BWA - Earnings call transcript Q2 2019

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Operator

Good morning. My name is Sharon, and I will be your conference facilitator. At this time, I would like to welcome everyone to the BorgWarner 2019 Second Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After speakers' remarks there will be a question and answer session period [Operator Instructions].

to of call Investor like Nowlan, to now President Vice Relations. would turn over the Patrick I Mr.

Nowlan, you may begin your conference.

Patrick Nowlan

can Thank our X:XX everyone, us. posted Investor you, and thank on homepage site, Relations Web you morning, Sharon. borgwarner.com, XXX-XXX-XXXX, A simply our XXXXXXX number for dial-in for August on on Xth. our We replay The is earnings replay the Eastern of today's to AM issued ID call listen call and at release is on will Time. It's homepage. and or site. conference be you available through Web the Good that the our joining

section calendar, between for homepage our full regard our next Investors list. Please our a With be Events attending release. we now Investor of and multiple conferences Relations Relations earnings to the will see

we forward-looking as Before may in we you I and inform uncertainties risks to begin, this XX-K. detailed that call, during need statements, our involves which make

the results matters actual Our may today. discussed significantly differ from

impact certain net us today's M&A. of comparison hear purposes a core you for basis, excluding we and excluding and During a presentation, net how means performs on you organic, prior and that hear say us that the business non-GAAP items. And When impact will the say FX of periods. say picture measures M&A. of means hear clearer When of that you to comparable the provide adjusted, order FX in us non-comparable when means excluding highlight

geographic production growth means our exposure. change you us that hear to for the We When will vehicle say light also compared to our market. our refer in market, weighted

revenue Our change outgrowth organic as is versus the market. defined our

call. today's to back Now

our agreement our our our page results Then QX follow This CEO, on Romeo these our details of and outlook, XXXX be posted venture Power. encourage Kevin industry by call IR joint to will that We we slides overview well of recent site. have President earnings will guidance. discuss will an First, followed our a with of CFO product Fred note Web with as with during discussion the Nowlan, results our our discussion. high-level Please of and along a as outlook. Fred conclude Lissalde, our you the to will comment and highlights. presentation

With Fred. that, over I'll it to turn

Fred Lissalde

Thanks, overall from very Pat, company everyone. XXXX and good We're to pleased our morning, provide and share an update. results today QX

down This with than With sequential Let highlights the outlook. down of Slide compares quarter I our in improvements me the the $X.X our on more X. am market to organically. pleased about in X.X% we were being billion start sales, with X.X%.

was the So, our was which basis in approximately expectations. ahead outgrowth XXX of our points quarter,

outgrowth all we in Regionally, regions. saw major

industry vehicle Our European X%, by more than outperforming decline revenue X%. was up light the

points with basis of Our X% was light at up revenue American year-over-year XXX North outgrowth. vehicle

performance production versus with China our declined industry higher at with XX% in Kevin $X headwind. Our share detail. at revenue Adjusted the XX%. pleased a also $X.XX decline cash operating performance And will rates of I'm stronger our that of earnings midpoint in was expected our tax than year-to-date guidance. per about came income discuss

leading positions term we investing on second this player I'll execution market, in the the and Romeo management, focus which in the speak an In in we battery to near of challenging same us equal on be time As about in also, on quarter, couple maintaining focus we investment, Power our a long-term. at slides. this closed a

continued the us continued to QX an positioning to weaken continue quarter. to in electric, industry new wins solid Overall, is outgrowth. backdrop, and also throughout was a which to revenue deliver result deliver We hybrid compared which

XXXX address X. Slide to would our I full which on like guidance, year Now, is

in be half expect we encouraged expected prior the revenue in revenue outgrowth better our the were half, we to first of range. bottom than the full our by While year

We expect our X.X% lower with industry down down is This assumption revenue the on X% an organically. prior be assumption. X.X% of points flat XXX to than basis based to high down to end being

outgrowth expect basis points range for our XXX basis to in XXX be the full to points the We year.

earnings to outlook, This basis. to additional our adjusted production our volatility be for and expect per weaker performance pressure cost margin supply We $X.XX updated our share revenue reflects between continuing guidance outgrowth from $X. and the

taking being To one our we margin and focused that full margin cost will In discipline. strengths, performance This the and cash aggressive has performance be Margin more to the we're challenges more term are in not and manage restructuring measures 'XX. are on have cost steps of our facing our we ones the to aggressive to satisfied near structure generation announced. include with maintaining clear, previously more business. to year we long-term our than adapt steps order objectives, our meet our historically

our as with continue supplemented awards this, will through we continue Consistent future While secure volume we quarter, and business into fit Power to cost our leading good current the companies. M&A will two between new manage enter to and to environment pressures, announced who during Romeo we It's with this technology growth battery we joint the view a a investments. with venture module plans a pack supplier.

comfort expand BorgWarner also and and the as joint and in own technologies produce expertise and electric globally. the well portfolio provide It capability propulsion. our Romeo will our Power complement customer reply interest system as XX% the and for existing has level, excellent to venture. scale at we reach will

can in between fill makers. Finally, hybrid this vehicle venture and marketplace we the and electric joint the believe gaps

advantage that in now in-house. This products to illustrates produce capabilities for future Next, The growth. are have we I us is will strongly what positions point our Slide products which you in blue EVs. to competitive X,

the in charges, wheel. and as products few the with well. energy management We onboard are of business battery, to are grid stationery one of from we charging active the we have covering Upstream

integrated pull. battery technologies, as We which our the of we develop, with and a all or as can electronics. and power of specify see now proportion supply the we we thermal vehicle battery major complement electric components market manufacture components also our an And Downstream module. strong pack battery, We these for and system. supply heating management offering can supply individually a transmission motors, We cabin propulsion well. and packs can with JV, battery battery systems the

advantage. breadth is really product Our our

I would of discuss some to Now, like X. which our successes, Slide product on are

We continue proportion. combustion to in innovate

occurring quarter, two comply turbocharging Group's we propulsion. are is This stage our combustion with engine. our on regulations technologies used in Innovation announced liter helping regulated worldwide. two will BMW that innovative automakers system still stringent latest And increasingly be twin-power

wins architectures strongly hybrid year-to-date am encouraged electric and vehicle. our by across multiple I products for

in hybrid booked Asia have electric and America. North Europe, business We and

cannot program received time, details hybrid of awards or customers all PX, share at we the PX, multiple While this and PX. across specific including we platforms, have

hybrid volume high system European for a a is major OEM. example One PX

continuing system, cabin a In supply also heaters controls. this are business. disconnect EVs, unit, win For generator which motor power we're and our set new and electronics gear to software,

expect pleased across of this. Importantly, see half am with hybrid XXXX, the I wins we to in very additional and and electric second

let summarize half. our growth remarks morning. QX a second opening expect So but by this as we saw me challenging expected, a recovery in

hybrid vehicle adjust three positions future. across electric the encouraged by in current our take are and regions We year-to-date the actions the architectures. multiple will our strongly wins This us and costs we to the for necessary to of environment, world the

to it turn over Now, Kevin. let me

Kevin Nowlan

and Fred morning good you, Thank everyone.

of two results. like I'd drivers second our the in review to the detail, quick financials you provide I key a of Before overview quarter

America. First, North our new XXX quarter. in points the and was at especially Europe by our higher basis ahead and outgrowth was driven revenue of programs, in expectations primarily This volumes

for benefited also QX. some on of track from We pull XXX from amount of forward outgrowth launch of year basis to XXX full volume revenue we points. remain And

but Second, site hitting of deliver and EPS cost result. a the adjusted quarter, range. upper us end achieved from performance the during prevented continued within our we QX we drove headwind all our pressures we're disappointed guidance Nonetheless, stronger a to inbound still that XX% be of didn't conversion guide, which

Let's turn see production. XX can where to Slide industry perspective our on you

Let into a we slightly Within saw by pressure. the And X%. result, that about which declined against in to was about midpoint remain on continues production XX% year-over-year global tough quarter. about the year. market China the of lower from production than X% light European that North America our fairly vehicle X.X% came me under QX. with going expectations basis, start was worse Global last production down down comparison as

X% range. expect expect we than market full to to we prior ahead year the XXXX, for On to become basis X% outlook, that The industry As to end be part X.X% China is on challenging of XXX expectation. the minus this slightly China, we stronger our conditions from outlook on market to on be lower minus and of have likely and This Also now down the Europe be the new America a remainder as planning now will XX% North continue. while the to we means is Europe. in cautious X%. of look basis, to a points negative down year to XX% less down basis, X.X%, outlook we're decline even more anywhere full

the markets X.X% Let's I X.X% our XXX referred global market importantly, on in globe. second to XX. is points vehicle down Slide year-over-year. were organic basis market major the outgrowth And of this turn down the all This to Even occurred quarter, our light a only the with outgrowth basis, in sales comparable earlier. of around

in was X% the X% did the more up the In And to in up than revenue In we finally, the decline quarter. a overall the Europe, was but quarter. North America, industry compared China Chinese XX% decline versus our XX% down was production year-over-year. revenue, market X% X% industry decline in revenue our see

we global Korea our environment. aftermarket vehicle down end continued Overall, that basis and this about pleased commercial in were points, we're XXX to even year-over-year. X% in Underperformance challenging market by deliver reduced and output off-highway businesses outgrowth our revenue a

$XXX on in Now, performance, million operating $XXX income adjusted our QX Slide let's was at which second be quarter compared XXXX. XX. of to found look adjusted the million can operating income

$XX be was decrimental margin supply Europe. XX% $XX operating $X a income our issues our reductions XX.X%, year-over-year of primarily lower explained the impart of tariffs by compared and comparable adjusted on some of insolvency cost The year. to from in operating can due chain adjusted On sales. impact XX.X% million million our to long falling shortfall dropped Our short target down basis, million last margins term of

our in EPS new Even our within midpoint to delivering the the in in guidance. incurred quarter top business related of the we decrimental And Adjusted better. was as $X of anticipated guidance. quarter end to bottom the launches we margin was closer addition, are disappointed line slightly below though In remains guidance costs our later result range, result managing share the quarter, year. we for this earnings for scheduled per second the the

adjusted reduced quarter. In effective in tax a rate came addition, which points $X.XX percentage higher in couple EPS the planned, our than

We are delivered flow, than we proud In the $XXX generated of free $XXX million stronger result we million year the quarter, we in cash a the delivered flow strong second that ago. for cash quarter. fact a quarter the same the of significantly

cash as we know, the cash has of in flow the company drive you starting annual billion toward an last years As flow in important free over of XXXX. $X become couple focus generating

our industry billion segments $X.XXX end Europe were offset Now, quarter. wide look engine let's the million North at our for comparable Growth $X sales a XX. and take on America China the operating or only by impact in despite weaker a Slide engine X.X%, market. sales of lower segment business On in for closer declined the the production. basis, Engine segment

for million comparable performance margin Adjusted EBIT segment sales. supply arising impart cost bankruptcies. This primarily weak by $XXX and decremental costs $X adjusted the decline million normal sales. This basis, the lower decreases On pricing. from EBIT is million engine XX.X% to by down on was the engine impact offsetting driven to a of $XX was segment's was supplier the of the in of not related and costs chain year-over-year performance customer in sales tariffs due or

R&D for On Drivetrain of Adjusted On market Also, EBITDA higher sales Drivetrain was basis, the as EBIT America China. adjusted million segment's the was launch the $XXX costs, $XXX or XX.X% $XX in spending Drivetrain in segment comparable declines in Drivetrain on meaningfully million year-over-year. in segment offset $X sales. growth by X.X% revenue comparable basis, down the related of and quarter. a were Europe. decline North higher outperforming The increased sales for million was a primarily million sales. driven

Now year full and is guidance, third XX. on XXXX quarter I'd like to our Slide discuss which

in expect assumptions to That's to roughly to market flat. X.X% with first to do end that to X.X% the volumes continue on X%. result based march quarter basis the is Europe. expect full We're in guidance six negative of but Our down that, XXX discussed global earlier drive launch outgrowth of I basis we because of Despite and of be third China XXX ahead lower through the points outgrowth impact expect the we to for the range months, organic points down significant in lower a we year. as of mix the production only in revenue market

these decline to scenario. $XX end revenue a lower the prior the assumptions, we we a $XX.XX now as end than driven total lower we guidance. being the in With in XXX backlog billion lowering assumptions, top is the of from markets of in end outlook high by to result high This now $X.XX now before organic end of means revenue the production revenue reduction points. market quarters while that million Three of the reduced translates range than more growth this the by backlog expect of balance our our billion. lower to That expect those basis is little of result of a that our be

Our from and lower and expecting. in than production supply weaker chain relative large expected adjusted basis margin in now outlook prior performance guidance continue operating than reflects point we performance margin in our absorption The to to second to volatility versus be of the XX.X% year-to-date XXXX. in half weaker the the weaker to cost decline XX.X% XX were income part revenue expected base XX point basis XX.X% our stemming supply challenges financial to margin continued is in XXXX,

EPS decline to expected The Full reflects the the be of the margin year per in outlook. range $X.XX $X diluted in to the of range bottom share. end is weaker adjusted primarily

almost be rate prior for $XXX are is are free we offset earnings In from by cash guidance $XX tax the addition, of now partially in on being EPS expected around now of $X.XX range. an our to flow impact capital. has targeting guidance. to run effective year down That finally, our working million adjusted million, rate XX%. full prior And versus our is XX% of $XXX million our which reduction a Lower guidance

full That's outlook. our year

touch third starting Now sales. on outlook with let's the quarter

lower roughly would of in range down sales We third up sales yield $X.X billion. be organic organic are the being billion little expect of and to That's rates market to the $X.X our to China outgrowth new line in with overall programs which market on volumes forecast, implies negative These which expected mix in X.X% to quarter X.X%, in quarter. no Europe. in third driven growth by

Importantly, that we be outgrowth. however, XXX more levels we points our outgrowth for lack outgrowth basis to And phenomenon that return to expect on $XXX this year fourth a keeps recent to full one us the basis quarter see likely track to the we've points of highlighted. as of of quarter

related by be is the of expected share electrification supply continued EPS as and earnings invest negatively $X.XX Adjusted in planned launch higher within basis, to On challenges a segment. related impacted year-over-year range are than in R&D Drivetrain we our chain expected to in to per to continue with diluted the cost third be volumes costs performance, $X.XX lower programs to quarter. inefficiencies

me of than more market. wrap which our summarizing about performance quarter were while XXX in financial flow of and market able we're Let challenging a did operating think guidance million very XX.X% adjusted basis cash outgrowth. deliver also I But driving $X by results. within EPS, $XXX adjusted free that not of the And how up range second to was we margin, We from of end satisfied. all perspective, a points a

Our in decrementals expected organization. than been higher have we

continue remainder to and range into company's even addition, free maintain financial objectives flow in back manage expect margin executing while long a environment around to our strong difficult we we long our because likely for And and against committed get on revenue market fully remain actions near to very XXXX. necessary through delivering to profile. to target, performance the the margin outgrowth, our historically XXXX generation, that intend cash take will of in we our term range we decrementals We plans

over the Pat. back turn I'd to call that, like With to

Patrick Nowlan

we're Kevin. ready you, open Thank Sharon, it for up questions. to

Operator

question Instructions] and your of from Rosner Bank. Deutsche [Operator Emmanuel first comes

Emmanuel Rosner

your particular, that you detail bankruptcies in guidance assumptions can end, interested revenues in on outlook. So impact any does you the first maybe And I margins? around negative will but in the these trimming fairly resulted you through guided modest obviously, made in the any question just comments the full around go a revenue such the supply more during quantification? Can is decrease really a cut large on guidance, you provide some that the high of or be quarter, margin just back why over year large this on

Fred Lissalde

Emanuel, market. the with let me start

year is down two from the the X.X% So that back we a had X%, which down see ago. market to full X% X% change down to quarters

not the it's a that a the more bit Now, prior China from down confident perspective. market Europe more is same minus little X%. guide we're and

we to and So in outlook, especially China realistic Europe. share in want

perspective, impact give our And From overall from But this future happening versus you base. questions. more Kevin and a margin and the guide coming is markets detail in I first is margins. guess our in supply will foremost prior what's in

Kevin Inda

end the point. I'll that really maybe about you of percentage that in mean the up up want that. XX% The drop, going guidance just if follow rate change to I particular. I in relates overall speak $X.XX think tax on to the And to low of X

that $X.XX really objectives. really I items performance aside, put from is there's coming operational I'd if three that. the our that say And other driving So are hitting not

I as than anticipating. second our weaker quarter came say, were in first The we

our end basis. that of and end million on to top deliver we the $XX about pretax We by top guidance, expected a at missed

global markets markets that to And overtime. supply XX% the And are in more the supply some we I target cost say seeing worse just that three us of with that's we're cost guide it of with thing thing is down. what right the then due closer base. the as than reductions touched anticipated. in down than to more and the the macro impact Fred coming to on, some we're are the achieve challenging coming making in and causing insolvencies continuing second the of just performance you final general environment coming spoke Those to, that take the would the seeing quickly, items that the decrementals in to The frankly volatility XX% now the

Emmanuel Rosner

then okay. thought separate before, the question. quantification any But half about for give you Just quarter second were of a quick Obviously, And around to seems on second the can more of than much Obviously, on year terms than to now this what margins costs this, that? and insolvencies? those incremental level weaker is used a have being in something from is I expected. you're more full the second speaking give that it detail be we can

Fred Lissalde

from and -- don't been it. managing we We're we've managing bankruptcies. Emmanuel, it see We've we managing it more impact managing it. will been

Kevin that situation market is under base putting pressure. than supply the alluded it's As more to,

Emmanuel Rosner

margins? these should show some And think insolvencies can actions in market additional assume we insolvencies. in to these on weakness of How the some then taking we forward? cost of is from now should maybe bit, about trends the quickly you're base light looking And should improve that as of we satisfactions two then forward impact obviously, look this XXXX? of How a managing those more highlighting think I that and so little the basically

Fred Lissalde

the in essentially focused. we're some that call, SG&A we've So restructuring prior announced

be around is Now, more to COGS aggressive look the costs. manufacturing and going

do, know managing how we just we're we to do know through what it. so and to And it

Emmanuel Rosner

timing? And

Fred Lissalde

going the update. next Timing I you or quarter -- for two, give we're the in to think

Operator

comes Spak Capital from question RBC Next with Markets. Joseph

Joseph Spak

think It launch what's about on that just little just compare revision were how maybe organic growth, coming you to if as you in little production is that to a bit versus bit Is expect certain come question if some bit we China? the ramp impact And that? looks backlog be ramp, for you First of perhaps took we revision you. talk you year. and your a profitability programs ups the about on in little down global expected for like the look, it's Can slower to the this your to a driving capacitize to the seems softer? it level we do might of steeper

Fred Lissalde

impact end the The a top perspective, have is backlog So I the some and went program also would the top China. the about and of say, program the gives delayed from end if is that end backlog color -- we that a essentially guide it's is, major unchanged, down, down you that million the lower Joe. and volume $XX of need, you lower of the in

Joseph Spak

the half? then absorption the And how much is back is much driving on that, margins how is like lower that the in

Kevin Inda

way I has an now. on mean, that impact decrementing we're right the

we seeing seeing opposed coming the we're back markets, us some the like And causing markets of in more the some the volatility of we and of it's rate to impact China down to year. we're that our As the XX% anticipated, target head than more the like as quickly decrement half as to XX%.

Joseph Spak

And there supply or guess supplier you Seems and But did with back more certain and from understand understand bigger customers like is trying up signed just to that get reductions basis? some now. is cost an your sign extraordinary to the the a what Like maybe for anything efficiencies expecting there? I'm circle there up bankruptcies. then expect not? you're what to pace. from level to of relationship keeping between your want situation then is you you're I I act what you disconnect unusual I there's and of this

Kevin Inda

performance cost I mean, that as look the from impacting things a I us at perspective. really are supplier three

had is year-over-year impact of we first tariffs. The the have

headwind that's something a that's been year-over-year. So

reduction environment, And to item supplier it our cost some able headwind cost about, we in strategies provided offset. which talked insolvencies challenging third year to haven't supply that base. is we this that more structure the second execute to general has is that the macro The which on been making the is

short combination offsetting things that's So, us to and those of downs. price it's three fall impacting us customer a causing normal really of

Joseph Spak

customer steady, been there a And those downs change in are or has price there?

Kevin Inda

change They're seen the in we in couple relatively of years. last They with to tend what significant be haven't seen downs. terms consistent. customer annual of a consistent our I we've price mean,

Operator

Next John with question America. comes from Murphy Bank of

Aileen Smith

Smith John. for on Aileen is This

earlier Joe's backlog half you the and estimate. the on backlog in slight up if Following to there first year? the backlog versus around the revision was on in realization that year? year us And the possible realization remind stacks of XXXX question half the up what of Could within back the for relative expectations full your the maybe where that implied

Kevin Inda

our of the terms In question? market is half in your year, the outgrowth that first of

Aileen Smith

Yes.

Kevin Inda

delivered to first I had of think look fourth in an some in third to it were be levels And points we the higher points. in And in about XXX basis we returning year. the first reported of bit little seen basis of we here, roughly market from up quarter, half And we relative delivered quarter, a to then we as the a favorable quarter ahead XXX outgrowth. to to little second the outgrowth. quarter the bit that where the expecting we've flat we're the

to of outperformance. points So then all the XXX XXX to gets basis that us

Aileen Smith

versus the So and the the perhaps two roll that some on weakness fair? backlog specifically Is there's where is your it say those on expectation. then you of beginning to XQ backlog looked fair are at that at XQ quarters year, as relative

Fred Lissalde

is really looking that granular. say quarter-over-quarter backlog something at would I very the is

- to outgrowth look at backlog year, basis should of year-over-year. the should -- I term XXX year its at point, one we think average we XXX points average, really XXX different this at launches we something XXX our really, we'll on be like plus long But the Last target. And is quarter-over-quarter had looking it and with market. the difficult. above program said basis is stuff this on it's now that

Aileen Smith

remind year your not underlying questions Can give numbers. those backlog any when backlog you some as on us year? your to the frame of at the sensitivity what XXXX you around the volume set just specifically, I'm beginning backlog assumptions estimates XXXX a going your to were to And ask estimates, of the us reference of through three but

Fred Lissalde

vehicle. on assumption is I The and follow underlying you can take suggest flat that year-over-year offline. on market commercial And growth that up overall maybe X%

Aileen Smith

of The And R&D to benefit outlined Did actions you cost some future the some of quarter? more costs? likely you pressure help any support with investment then on in in which of is that one in XQ, plan Drivetrain last XXXX second get the and launch question. higher was restructuring Or those that this intended story, explains technology. a of the margin

Kevin Inda

What some the quarter to we're One, two things. we sustain last our costs was do was intended strong to R&D alluded to second fund of to And help profile. incremental that expecting. margin

of that 'XX. our we rate fourth The but quarter, into we say the in the get of is time I to helping that's performance the in incrementals that bigger XXXX. half expect We small get there taking in the by the way. delivery actions full back exit are year run will though that as impact a are cost some

Operator

comes from David Next question Leiker Baird. with

David Leiker

dig to through a I on just little China. want bit

are, is higher past are to than expecting your for where third party a from where that the putting about talking little XX% decline customers that the XX% in cushion curious to people number you're your of market lot a a just things Is thoughts. That of down there? hearing bit year. of what the You're Or XX% is of be?

Fred Lissalde

in XX% QX. QX, guide, some in in electric the say segment are minus QX. see. is and close actually at we China about And year we electric lower minus midpoint an let's you've to seen the this from our in also Dave minus at vehicle or vehicle This what full of X% for quarter, XX% from So, pull

outlook. third share to might the we is than what So want this is best to I share we of guess. some but -- it parties, our third we And out be what and agree This we think. lower realistic want that see

David Leiker

you then one is on here what are today. would business bit great. change little sure if did choose they in them bit options subjects base in a just I'm bit flesh And a term with customer there of that you detail of and could multiple out that Just Thanks. little why do for terms that give be a partner Romeo. you'd have? what you

Fred Lissalde

venture we drives as we do the place battery them. that technology that's system chose thermal was know, the type some I best talks the the has on customer They low -- product with is be every world we development, why to very we sales types globally. in think management around in the And for of in the whatever applications. on on of So, a what one. Power and also manufacturing battery. we system, and to commercial And production customers simple. also different few scale And very Romeo I And volume intimacy and management you M&A their The are use, are joint focused application flexibility joint application. think on vehicle in and venture analyzed at with found simple. And we focus

Operator

from comes Tamberrino question Goldman next David with your And Sachs.

David Tamberrino

you portfolio? Yes, on the with internal do is do? in stick evolution that you solution? of a this order to let's something adding to What going to provide mean thinking and were just of something full Romeo. your wanted asking your that customers that this I to was Is

Fred Lissalde

hybrid we the that the You've value wanted that potentially ask to all that all the to having making vehicle. heard having are our felt shows you we we missing from at us the want wheel. path. system enhance to understanding, fact add focus be integration blue, grid to and And customers from vehicle the is with the that one in we we in products, from those products piece two components was product if that in system electric talk And there slate about components look can

And decided go so we this into proactively field. to

in it and understanding system get And also where think OEs to battery the about that and think element can between the packs I too, is management some still we cell addition we an of that thermal good the that. expertise feel and that battery that do we makers and do

David Tamberrino

the profile marketplace? not of a margin there's Is as And any new charger incremental or quoting, in follow the impact competition you're then up, turbo impacting that market. some you're seeing the within on business that reports been

Fred Lissalde

turbo are is the the market, from program existing. currently is new And dynamic on challenged. that So competitive coming pricing this

getting our of customers. financial they not focused we're are We that are in products programs the focused But going discipline. chase. hands the We're to best on absolutely in our

Operator

Next question Wolfe comes Lache from Research. Rod with

Rod Lache

my something me get here. could head you hoping around Just help

your of by down if EBIT an I million So revenue came guidance midpoint the revision on $XX the $XX guidance. full of million midpoint year to revenue, use

or like to the the bridge, math But decline half if change the bigger simple your on And a XX%. I the the half, XX%. on do So the cost first I decremental revenue it's same And looks little of expectations a if on on, platform, due second were do margin it maybe elaborate side. more was And it the is out thing. to some bit like just describing the the can you're costs coming the with into you cost is factors it seems to is Tier costs it this a take here inability Xs?

Kevin Inda

this I'll answer Kevin. is Rob, that.

it take different cost I in And think ways. on three the predominantly it's a few what seeing I'll in we're buckets. side the

million $XX a I quoted way it. think that good about to think is the you

The and we second from first deliver I'd performance that. bucket didn't quarter a perspective, we in to decremental expected is deliver the better say on

of $XX reason Some about $XX chain was the of expected upper some the That performance. of end that that guidance be the our think you about range. supply we to of it the million million at as because of

some more volatility all XX%, to XX% at decrementing especially the seeing because some remain for to our we're when have achieve Second the that take means a takes time us is are out little coming moment markets target that. costs target to we bit than moving closer more it But the XX%. markets, way, in to of are able and markets this which accelerated to execute. the down quickly, be in is will of our we that with the a

so math can big And see the full how ballpark, you And is seeing $XX that on we're at an call that and it, XX% level. million decrimentals do basis. year a impact

worse the being XX in final that you've to. the look the And is coming for half that cost million we earlier. what based the in you keep that higher really then anticipated for on performance mind bridge half the so the half that's year of than first versus about thing reasons year-over-year at or expense second that think the first is in you talked the thing And now. When really R&D pointed you supplier anticipate causal the do to need we're half, our than planning do as a other we second I right one the

Rod Lache

Okay, we a that How this be factor this posses in with downturn additional And risk might market, Europe? something be downside to a an there. be wide spread were this the within if And interpret big the should is in sensitivity terms of greater? issues. is that there supplier

Fred Lissalde

essentially distress, would degrees, I is So, different But centered it's at the from global. the and that say microenvironment one Europe. current see, would at I say is but in -- are varied volatility the bankruptcies supplier

Rod Lache

lastly XXXX restructuring. production? you get Or that point, you of to -- you to to of looking and Are mitigate level additional trying just your that? to targets current to you coming additional on ahead based seeking, at current into And this primarily pressures are restore alluded to margin the see your

Fred Lissalde

proactive of trying We're curve. to be and head the

Operator

next with Brian from Barclays. comes question Your Johnson

Brian Johnson

Yes.

to try might get questions be to Just that of couple left. a

of terms Europe, and well, how in micro the cadence, the pressures COX uncertain outlook XQ given the both in with launch then you especially, for backlog, are there the compliance? China given In comfortable

Fred Lissalde

when is launches at very it is now We backlog see don't the We impact are what see cancellation. right see of lower launches we delays. What program program time. But key that that That's it the shift. launches, we see on volume. rare

Brian Johnson

factoring one your you're at seem install across start then take Can EU COX XXXX, you us drive that additional to And second, balance rates, rates would hand, product it On looking in. out? XXXX we help and lines the and how as compliance.

it's investors recover both the is lost hand, worse particularly come disaster other pressure OEM get mandates that costs to these other the the pricing and the On which to overruns. view mass on as could market ability in, not European in going underscore only and/or of market, from point the

two three outlook about do to of in light you think So, your how those trends?

Fred Lissalde

to So, process our experienced, answer in later time. around the this going the XXXX. volatility is We're with of currently a going take question that through getting is arms that year. I'd some And to the this w like

like reserve the in year. my point time in little answer I'd to to a So

Operator

Next from comes Chris question with McNally Evercore.

Chris McNally

you have I Brian, to it similar I counter that said a you question think I later. could so address might

to to as colleague in disconnect, say fuel what that first fair all we're to need the to here the XXXX conscious XX% some gap is that out XXXX, repercussions. think to are running have definitely be my trying middle in is figure been for has I the what to going there to scenario the you time. efficiency to OEMs because BorgWarner's very Is of Europe in year that XX problem. to probably gain and this it a and the up to for in meet see some admitting not regulations And that, next you by do something XX grow XX% really months. There's sitting

think I numbers you missing sales and side we that we're skewed are our that or now, analysis? that recognize maybe are something is something the right on seeing in

Fred Lissalde

strong that push a to our add do customers, can deliver reduce for we do. do what I that speak lies And more everything tell our efficiency you pull. is to for fuel help and customers. that Europe see product that But and to can capacity we we going emission, to production to not enhances We're we'll balancing every in

Chris McNally

to come of whether a higher with on need that's rates side? or starting for the you consider electrification at a are scenario fuel where you least to So customers efficient ICE as products, our adoption

Fred Lissalde

it's and good it us. saying for We're

Operator

comes question Levy Dan next with Suisse. Your Credit from

Dan Levy

what line to following questions, discussion trying I this between up yourself is achieve. OEMs they're on and on a that there assume Just fairly of fluid the

relates targets, just internal options whether have sense, of fund. to internal in more it's of just the you And combustion enhanced on and Where engines beds I sides? mature, enhance are incremental on versus hearing, your credit pay for BEV latest us the demand the is piece, internal it's does pay ability or terms hybrid could as a and or in give thing engine number TVs, of and both around on capacity the a the while, yourselves, been that to combustion you're you mean the obviously meet it So ICE that is a piece, to combustion this OEMs fit meeting Where newer. these and this? portfolio hybrid engine

Fred Lissalde

right. we're combustion So pretty what have not and we our the and breadth speak to since within first do customers. electric, cuts propulsion But area going a and of are that across we relevant in to again, that's product we

do. options. at take obligations future meet to the and potentially level are discussion each options customers each customers either XXXX, have And and they XXXX, different XXXX going different regulatory have have or able options as what to at customers highest We different to we them anything position and what on to on ourselves supplier, supply do. they in depending used they want to us depending And and a path different their for fees, support system

one not all. it's sides to So, be going fits a

mentioned solution going we’re it of makes they a can innovative standpoint, customers strategies. as and more in their wanting in products that technologies and I still whatever bring are BorgWarner. do, leaner customers to You're of to their transmission And they efficient. product different strategies and in see different lot portfolio combustion a lot do my moving From remarks, prepared engine

So we see that pull also.

Dan Levy

a a one China that significant your of more, challenging just Obviously, in think is But DCT. environment experiencing I China. order the to quarter. mix you're is couple happening efforts that profile in years now maintain outgrowth, it more Or is XX outgrowth. you're and there set you think maybe uptake, I robust -- little slower hybrids than very very previously shifting? on wanted current last where points, versus up points if very then magnitude able electrification just second something product just of to I that's still emphasizing Is terms in think and XX robust more at were to contrast And there follow I and the market you of just the

to trying in the the understand just So shift China growth?

Fred Lissalde

expected macro we in some that the before year-after-year, other to So, revenue in what that first based launched so the higher in past I in are of of than the changes becoming this you want being and lower to color China all, give environment the two market. the our is you because as to see I are of revenue. and the that on also is What confidence the percents try volumes products customer alluded base higher, outgrowth things then

battery on rate a impacts downs You that on quite see take vehicle electric and ups and us bit.

Operator

with Your question Noah comes Oppenheimer. from Kaye next

Noah Kaye

one a on Romeo. just Maybe quick

the strategic growth your a is activity, coating us explained battery system item. you content think try what little the Obviously, to vehicle rationale. for look BorgWarner trajectory or the about AFP backlog I for large seeing this supplier? understand to that you the a could talk where just bit for you're to like Can

Fred Lissalde

very still getting for JV. it's We're No, everything ready. early the days

customer pool. have We

most In impact any and in backlog. we we in launch, have significant coating case, when phases. between quote now our any probably are won't when year We three

Noah Kaye

thousands. I correct? And then understand, tens that Is mean productions, you're I targeting of volume really niche

Fred Lissalde

That is correct.

Noah Kaye

And to then go on just the just back to… --

Fred Lissalde

initially… is correct That

Noah Kaye

I severe to just in surprised supplier actions through go before are back breakdowns globally with this base, I a does and bankruptcies. in supply guess about taking? the you at more then decades way what what you gone all mitigating So of the that past. we've what's some guess, much to in now happening obviously,

Fred Lissalde

if how say, impacted. it's suppliers a would many there are is surprise So I

of As Europe. for And is our costs. have some it's of find a seen you've on manage way the base Europe an the it impact essentially supply significant. drop, which I for we to And is but these significant in diesel mentioned to before, supplies not us

And to surprise. done It's there that be to just them before get those if it. the do would we're times. it have number find we the magnitude a and and a the to we've that through We way how surprise was tough know doing just of it,

Operator

Next question with comes Morgan Armintas from Stanley. Sinkevicius

Armintas Sinkevicius

a give your customers the Good into production. you some morning, few guide this could RDE question. months? color about here already European us are around is incorporated around the Presumably coming in But taking for how you maybe thank up thinking

Fred Lissalde

months. see coming RDE of we impact I the think in a So few

perspective. going from And a of Europe flat our it's so be guidance the half right that now our year in is market midpoint of prior put to at second

at it's talk the at impact bit least a about of I RDE, think our to early level.

Armintas Sinkevicius

XX% broadly electric more Land Rover the question just in the Jaguar less partnerships Volkswagen electric is employees vehicle seeing other an an then is and unit. versus drive engine. we're And talking combustion internal around for about with BMW

gravitate as you do yourself? about How potential world. risks towards we position in-sourcing think the that and you how of do Just

Fred Lissalde

could going have still outsource to the been that hypothesis some. do And size of XX% be standpoint some need drive products fits be potentials here going to if do is electric i.e. they are motor it, and proxy they be, not we take total still available think, efficient that we've a not good are not also And need the in-sourced. customers And all, and we to this. always going in-house, motors from vehicle one in customer it's will of support motors is being some in-house, going customers our to them components. market to motor doing those a XX% are is market, it one So as And some to in and in-sourcing. a motor battery proxy, be let's again going all customers of will even it's do,

supportive are So components in absolutely we us, understanding too. is target systems system for certainly certainly is supplying core, but selling a

Operator

We time from one comes question for with and Langan question, have that final Colin UBS.

Colin Langan

looked up And seems the good to I like When decline QX I guide. it margin. margin and big the little mean, the a to based then in earnings case at Is So should that here? a pick it step just rough seems their bound has QX. why how look sequential in guidance, cadence? pretty it imply on about think we QX

Kevin Inda

revenue, perspective, Kevin. a some And XX%. $XXX million we're to stepping and step of this sequential revenue seeing down we're $XX foremost, closer to the with in our quick down the is downside the it reason seeing From million first and guidance. is the we're moves to the Colin, decrementing

So a of big that's piece equation. the

we third head R&D sequential a in that, expense are the into to step addition up we as quarter. In our seeing

the quarter, in so range million, going $X $X the anticipated what the to of we $XX sequentially in be third second and QX. into slipped that's quarter north million of in Some million to

Colin Langan

up back strong? so so should as to expect in jump year QX makes And full you to QX. What though get QX

Kevin Inda

our revenue Well, back see The the is can that up guide. in point. QX, low QX takes our you

in expect on year, the do the half of tend piece to as When cost also of of to the the again is we So quarter. do types convert on to One performance couple we a that about But the expecting QX government prototype starting we of incremental is revenue last in conversion back way that really revenue. modest a grants things income, generate we well. of from some impact coming sequentially. expect. or at results that big kick-in that talked look that We're a is we there the normally incremental see quarter certain our

Colin Langan

pricing about it When a the not impact how factor lastly just to backlog when market about would it's hit we're turbo. And just in comes that that thinking prior in currently? your us, to the comments clarify in performance if margin

Fred Lissalde

because be is now. It would we most probably something passed are this backlog, quoting to that

team backlog, the And marginally. be so the very not impacting would be backlog impacting would would -- be

Colin Langan

Okay, great. Thank you very much.

Fred Lissalde

you, Thank Colin.

Patrick Nowlan

all close the like ahead With to And call. if me. for ups, reach any your feel free that, please follow Sharon, out you and thank have go you good to I'd to can you questions.

Operator

does quarter That the conference call. BorgWarner XXXX conclude second results

You now may disconnect.

BorgWarner (BWA) 25 Jul 192019 Q2 Earnings call transcript