BorgWarner Q3 Earnings Call Highlights

Key Points

• Strong third-quarter performance: BorgWarner reported nearly $3.5 billion in sales, a 10.9% adjusted operating margin and 12% adjusted EPS growth despite declining vehicle production. Light-vehicle eProduct sales rose 33% to $630 million.
• 2026 outlook improved: The company raised adjusted EPS guidance to $5.20–$5.35 while maintaining its operating-margin and free-cash-flow forecasts. Revenue guidance was narrowed to $14.0–$14.2 billion, partly due to weaker battery-business sales.
• Growth investments gaining momentum: BorgWarner announced nine automotive awards and expects recent wins to support modest growth above the market in 2027. It is also advancing turbine generators, microgrid inverters and battery-energy-storage products for data-center and industrial applications.

BorgWarner NYSE: BWA reported third-quarter sales of just under $3.5 billion, with adjusted operating margin expanding 20 basis points year over year to 10.9% and adjusted earnings per share rising 12%. The automotive supplier said its performance reflected cost-control efforts amid declining vehicle production and a sales headwind from its Battery Energy Systems business.

Light-vehicle eProduct sales increased 33% from a year earlier to $630 million, driven primarily by European demand. President and CEO Joe Fadool said the growth demonstrated that previously awarded electrification business was beginning to contribute to results, particularly as hybrid and electric-vehicle penetration rises in Europe.

“Our adjusted operating margin and adjusted earnings per share performance was strong in the quarter,” Fadool said, citing margin expansion and earnings growth despite a declining production environment.

Third-Quarter Results and Capital Returns

Chief Financial Officer Craig Aaron said foreign exchange provided an $8 million year-over-year sales benefit in the quarter, while the battery business reduced sales by $54 million. The remaining organic sales decline was $58 million, or 1.6%, roughly in line with the decline in BorgWarner’s weighted light-vehicle production market.

Adjusted operating income was $381 million, compared with $385 million a year earlier. On an organic basis, adjusted operating income declined $6 million on $112 million of lower sales, with cost reductions helping offset volume pressure, Aaron said.

Free cash flow totaled $195 million in the quarter. BorgWarner used $175 million for share repurchases and paid $35 million in dividends, returning about $210 million to shareholders. The company said it expects to return more than $700 million to shareholders during 2026, including planned fourth-quarter buybacks.

• Third-quarter adjusted operating margin: 10.9%, versus 10.7% a year earlier.
• Third-quarter adjusted EPS: Up $0.15, or 12%, year over year.
• Third-quarter light-vehicle eProduct sales: $630 million, up 33%.
• Third-quarter free cash flow: $195 million.

Updated 2026 Outlook

BorgWarner narrowed the high end of its full-year revenue outlook, citing a refined view of industry production, while maintaining its adjusted operating-margin forecast and increasing adjusted EPS guidance.

The company now expects 2026 sales of $14.0 billion to $14.2 billion, compared with prior guidance of $14.0 billion to $14.3 billion. It expects weighted end markets to decline 1% to 2% for the year, compared with its prior expectation of flat to down 3%.

The company maintained its full-year adjusted operating margin outlook of 10.7% to 10.9%. Its organic sales outlook calls for a decline of 4% to 2.5%, including an estimated 170-basis-point headwind from lower battery-business sales related to the lack of North American incentives and weaker European demand.

Adjusted EPS guidance was raised to $5.20 to $5.35 per diluted share from $5.05 to $5.30. Aaron said the increase reflected third-quarter and planned fourth-quarter share repurchases, along with a lower expected full-year effective tax rate. The company maintained projected free cash flow of $900 million to $1.1 billion.

For the fourth quarter, Aaron said revenue is expected to be about $3.43 billion, down roughly $123 million from the average quarterly sales level in the first nine months, primarily reflecting production conditions. BorgWarner also expects about $10 million of industrial research and development spending in the quarter.

Automotive Awards and 2027 Expectations

BorgWarner announced nine business awards during the quarter across its foundational and eProduct portfolios. The awards included engine control modules for a new internal-combustion pickup-truck platform, turbocharger contracts for gasoline vehicles in South America and Europe, aluminum-wire e-motor technology for a Chinese OEM’s hybrid applications, three additional e-motor awards in China, and a next-generation high-voltage inverter award for battery-electric vehicles.

Fadool said the aluminum-wire e-motor technology reduces wire weight by more than 60% and wire cost by more than 80% compared with a conventional copper-wire motor while maintaining peak torque and power.

Looking toward 2027, Aaron said BorgWarner expects modest growth above the automotive market as recent business awards begin contributing to revenue. The company also expects $300 million of turbine-generator revenue next year.

The company expects its PowerDrive Systems business to grow about 20% in 2026 after approximately 30% growth in 2025. Aaron said the company’s objective for the business unit remains mid-teens year-over-year conversion on sales growth.

Data Center and Industrial Expansion

BorgWarner highlighted progress in products designed for data center and industrial applications, including turbine generators, battery energy storage systems and microgrid inverters.

The company said its partner plans to expand external turbine-generator demonstrations during the fourth quarter because of customer interest. Subsystem UL compliance is largely complete, and system certification is underway. BorgWarner has completed construction of its final assembly plant in North Carolina and expects manufacturing-floor and capital installation in December, followed by production trials by year-end.

Fadool said customer discussions with hyperscalers have centered on meeting specifications, manufacturing tolerances, quality, reliability, efficiency and emissions. He said speed to market is important and that BorgWarner’s automotive manufacturing experience could enable it to bring products to market in 18 to 24 months, roughly half the time of some industrial competitors.

For microgrid inverters, BorgWarner has shipped samples to seven customers and has begun initial quoting with its first major customer. The company expects UL certification in early 2027. It also developed an 800-volt power supply unit for data centers and displayed it at the Data Center World Power Industry event in Dallas.

BorgWarner expects to be production-ready for its battery energy-storage offerings in 2027. Fadool said customer validation and UL processes are advancing, with engagement across both NMC and LFP cell applications.

While the company said current political conditions may slow the completion of some data-center program agreements in the near term, Fadool said quoting activity remains high and that BorgWarner sees no long-term change in demand for its products.

About BorgWarner (NYSE:BWA)

BorgWarner Inc NYSE: BWA is a global automotive technology company that develops and manufactures propulsion and mobility systems for vehicle manufacturers and commercial vehicle customers. The company serves both internal-combustion and electrified vehicle markets, with a portfolio focused on improving vehicle efficiency, performance, emissions, and electrification.

Its products and technologies include turbochargers, emissions and thermal-management systems, transmission components, friction products, battery systems, battery charging equipment, power electronics, electric motors, and other electric-drive components.

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