BorgWarner Lifts Profit Outlook as Margins Keep Climbing
BorgWarner posted a 220-basis-point jump in operating margin and raised its full-year profit forecast even as organic sales slipped 1.2%.
BorgWarner (BWA) reported second-quarter net sales of $3.65 billion, up 0.3% from $3.64 billion a year earlier, while profitability climbed even as underlying volumes softened. The auto-parts maker's U.S. GAAP operating margin expanded 220 basis points to 10.1% from 7.9% in the prior-year quarter, and adjusted operating margin rose 100 basis points to 11.3%.
The margin gain extended a recovery that began after a difficult fourth quarter of 2024, when BorgWarner posted a GAAP operating loss of 6.7% of sales tied to $665 million in non-comparable charges, including a $624 million impairment. Operating margin rebounded to 9.5% in the first quarter of 2025 and improved again to 10.1% in the second, a steady sequential climb that has now restored GAAP earnings to $1.34 a share, up from a loss of $1.23 a share in the fourth quarter. Adjusted earnings per share reached $1.42, up 17.4% from $1.21 a year earlier, an acceleration from the first quarter's 12% adjusted EPS growth.
The profit gains came despite a soft top line. Organic net sales fell 1.2% year over year, though sales excluding a roughly $60 million decline in its Battery Energy Systems segment were up modestly. Gross margin expanded to 19.8% from 17.6% a year earlier, reflecting cost discipline that offset the sales pressure.
Segment results were mixed. PowerDrive Systems sales grew 14% to $665 million from $581 million, and its adjusted operating loss narrowed to $29 million from $33 million. Battery Energy Systems sales fell 37% to $100 million from $159 million, though its adjusted operating loss also narrowed, to $2 million from $12 million. Turbos & Thermal Technologies, BorgWarner's largest segment, saw sales decline to $1.44 billion from $1.48 billion. The company has guided to a roughly $250 million full-year decline in Battery Energy Systems sales, a headwind it flagged in February as weakness in that business persisted.
Free cash flow came in at $492 million, down from $507 million a year earlier, though it marked a sharp recovery from the first quarter's $13 million, when cash generation lagged well behind shareholder returns. New business awards also slowed, with the company announcing seven new awards in the second quarter versus 12 in the first. BorgWarner plans to increase 2025 research-and-development spending to pursue data-center and industrial growth opportunities, a disclosure not included in its first-quarter or full-year 2024 releases.
BorgWarner raised its full-year 2025 adjusted EPS guidance to a range of $5.05 to $5.30, up from $5.00 to $5.20, citing share repurchases completed in the first half of the year. Full-year sales guidance of $14.0 billion to $14.3 billion and adjusted operating margin guidance of 10.7% to 10.9% were left unchanged.
The board authorized a new $1 billion increase to the share repurchase program, bringing total authorization to roughly $1.35 billion through 2029, on top of a similar increase approved in the second quarter of 2024. Shareholder returns nonetheless slowed in the quarter, with BorgWarner returning about $134 million through buybacks and dividends, down from $185 million in the first quarter of 2025.