BorgWarner Inc. (BWA) posted net earnings of $111.7 million or 87 cents per share during the third quarter of 2010 compared with $17.2 million or 15 cents per share reported a year ago.
Net earnings included a positive impact from reversal of foreign tax credit valuation allowance of $21.2 million. Excluding this impact, adjusted EPS was 71 cents during the quarter, outpacing the Zacks Consensus Estimate of 63 cents.
Sales amounted to $1.41 billion, up 37.3% from $1.03 billion in the same quarter last year, excluding the impact of fluctuations in currency. It exceeded the Zacks Consensus Estimate of $1.28 billion.
The sales growth was driven by massive expansion in the major global markets, notably in Asia (especially China) and Europe. Sales in China improved 70%, representing about 6% of BorgWarner’s consolidated sales. Sales in Europe were benefited from continued volume shift toward vehicles with higher BorgWarner content.
Operating income increased significantly to $123 million from $27.5 million in the third quarter of 2009 led by successful implementation and execution at the company’s operations.
Segment Details
Sales in the Engine segment totaled $1.02 billion, up 39% from $735.3 million in the prior-year quarter. This was attributable to strong growth in demand for turbochargers in both Asia and Europe as well as for timing system in the Asian markets.
Sales in the Drivetrain segment rose 34% to $397.1 million from $296.8 million a year ago. The segment was benefited by strong four-wheel drive system sales in Asia and North America, higher dual clutch transmission module sales in Europe and higher traditional automatic transmission component sales globally.
Financial Position
BorgWarner had cash and cash equivalents of $432.2 million as of September 30, 2010 compared with $258.8 million as of September 30, 2009. Long-term debt at quarter-end stood at $1.05 billion.
The company sold $250 million of 10-year senior notes during the quarter with a coupon of 4.625%. It intends to use the cash for general corporate purposes.
Net cash flow from operating activities was $312.7 million for the nine months ended September 30, 2010 versus $226.3 million for the same period ended on September 30, 2009.
During the quarter, the company repurchased about 1 million shares of its common stock. In July 2010, it also authorized the repurchase of an additional 5 million shares of common stock.
Guidance
BorgWarner expects 2010 to be a record year in terms of both sales and earnings, driven by strong market demand for its products. Consequently, the company raised its adjusted EPS outlook to $2.85 per share–$2.95 per share from the previous range of $2.60 per share–$2.80 per share. Sales for the year are projected to increase 40% from the last year.
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