BorgWarner Posts Third Quarter Results; Revises Outlook for 2008
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AUBURN HILLS, Mich., October 29, 2008: BorgWarner Inc. today reported third quarter sales and earnings for 2008. International sales offset steep declines in U.S. revenue due to declining economic conditions in the market. The company also adjusted its outlook for the remainder of the year to reflect deteriorating global economic conditions and automotive production declines in Europe.
Third Quarter Highlights:
Third quarter sales were $1,316.9 million, flat with the year-earlier period.
Sales outside of the U.S. were up 5.5%, excluding currency.
U.S. GAAP earnings were a loss of $(1.12) per diluted share. For comparison with other quarters, third quarter 2008 earnings were $0.44 per diluted share excluding one-time items. These included a charge of $(1.27) for a goodwill adjustment related to the BERU acquisition, a valuation adjustment for foreign tax credits of $(0.12), a third quarter restructuring charge of $(0.16), and a charge related to the outcome of retiree healthcare benefits litigation of $(0.03).
Operating income margin was 5.6% excluding the one-time items.
The company has refined its 2008 full-year earnings guidance to $2.25 to $2.35 per diluted share, excluding one-time items, compared with previous guidance of $2.80 to $2.95 per diluted share.
Comment and Outlook: "While we continued to generate growth from our international operations, the crisis in the financial sector and deteriorating global economic conditions negatively impacted our performance," said Tim Manganello, Chairman and CEO. "We expect the unprecedented current economic environment to continue to affect our near-term results and create difficult conditions through 2009. However, we are responding swiftly to these challenges, having expanded our North American restructuring program during the third quarter and initiating actions in Europe.
"We have successfully managed through difficult market environments before. The underlying fundamentals of our business remain strong and our financial structure is sound. We expect to continue to outpace the growth of the auto industry and to strengthen our competitive position through our focus on fuel-efficient technologies, our diversified customer base, a strong geographic presence, and our robust pipeline of new business. We have already taken actions, and will take any necessary additional actions, to successfully navigate through this difficult period and meet the future needs of customers for BorgWarner powertrain technologies."
Commenting on the outlook, Robin Adams, Chief Financial Officer, stated: "Our adjusted guidance for 2008 reflects the rapid deterioration of the global economic environment beyond North America and the resulting near-term pressure on both sales and margins. Our current guidance reflects a 12% reduction in sales in the last six months of 2008 from our previous guidance, of which two-thirds of the sales decline is occurring in our operations outside of the U.S.
"Looking into 2009, our preliminary view of the year would indicate flat year-over-year sales, excluding the impact of foreign currencies which will be negative. Our current production assumptions are a build rate of less than 12 million units in North America and close to 13 million units in Western Europe. Earnings could be flat year-over-year." The company will provide formal full-year 2009 guidance in January.
Financial Results: Sales were $1,316.9 million in third quarter 2008, flat with $1,313.6 million in third quarter 2007. The impact of foreign currencies, primarily the Euro, increased sales by $64.4 million, or 4.9%, in third quarter 2008 compared with the same period in 2007. Net income (loss) in the quarter was $(130.4) million or $(1.12) per diluted share compared with $83.2 million, or $0.70 per diluted share in third quarter 2007. Excluding one-time adjustments, third quarter 2008 net income was $51.6 million or $0.44 per diluted share. Third quarter 2007 included a net gain of $16.7 million, or $0.14 per diluted share, related to tax account adjustments, primarily due to a change in the statutory tax rate in Germany. The impact of foreign currencies, primarily the Euro, increased net income by $4.2 million, or $0.04 per diluted share, in third quarter 2008 compared with the same period in 2007.
Sales were $4,332.4 million in the first nine months of 2008, up 9.5% from $3,955.7 million, in the first nine months of 2007. The impact of foreign currencies, primarily the Euro, increased sales by $305.1 million, or 8%, in the first nine months of 2008 compared with the same period in 2007. Net income was $45.8 million in the first nine months of 2008, or $0.39 per diluted share, compared with $217.3 million, or $1.85 per diluted share in the first nine months of 2007. Excluding one-time adjustments, nine month 2008 net income was $232.2 million or $1.97 per diluted share. The first nine months of 2007 included a net gain of $16.7 million, or $0.14 per diluted share, related to tax account adjustments, primarily due to a change in the statutory tax rate in Germany. The impact of foreign currencies, primarily the Euro, increased net income by $22.6 million, or $0.19 per diluted share, in the first nine months of 2008 compared with the prior year period.
Excluding the one-time items, operating income was $74.1 million, or 5.6% of sales, in third quarter 2008 versus $98.3 million, or 7.5% of sales, in third quarter 2007. Research and development spending was $50.7 million in the quarter versus $49.1 million in 2007.
Net cash provided by operating activities was $265.1 million in the first nine months of 2008 versus $366.1 million in the first nine months of 2007. Investments in capital expenditures, including tooling outlays, totaled $265.6 million for the first nine months of 2008, compared with $194.6 million for the same period in 2007. The company repurchased $48.4 million of common stock during the first nine months of 2008. Balance sheet debt increased by $78.0 million at the end of third quarter 2008 compared with the end of 2007.
The company's capital structure remains strong. The ratio of balance sheet debt to capital was 24% at the end of the third quarter. The company has ample liquidity with $136 million of cash on hand at the end of the quarter and no outstanding borrowings under its $600 million revolving credit facility.