BorgWarner Inc. (BWA) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call presents a positive outlook with increased revenue and margin guidance, strong growth in eProduct sales, and robust shareholder returns through buybacks and dividends. Despite some headwinds in the battery business and unclear responses in specific areas, the overall sentiment remains positive due to strong financial performance, strategic product launches, and effective capital management.

Key Financial Performance

Organic Sales Growth Achieved just over 2% growth despite headwinds from a cyber-related shutdown at a European customer. Excluding the decline in the CV battery and Charging Systems segment, organic sales were up approximately 4% year-over-year.

Adjusted Operating Margin Came in at 10.7%, which increased 60 basis points year-over-year despite a 60 basis point net tariff headwind. This was driven by higher sales, cost controls, and turning earnings into strong free cash flow.

Free Cash Flow Generated $266 million in the quarter, a 32% increase from a year ago due to higher net earnings and lower capital expenditures.

Sales Reported just under $3.6 billion in sales, up 2% year-over-year excluding foreign exchange. This was driven by a 6% increase in light vehicle e-product sales and a 4% increase in foundational sales, partially offset by lower battery and charging sales.

Adjusted Operating Income Reported $385 million, equating to a 10.7% adjusted operating margin. This represents a $46 million increase year-over-year on $73 million of higher sales.

Adjusted EPS Increased by $0.15 year-over-year due to higher adjusted operating income and share repurchases during 2024 and 2025.

You have reached the limit Upgrade to access full content

Get started

Operating Highlights

New foundational product awards: BorgWarner secured contracts with Chery for 4-wheel drive systems and all-wheel drive coupling for SUVs, with production starting in 2027. Additionally, agreements with Stellantis include supplying VTG turbochargers and eVCT technology for Jeep Grand Cherokee and Cherokee engines.

New e-product awards: BorgWarner secured contracts for a 7-in-1 integrated drive module for a Chinese OEM's hybrid SUV, dual inverter programs with Great Wall Motor, and battery systems for HOLON Urban autonomous electric shuttles.

Market expansion: BorgWarner strengthened its collaboration with Chery, Stellantis, and Great Wall Motor, reflecting increased demand for its powertrain and electrified propulsion technologies globally.

Operational efficiencies: Achieved a 10.7% adjusted operating margin in Q3 2025, a 60 basis point improvement year-over-year, despite tariff headwinds. Free cash flow increased by 32% year-over-year to $266 million.

Capital allocation strategy: Returned $136 million to shareholders in Q3 2025 through share repurchases and dividends, representing over 50% of free cash flow. Focused on balanced capital allocation to drive shareholder value.

Long-term growth strategy: Focused on securing new business, managing costs, and making organic and inorganic investments to grow earnings and improve market positioning.

You have reached the limit Upgrade to access full content

Get started

Risk or Challenges

Cyber-related shutdown at a European customer: The company faced downtime at one of its European customers due to a cyber-related shutdown, which negatively impacted organic sales growth in the quarter.

Decline in CV battery and charging systems segment: The company experienced a decline in its CV battery and charging systems segment, which offset overall organic sales growth.

Net tariff headwinds: The company faced a 60 basis point net tariff headwind in the third quarter, impacting adjusted operating margin performance.

Supply-constrained production for key North American platform: Production for a key North American platform was supply-constrained, contributing to a 60 basis point headwind to year-over-year sales growth.

Global semiconductor supply concerns: Ongoing global semiconductor supply issues are expected to impact sales growth.

Cyber-related shutdown and supply chain issues: Combined customer and supplier-related factors, including a cyber-related shutdown and supply chain issues, are expected to result in a 60 basis point headwind to year-over-year sales growth.

You have reached the limit Upgrade to access full content

Get started

Guidance & Outlook

Revenue Expectations: Total 2025 sales are projected in the range of $14.1 billion to $14.3 billion, narrowed from the prior guidance of $14.0 billion to $14.4 billion. This reflects a higher market production outlook, offset by impacts such as a cyber-related shutdown at a European customer, supply-constrained production for key North American platforms, and global semiconductor supply concerns.

Margin Projections: Full year adjusted operating margin is expected to be in the range of 10.3% to 10.5%, an increase from the previous guidance of 10.1% to 10.3%. This reflects strong underlying performance and solid year-to-date operational results.

Earnings Per Share (EPS): Full year adjusted EPS is projected to be in the range of $4.60 to $4.75 per diluted share, representing a 3% increase versus prior guidance and an 8% increase versus 2024 at the midpoint of the range.

Free Cash Flow: Full year free cash flow guidance has been increased to a range of $850 million to $950 million, a $150 million increase from prior guidance, representing more than a 23% increase versus 2024.

Market Trends and Assumptions: The full year end market assumption has improved to flat to down 1% year-over-year, driven by stronger industry production during the third quarter and an improved production outlook for the fourth quarter. Organic sales change is expected to be down 1% to flat year-over-year.

Strategic Plans and Product Launches: Mass production of new products is scheduled for 2026 and 2027, including a 7-in-1 integrated drive module for a Chinese OEM, drivetrain systems for Chery, and turbocharger and eVCT technology for Stellantis. These initiatives are expected to drive long-term top-line and bottom-line growth.

You have reached the limit Upgrade to access full content

Get started

Shareholder Return Plan

Quarterly Cash Dividend: In the quarter, BorgWarner returned approximately $136 million to shareholders through share repurchases and payment of quarterly cash dividends.

Share Repurchases: BorgWarner returned over 50% of its third quarter free cash flow to shareholders through share repurchases and payment of quarterly cash dividends.

You have reached the limit Upgrade to access full content

Get started

Key Q&A

Q:Could you elaborate on the visibility for the Q4 Oswego impact, specifically the 60 basis points or $80-$100 million revenue impact?

A:Craig Aaron stated that the North American program impact is estimated to be between $50 million to $100 million in the fourth quarter.

Q:Can you explain the divisional margins, particularly for Power Drive Systems (PDS), and how you plan to improve margins from -6% to mid-to-high teens next year?

A:Craig Aaron explained that PDS sales grew by 12% year-over-year, led by growth in China. He noted a $24 million customer-related recovery last year and pricing impacts. For the full year, they expect mid-teen conversion on extra growth in PDS, with Q3 impacted by timing issues related to customer pricing.

Q:Were there any unusual items in Q3's margin performance, which was very strong?

A:Joseph Fadool confirmed there were no one-time items. He attributed the strong performance to cost controls, supply chain savings, productivity, and lower costs of poor quality, resulting in a 40% incremental conversion.

Q:Is the Q3 margin performance a good baseline for 2026?

A:Joseph Fadool stated that they will continue focusing on cost controls, supply chain savings, restructuring, and productivity to expand margins, aiming for mid-teen conversion rates.

Q:Is the low $100 million per quarter sales level for the battery and charging business a good run rate going forward?

A:Joseph Fadool noted sales headwinds in the battery business due to adoption challenges, particularly in Europe. However, he expects the business to be slightly EBITDA and free cash flow positive in 2025, positioning it for profitable growth in the future.

Q:Are you participating in the stationary generator market for data centers, and how has it impacted growth?

A:Joseph Fadool confirmed participation in the stationary power market, including data centers, but did not disclose specific sales figures. He noted that 17% of BorgWarner's sales come from commercial vehicles and off-highway, which includes stationary power.

Q:What is the sales trajectory and regional growth outlook for Power Drive Systems (PDS)?

A:Joseph Fadool stated that light vehicle e-product growth was 7% year-over-year in Q3 and 27% year-to-date. Growth is strong in China, with some growth in Europe expected to continue into 2026. Incrementals are expected to be mid-to-high teens for the full year.

Q:What is the expected recovery from tariffs in Q4, and what are your thoughts on the M&A pipeline versus buybacks?

A:Craig Aaron expects a $25 million tariff benefit in Q4. Joseph Fadool emphasized a disciplined M&A approach focused on industrial logic, near-term profitability, and fair pricing, while also planning to return $420 million to shareholders in 2025 through buybacks and dividends.

Q:Why is there a range in the operating margin guidance for Q4, and what are the key variables?

A:Craig Aaron explained that the range depends on revenue levels and includes a $25 million tariff benefit. At the high end, margins are expected to be 10.8%, while at the low end, they would be 10.3%.

Q:What are the major factors affecting outgrowth in 2026, and how do you see the regional trajectories playing out?

A:Joseph Fadool mentioned downtime at a European customer due to a cyberattack and a North American customer affected by a fire. He expects improved year-over-year performance in 2025, with 8% EPS growth and a 30 basis point margin improvement. Growth in China and Europe is expected to continue.

Q:What is your exposure to the North American EV market, and how are you addressing lower-than-expected volumes?

A:Joseph Fadool acknowledged lower-than-expected volumes for EV programs booked several years ago, impacting outgrowth in 2025 and 2026. However, strong bookings in 2025 are expected to support midterm goals, with benefits starting in 2027.

Q:How are you balancing capital allocation between M&A and share buybacks?

A:Joseph Fadool highlighted a balanced approach, with $420 million returned to shareholders in 2025 through buybacks and dividends, while maintaining financial flexibility for inorganic investments.

Q:What is driving the lower CapEx spending in 2025, and what are the expectations for 2026?

A:Joseph Fadool attributed lower CapEx (3% of sales year-to-date) to effective capital management and underutilized equipment. Full-year CapEx is expected to be 4% of sales, with a return to 4.5%-5% in 2026.

Q:What are the key factors affecting outgrowth in 2026, and are there any positive offsets?

A:Joseph Fadool noted overhang from older EV programs but highlighted strong demand for combustion products, particularly in North America, and new bookings contributing to growth in 2027 and beyond.

Q:What is the impact of the Nexperia chip situation on BorgWarner and the broader market?

A:Joseph Fadool stated that BorgWarner has direct exposure to Nexperia and is managing the situation through spot buys and mitigation efforts. Broader market impacts are expected in Europe and China, and these are reflected in the full-year guidance.

Q:What is the outlook for the Class 8 trucking market and its impact on BorgWarner?

A:Joseph Fadool noted softness in the Class 8 market in North America but stated that global commercial vehicle and off-highway markets are roughly flat, with no major disruptions expected by year-end.

Q:How is BorgWarner positioned with Chinese OEMs as they expand globally?

A:Joseph Fadool stated that 75% of BorgWarner's sales in China are with domestic OEMs, putting the company in a strong position to support their global expansion, including Europe and South America.

Q:Can you provide more details on the HOLON Urban vehicle win?

A:Joseph Fadool expressed excitement about the use of BorgWarner's battery technology in autonomous driving applications but did not disclose sales volumes or revenues. The vehicle will use over 100-kilowatt hours of content per vehicle.

Q:Review of Unclear Management Responses

A:Management avoided providing specific sales figures for the stationary generator market and the HOLON Urban vehicle win. Additionally, they did not disclose the exact content per vehicle for the HOLON project, suggesting a lack of clarity in these areas.

You have reached the limit Upgrade to access full content

Get started

Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

BWA Transcript

BorgWarner Inc. (BWA) Presents at Barclays 16th Annual Global Automotive and Mobility Tech Conference Transcript

Neutral11-19

BorgWarner Inc. (BWA) Presents at Baird 55th Annual Global Industrial Conference Transcript

Neutral11-13

Foraco International SA (FAR:CA) Q3 2025 Earnings Call Transcript

Unknown10-30

The earnings call shows mixed results: declining revenue, margins, and EBIT, but improved operational efficiency and a full tender pipeline in North America. Positive guidance on revenue recovery in the U.S. and strategic focus on technical work are offset by competitive pressures in Canada. The Q&A revealed management's cautious stance on revenue recovery timing and customer schedule impacts. Despite some positive trends, the overall sentiment remains neutral due to ongoing challenges and uncertainties, particularly in maintaining profitability amidst increased CapEx and competitive pressures.

BorgWarner Inc. (BWA) Q3 2025 Earnings Call Transcript

Positive10-30

BWA Slides

BorgWarner Q1 2025 slides: Balancing foundational strength with EV growth strategy

2025-05-07

BorgWarner Q2 2025 slides: Electrification strategy advances amid market headwinds

2025-07-31

BorgWarner Q3 2025 slides: Strong execution drives guidance increase

2025-10-30

BWA Report

Frequently Asked Questions

Where does this earnings call transcript come from?

All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.

How soon is the transcript available after the earnings call ends?

Full verbatim transcripts are typically published within 4–12 hours after the call ends. Same-day availability is guaranteed for all S&P 500 and most mid-cap companies.

Is the transcript edited or altered in any way?

No material content is ever changed or summarized in the “Full Transcript” section. We only correct obvious spoken typos (e.g., “um”, “ah”, repeated 10 times”, or clear misspoken ticker symbols) and add speaker names/titles for readability. Every substantive sentence remains 100% as spoken.

Why do some answers appear as “Unclear” or “Inaudible”?

When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.

Who creates the AI Summary and Key Q&A highlights shown above the transcript?

They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.