BorgWarner's CEO Discusses Q4 2011 Earnings Results - Earnings Call Transcript

BorgWarner, Inc. ( BWA)

Q4 2011

February 14, 2011 9:30 am ET

Executives

Ken Lamb – Director Investor Relations

Timothy M. Manganello – Chairman of the Board & Chief Executive Officer

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

Analysts

Ravi Shanker – Morgan Stanley

Analyst for Richard Kwas – Wells Fargo Securities, LLC.

Rod Lache – Deutsche Bank Securities

Himanshu Patel – JP Morgan

John Murphy – Bank of America Merrill Lynch

Joseph Sack – RBC Capital Markets

Patrick Archambault – Goldman Sachs

Presentation

Operator

At this time I would like to welcome everyone to the BorgWarner 2011 fourth 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 period. (Operator Instructions) I would now like to turn the call over to Ken Lamb, Director Investor Relations.

Ken Lamb

We issued our earnings release this morning at approximately 8 am Eastern Time. It is posted on our website www.BorgWarner.com on our homepage. A replay of today’s conference call will be available through February 21 st. The dial in number for the replay is 800-642-1687. You’ll need the conference ID which is 44472821. The replay will also be available on our website.

With regard to our investor relations’ calendar we will be attending several conferences over the next few months. February 22 nd we will be at the Barclays’ Industrial Select Conference in Miami. March 14 th we will be at the UBS Auto & Auto Suppliers Conference in Boston. March 19 th we’ll be at the Sidoti Conference in New York and on April 4 th we’ll be at the BofA New York Auto Summit in New York.

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 10K. Our actual results may differ significantly from matters discussed here today.

Now, moving on to our results Tim Manganello, Chairman and CEO will comment on the fourth quarter, the full year and current industry trends. Then, Robin Adams our CFO, will discuss the details of our operating results and also our outlook for 2012. With that, I’ll turn it over to Tim.

Timothy M. Manganello

Today I’m very pleased to review our strong fourth quarter and full year results as well as our fourth quarter accomplishments. First, I would like to thank all BorgWarner employees for a fantastic 2011. Your strong performance reflects our dedication to BorgWarner’s customers and our shareholders.

Now, on to the results let’s start with the fourth quarter. Sales were $1.8 billion up 16% from the same period last year. US GAAP earnings were $1 per share but excluding a loss from disposal activities, earnings were $1.19 per share and Robin will explain the financial mumbo jumbo behind the disposal activities later. Our reported operating income margin was 10.8%, but again excluding non-recurring items, our operating income margin was 12% in the quarter.

Three key factors drove our results: increased global demand for our products; higher volumes in our base business; and well executed cost controls by our operating guise. For the full year, sales were $7.1 billion up 26% from 2010. US GAAP earnings and earnings excluding non-recurring items were $4.45 per share and in our full year operating income margin, it was 11.2% or 11.1% excluding non-recurring items.

Let’s go to the engine group. In the engine group fourth quarter sales were about $1.25 billion up 11% from a year ago. The engine group continues to perform very, very well and results were led by accelerating turbocharger growth around the world, increased sales of engine timing systems including variable CAM timing, and greater sales of fan and fan drives which are linked to the commercial vehicle market.

In the drive train group sales were about $534 million up 27% from the fourth quarter 2010. Drive train’s results were driven by increased dual clutch transmission module sales in Europe, increased traditional automatic transmission component sales in Korea, and the Traction acquisition which was formerly known as the Haldex acquisition.

Now, the drive train group continues to make progress with its capacity and productivity issues in Europe. In the quarter the groups’ margin was 8.8% up from last year and up from the previous quarter. Drive train’s performance in the fourth quarter is a solid foundation for achieving the 9% margin or better that we expect from them in 2012.

Looking forward to the future, BorgWarner continues to invest for the long term. Capital spending continues to grow. For the full year we spent about 5.5% of sales. We are committed to supporting our future growth and productivity improvements and our R&D spending was about 3.4% of sales in the quarter and for the full year. We continue to trend towards our targeted level of 4% for R&D.

I’m also proud to review some exciting announcements that we made during the quarter. BorgWarner’s regulated two stage, or R2S turbochargers have launched on the four cylinder Mercedes S Class BlueEfficiency engine. This is the first four cylinder engine in the history of the S Class. It delivers excellent performance while getting about 41 miles per gallon. We are proud to set a new benchmark for a turbo charged downsized engine in the luxury segment with the Mercedes Benz.

Now, BorgWarner’s double PIP platinum spark plugs are also featured with the next generation ignition coils for the Audi’s 1.8 and 2 liter engines. BorgWarner also supplies advanced technologies for five of Ward’s 10 Best Engines and to all of the winners and finalize for the North American Car and Truck of the Year. Finally, we announced $2.5 billion of net new business for 2012 through 2014 time period. That’s a 9% increase over last year’s backlog.

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