BorgWarner has reported what is it describes as ‘mixed’ results for the first quarter of 2007. On the plus side, the powertrain systems supplier said it delivered sales growth that outpaced the industry’s growth around the world. However, the firm also said that a warranty-related charge had a negative impact on earnings.
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The company said it achieved record sales of US$1,278m in the first quarter of this year, up 11% from first quarter 2006. Sales outside of the US grew 13% over first quarter 2006, excluding the impact of currency.
However, earnings of US$1.00 per diluted share were down 6% from first quarter 2006, including a warranty-related charge of US$0.17 per diluted share. Operating income margin was put at 7.0%.
Net income in the quarter was US$58.4m, compared with US$61.3m in first quarter 2006. The impact of foreign currencies, primarily the euro, increased sales by US$60.0m, or 5%, in first quarter 2007 compared with first quarter 2006, and net income by US$2.4m.
“Everything went according to plan in the quarter operationally,” said Tim Manganello, Chairman and CEO.
“Our sales outside of the US were up 13%, excluding the impact of currency, compared with vehicle production outside of the U.S. that was up only 2%. Powertrain technology trends around the world, which continue to move toward improved fuel economy, lower emissions and better vehicle performance, drove strong growth for the company. Sales in the U.S. were down 5%, primarily due to lower US vehicle production, which was down 8%. We clearly demonstrated the viability of our technology-driven growth strategy and the benefits of building one of the most diverse customer and geographic business profiles in the industry.”
“Furthermore, the restructuring of our North American operations in the second half of 2006, actions we took in anticipation of permanent reductions in customer production schedules, has resulted in improved margins.”
“However, our results were negatively impacted by a warranty-related issue surrounding a product, built during a 15-month period in 2004 and 2005, that is no longer in production. This resulted in a pre-tax charge of US$14.0m, or US$0.17 per diluted share. Consequently, our operating margin for the quarter was 7.0%, down from 8.2% a year ago. Excluding the warranty- related charge, our operating margin was 8.1%, nearly flat with first quarter 2006 and a marked improvement over the second half of 2006.”
The company has lowered its 2007 earnings guidance range to US$4.53 to US$4.73 per diluted share, US$0.17 per diluted share lower than its previous guidance range and solely due to the impact of the warranty-related charge. The company still expects sales growth of 7% to 9% and operating margins near the low end of its historical range of 8.5% to 9.0%.
