Good morning. My name is Angela, and I will be your conference facilitator. At this time, I would like to welcome everyone to the BorgWarner 2011 Third Quarter Results Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)

I would now like to turn the call over to Ken Lamb, Director, Investor Relations. Mr. Lamb, you may begin your conference.

Ken Lamb

Thanks, Angela. Good morning, and thank you all for joining us. We issued our earnings release this morning at approximately 8:00 a.m. Eastern Time. It's posted on our website on our homepage. A replay of today’s conference call will be available through November 4. The dial-in number for that replay is 800-642-1687. You'll need the conference ID, which is 11581019. The replay will also be available on our website.

With regard to our Investor Relations calendar, we’ll be attending several conferences over the next few months. November 1, we will be at the Gabelli Automotive Symposium in Las Vegas; November 8, we will be at the Baird Industrial Conference in Chicago; November 14, we will be at the Barclays Global Automotive Conference in New York; November 17, we will be at the Morgan Stanley Auto Meeting in Los Angeles; December 8, we will be at the Goldman Sachs Global Auto Conference in London; and we will be at the Deutsche Bank Global Auto Industry Conference in Detroit in early January. Also we will be releasing our 2012 to 2014 backlog of net new business on November 8 and providing color on the backlog at the Baird Conference.

Before we begin, I need to inform you that during this call, we may make forward-looking statements, which involve risks and uncertainties as detailed in our 10-K. Our actual results may differ significantly from the matters discussed today.

Now, moving on to our results, Tim Manganello, Chairman and CEO, will comment on the third quarter and current industry trends and then Robin Adams, our CFO, will discuss the details of our operating results and also our outlook for the rest of the year.

With that, I'll turn it over to Tim.

Timothy M. Manganello

Thank you, Ken, and thank you everyone for joining our call. Today, I’m very pleased to review our third quarter results, our accomplishments and our revised guidance.

But first, I’d like to comment on current production volume concerns within the investment community. In recent weeks, uncertainty about the world economy particularly in Europe has created nervousness and has caused speculation about vehicle production in certain parts of the world.

In July, before this issue surfaced, we raised our 2011 sales and earnings guidance, and today we refined our guidance to the high end of that range at $4.35 to $4.45 per share. All the markets have been assessing vehicle production risks; the outlook for BorgWarner and our business remain strong.

BorgWarner’s performance is linked to the industry’s focus on fuel economy and improved emissions. There may be uncertainty about European vehicle production, but there is no doubt that fuel economy and improved emissions are a focal point for the industry now and for many years to come.

Therefore, we remain bullish about BorgWarner’s near term and our long-term future. However, because there is uncertainty about Europe, I would like to address our BorgWarner will get through another downturn should the need arise.

In the aftermath of the last downturn, BorgWarner emerged stronger than ever, and today we are a leader company and sales and earnings performance continues to set records. Also, we employ more temporary workers now than we did previously. And that means our total cost structure is easier to flux if necessary. We also have agreements, pre-range agreements with our various works counsels in Europe.

In our view, there are no clear signs of a downturn; however, we are prepared to execute cost control plans quickly if needed, and we feel very good about our ability to perform well under any market conditions.

So now, let’s talk about our record third quarter. Sales were $1.8 billion, up 27% from the same period last year. Our operating margin and income margin was 11.1%, another record. U.S. GAAP earnings were $1.15 per share, and three key factors that drove our results were increased global demand for our products, higher volumes in base business, and well executed cost control.

In the Engine Group, third quarter sales were above $1.3 billion, up 23% from a year ago. The Engine Group continues to perform very well, and we saw a growth in all of our engine products around the world. In the Drivetrain Group, sales were above $539 million, up 36% from the third quarter, 2010.

Drivetrain results were driven by increased VCT module sales in Europe, increased four-wheel drive and traditional automated transmission component sales in Korea, and the Traction acquisition. Also the Drivetrain Group’s operating margins continue to improve just like we said earlier in the year.

In the quarter, margins were 8.1%, up from last year and the previous quarter. The Drivetrain Group continues to show improvements in capacity and productivity issues throughout Europe. We also continue to invest for the long-term.

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