Borgwarner 2025 Q1 Earnings Misses Targets as Net Income Drops 22.6%

Borgwarner (BWA) reported its fiscal 2025 Q1 earnings on May 06th, 2025. The company's results fell short of expectations, with net income dropping significantly by 22.6% compared to the previous year. Guidance remains cautious, reflecting ongoing challenges in the automotive sector. Borgwarner's management anticipates improved profitability following strategic decisions, such as exiting its Charging business and consolidating operations. However, the company faces headwinds from market conditions and tariff impacts, leading to a mixed outlook for the remainder of the year.

Revenue
Borgwarner's total revenue for the first quarter of 2025 experienced a decline, reaching $3.52 billion from $3.60 billion in the same period of 2024. The Turbos & Thermal Technologies segment generated $1.45 billion, while Drivetrain & Morse Systems accounted for $1.36 billion. PowerDrive Systems contributed $561 million, and Battery & Charging Systems added $150 million. Adjustments for inter-segment transactions totaled $-11 million, culminating in net sales of $3.52 billion.

Earnings/Net Income
Borgwarner's earnings per share (EPS) dropped by 20.9%, reaching $0.72 in 2025 Q1, compared to $0.91 in 2024 Q1. Concurrently, net income decreased to $171 million, marking a 22.6% decline from the $221 million reported in the same quarter last year. The performance reflects challenging market conditions and strategic shifts within the company.

Price Action
The stock price of Borgwarner has edged down 0.72% during the latest trading day, has edged up 0.52% during the most recent full trading week, and has climbed 6.58% month-to-date.

Post-Earnings Price Action Review
The investment strategy of acquiring Borgwarner shares following a quarter with increased revenue and holding the shares for 30 days yielded a 22.32% return over the last five years. This performance is modest when compared to a benchmark return of 86.27% over the same period. The strategy's compound annual growth rate (CAGR) stood at 4.13%, with a maximum drawdown of -14.73%. The Sharpe ratio of 0.37 indicates moderate returns paired with a moderate risk profile. Investors should weigh these figures against broader market performance when evaluating the potential benefits of this strategy.

CEO Commentary
BorgWarner's CEO highlighted the company's resilience, despite a 3.6% decline in light and commercial vehicle markets. Organic sales remained relatively stable, bolstered by a 47% increase in light vehicle eProduct sales. The CEO emphasized the successful expansion of the adjusted operating margin to 10.0%, attributed to strong performance and cost control measures. Strategic actions, including the decision to exit the Charging business, aim to enhance focus and eliminate $30 million in annualized adjusted operating losses, underscoring a commitment to long-term profitable growth.

Guidance
BorgWarner anticipates that exiting the Charging business will streamline operations and improve profitability, aiming for $20 million in annual cost savings by 2026 through the consolidation of its North American Battery Systems business. The company expects new business awards, including high-volume hybrid eMotor and high-voltage coolant heater contracts, to support growth, with launches scheduled as early as 2027. Overall, BorgWarner remains focused on securing future opportunities to drive long-term profitability amidst current market challenges.

Additional News
In recent developments, Borgwarner has announced significant portfolio adjustments to sharpen its strategic focus and enhance long-term growth prospects. The decision to exit the Charging business reflects a move towards concentrating resources on more profitable segments, eliminating approximately $30 million in annualized adjusted operating losses. Additionally, Borgwarner is restructuring its North American Battery Systems operations, aiming for $20 million in annual savings by 2026. Furthermore, the company has secured new business awards, including contracts for high-volume hybrid eMotors and high-voltage coolant heaters, set to launch in 2027 and 2028. These steps exemplify Borgwarner's proactive approach to navigating market challenges and driving future growth.