Kevin A. Nowlan
Executive Vice President and Chief Financial Officer at BorgWarner
Thank you, Fred, and good morning, everyone. Given the number of financial topics we have to get through this morning, I'm going to dive right into the details.
So let's turn to slide 10. As we look at our year-over-year revenue walk for Q2, we begin with pro forma 2020 revenue of just under $2.1 billion, which includes $628 million of revenue from Delphi Technologies. Foreign currencies increased revenue by about 11% from a year ago. Then our organic growth year-over-year was more than 72% compared to a 64% increase in weighted average market production. The significant year-over-year changes in industry production and the varying levels of supply disruptions among our customers make it difficult to draw conclusions from the quarterly outgrowth figures. Nonetheless, we were pleased with our performance in the quarter. Looking at our regional performance. In Europe, we outperformed by double digits, driven by growth in small gasoline turbochargers, VCT and fuel injection. In China, we also outperformed the market by double digits, driven by growth in DCT, all-wheel drive and fuel injection. And in North America, we underperformed the market primarily due to customer exposure. The sum of all this was just under $3.8 billion of revenue in Q2.
Now let's look at our earnings and cash flow performance on slide 11. Our second quarter adjusted operating income was $401 million compared to a pro forma loss of $52 million in the second quarter of 2020. This yielded an adjusted operating margin of 10.7%. On a comparable basis, excluding the impact of foreign exchange, adjusted operating income increased $423 million on about $1.5 billion of higher sales. That translates to a strong incremental margin of over 28%, driven by conversion on higher volumes, restructuring savings and Delphi-related synergies in excess of purchase price amortization. We were particularly pleased with this performance given elevated supplier and commodity costs that we experienced during the quarter. Moving on to cash flow. We're proud of the fact that we generated $133 million of positive free cash flow during the second quarter, which was achieved despite an investment in inventory to help us better manage the challenging production environment.
Let's now turn to slide 12, where you can see our perspective on global industry production for 2021. As you can see, we expect our global weighted light vehicle and commercial vehicle markets to increase in the range of 8.5% to 11%, which is down from our previous assumption of a 9% to 12% increase. This reduction from our prior market outlook reflects the ongoing impact of the semiconductor shortage on industry production, which is reducing our expectations for North American and European industry growth. We do expect light vehicle industry production to improve sequentially in the third and fourth quarters relative to Q2 as we believe the impact of the semiconductor shortages will be lower in the second half of the year than what we saw last quarter. However, given lower commercial vehicle production in the second half and the varying impact of ongoing supply constraints on our mix of customers, we're not expecting Q3 and Q4 revenues to return to Q1 levels.
Now let's talk about our full year financial outlook on slide 13. You can see that our end market assumptions from the prior slide are expected to drive an increase in revenue of roughly $965 million to $1.2 billion. Next, we expect to drive market outgrowth for the full year of approximately 500 to 600 basis points, which is a meaningful step-up from our previous guidance of 300 to 500 basis points. Based on these assumptions, we expect our 2021 organic revenue to increase about 14% to 17% relative to 2020 pro forma revenue. Then adding a $520 million benefit from stronger foreign currencies and $75 million of revenue related to the acquisition of AKASOL, we're projecting total 2021 revenue to be in the range of $15.2 billion to $15.6 billion. From a margin perspective, we expect our full year adjusted operating margin to be in the range of 10.2% to 10.5% compared to a pro forma 2020 margin of 8.3%. This contemplates the business delivering full year incrementals in the low 20% range before the impact of Delphi-related cost synergies and purchase price accounting. From a cost synergy perspective, our margin guidance includes $100 million to $105 million of incremental benefit in 2021, which is higher than our previous guidance of $70 million to $80 million.
As I'll discuss in more detail momentarily, the cost synergies are simply being realized faster than we previously expected. Partially offsetting this favorability are two things: first, the acquisition of AKASOL is expected to reduce full year margins by 10 basis points; and second, we're anticipating a net negative impact from commodities in the range of $70 million to $90 million, which is worse than we previously expected. But even with these two headwinds, we're holding our margin roughly in line with our prior guidance. Based on this revenue and margin outlook, we're now expecting full year adjusted EPS of $4.15 to $4.40 per diluted share, which is an increase from our prior guidance of $4 to $4.35 per diluted share. And finally, we continue to expect that we'll deliver free cash flow in the $800 million to $900 million range for the full year. This is flat with our prior guidance as we expect the higher sales outlook to drive an increase in working capital that largely offsets higher adjusted operating income. This would still represent record free cash flow generation for the company. That's our 2021 outlook.
Let's turn to slide 14 for an update on the financial impact of the Delphi Technologies acquisition. As I alluded to earlier, the cost synergies related to the transaction are being realized more quickly than we previously expected. The primary driver is faster execution of headcount reductions related to our planned SG&A cost synergies. In fact, at this point, we've completed more than 95% of the headcount reductions associated with our synergy plan. As a result, we now expect 2021 cost synergies to be $100 million to $105 million, which means that cumulatively, we expect to have achieved synergies of $115 million to $120 million by the end of the year. But to be clear, this is an acceleration of the timing of our synergies as opposed to an overall increase in our performance. Therefore, our total cost synergy target of $175 million is unchanged. In addition to higher cost synergies, Delphi's revenue contribution in 2021 is also tracking ahead of our original expectations. As a result of these two factors, the accretion to 2021 adjusted EPS from the Delphi acquisition is now expected to be positive $0.20 to $0.30 versus our expectation at closing of a dilutive impact of approximately $0.15. This is a great result and a testament to the work being done by the integration teams across the company.
And as we look beyond 2021, it's important to note that the revenue synergies associated with the transaction are also progressing very well. We're pleased with the systems awards that we've generated through combining our electric vehicle capabilities, including the iDM award in China that Fred mentioned earlier. We've been able to secure these and other components awards as a result of leveraging Delphi's technology leadership, with BorgWarner's commercial relationships, operational capabilities and financial strength.
Let's turn to slide 15 for a summary of the financial impact of the AKASOL acquisition. As you can see, we expect AKASOL to contribute 2021 sales of $75 million to BorgWarner's second half results. Then we would expect those sales to grow significantly over the next few years, with 2024 sales still expected to be in the $0.5 billion range. This growth is supported by AKASOL's previously reported backlog. From an EPS perspective, we expect AKASOL to have a roughly breakeven impact on the total company in 2021, excluding the impact of purchase price amortization. Then as the business grows sequentially each year, we do expect to see conversion on the incremental revenue, which we expect to drive accretion of $0.12 by 2024, also excluding the impact of purchase price amortization. We're pleased with the transaction and the medium to long-term benefits it's expected to deliver. So let me summarize my financial remarks.
Overall, we had another solid quarter despite the industry challenges. We meaningfully outperformed the market, delivered a 10.7% operating margin and generated $133 million of free cash flow. And then coming off that Q2 performance, we've increased our full year revenue and earnings guidance even while moderating our industry production assumptions and considering higher commodity costs. Looking beyond our near-term results, we believe the faster accretion from the Delphi Technologies acquisition and the completion of the AKASOL acquisition illustrate our ability to execute the inorganic actions that are part of our Project CHARGING FORWARD initiative. The electrification wins discussed by Fred also highlight some of our progress toward the organic portion of our plan. Ultimately, it's the pillars of near-term execution, securing future profitable growth and disciplined inorganic investments that will drive the success of our strategy and thus drive value creation for our shareholders.
With that, I'd like to turn the call back over to Pat.