CEO Fred Lissalde: “We expect to outgrow the market in 2018.”
Engine and drivetrain supplier BorgWarner Inc. expects to continue to outperform the new-vehicle market — partly by ramping up its business in hybrids and electric vehicles — despite lower-than-expected production by global automakers overall, and the effect of new international tariffs, the company said in delivering its third-quarter report.
“We expect to outgrow the market in 2018,” said BorgWarner CEO Fred Lissalde. Recent new-product introductions from BorgWarner include an electric drive module — a combined electric motor and transmission — for a new electric vehicle from Great Wall Motors in China.
The company on Thursday said net income during the quarter ramped up 10 percent to $204 million. Revenue was $2.5 billion in the third quarter, up 3 percent from a year ago. For nine months, Revenue was up 10 percent to $8 billion. Net income was up 20 percent, to $701 million.
BorgWarner shares rose 5.4 percent to close at $37.71 on Thursday.
Caught by surprise
Still, the company acknowledged it couldn’t do much in the third quarter to recover additional costs imposed by new tariffs, such as negotiating compensation from BorgWarner’s automaker customers, or re-sourcing parts from different markets to avoid the new tariffs.
CFO Ron Hundzinski said tariffs and inflation combined to cost BorgWarner about $10 million in the third quarter, and probably would do so again in the fourth quarter.
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“For 2018 we have a low recovery. … The $20 million you see in ’18, we’ve incurred that on our own. We have not passed [those costs] through,” he said, adding that negotiations are still underway with manufacturers. For 2019, Hundzinski said BorgWarner would be focused on “getting more recoveries from our customers than zero.”
On the lookout
Despite the headwinds of tariffs and production cuts, BorgWarner forecasted “organic” revenue growth — that is, not counting the effect of any potential mergers or acquisitions — for all of 2018 of 4.5 percent to 5.5 percent, despite “modestly declining” industry new-vehicle production.
Lissalde said BorgWarner is always on the lookout for “small, medium and big” potential mergers and acquisitions. He was asked in the conference call how big is big. That is, whether a “big” merger or acquisition could be with a company the same size or much larger than BorgWarner. Lissalde hinted that was unlikely.
“If you’re asking what ‘big’ means, medium is bigger than small, big is bigger than medium, and Borg is huge by these standards, Borg would be huge,” he said.
BorgWarner ranks No. 25 on the Automotive News list of the top 100 global suppliers, with worldwide sales to automakers of $9.8 billion in 2017.
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