Adverse currency exchange effects and a change in US accounting rules will hit BorgWarner earnings this year.
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The company is expecting 2006 full year earnings of US $4.22 to $4.57 per share, which includes of a loss of $0.16 to $0.18 a share due to accounting rule changes and $0.12 to $0.25 a share attributed to adverse currency rates.
Excluding these, earnings growth is expected to be in line with the transmission and driveline specialist’s historical growth rates of approximately 10%.
“Our robust pipeline of new business and proven ability to participate in the fastest growing segments of the auto market are expected to generate healthy growth for BorgWarner in 2006,” said chairman and CEO Timothy Manganello in a statement on Thursday (12 January).
“We expect that our technologies, developed to enhance fuel economy, performance, vehicle stability and emissions, will continue to drive long term growth.”
BorgWarner expects to grow sales 5% to 7% in 2006 (or 9% to 11% excluding adverse currency effects).
Its outlook for global vehicle production is “moderate” because North American and European vehicle production is expected to be flat, although solid growth is anticipated in Asia.
Despite the expected modest industry growth, the company expects sales growth in both of its major product families, the engine and drivetrain groups, this year.
Manganello noted that currency fluctuations have impacted results over the past few years and are expected to do so again in 2006. BorgWarner expects the euro, on average, to trade in a range of $1.15 to $1.20, compared with $1.25 in 2005 and a current spot rate of approximately $1.21.
The company also expects the Japanese yen, on average, to be weaker in 2006 with the dollar trading in a range of 115 yen to 110 yen, versus 110 yen in 2005 and a current spot rate of approximately 114 yen.
“The unfavourable impact of weaker foreign currencies in 2006 is a reversal of the tailwind those currencies provided in 2004. Despite currency fluctuations, our business fundamentals remain strong,” added Manganello.
The company expects to maintain operating margins in 2006 despite continued raw material and energy cost increases, rising healthcare costs and costs related to global expansion.
