BorgWarner Inc. (BWA) witnessed an increase in profit to $111.7 million or 89 cents per share in the fourth quarter of 2010 from $52.7 million or 45 cents per share (42 cents per share on an adjusted basis) in the same quarter of 2009 led by higher sales and growth in new business. With this, the auto parts maker surpassed the Zacks Consensus Estimate by 6 cents per share.

Revenues in the quarter surged 28% to $1.53 billion, up from the Zacks Consensus Estimate of $1.46 billion. Operating profit more than doubled to $157.4 million or 10.3% of sales from $67.3 million or 5.6% a year ago.

Revenues in the Engine segment soared 31% to $1.12 billion, driven by higher sales of timing systems, turbocharger and fan drive products in Asia and Europe. Excluding the impact of currency, revenues increased 37%.

Revenues in the Drivetrain segment swelled 20% to $419.8 million, driven by higher sales of four-wheel drive systems in Asia, dual clutch transmission module in Europe and traditional automatic transmission component around the world. Excluding the impact of currency, revenues went up 24%.

For full year 2010, BorgWarner posted a whopping rise in profit to $377.4 million or $3.07 per share ($3.02 per share on an adjusted basis) from $27 million or 23 cents per share (40 cents per share on an adjusted basis) in the previous year. Revenues shot up 43% to $5.65 billion from $3.96 billion in 2009.

BorgWarner had cash amounting to $449.9 million as of December 31, 2010, an increase from $357.4 million as of December 31, 2009. Long-term debt stood at $1.05 billion as of the above date. Long-term debt to capitalization ratio stood at 32%, up by 6 percentage points from the period ended December 31, 2009.

In 2010, cash flow from operating activities rose significantly to $538.9 million from $351 million in the prior year driven by a substantial rise in profit. Capital expenditures, including tooling outlays, increased to $276.6 million from $172 million a year ago.

BorgWarner expects its sales to grow by 16% to 20% and earnings by 30% to 40% in 2011. The company also anticipates an operating income margin of 10.5% or higher for the year.

Despite the better results and impressive outlook, we believe strong competition and pricing pressure from the OEMs (about 75% of the company’s sales are to OEMs) will undermine the company’s results in near term. As a result, the company retains a Zacks #3 Rank on its stock, which translates to a short-term (1 to 3 months) rating of Hold.

 
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