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The call presents a broadly positive operational and financial picture: Q1 results showed margin expansion (50 bps), adjusted EPS growth (+12%), continued strong award activity (12 wins) and tangible progress on new industrial initiatives (turbine generator B‑samples, BESS and inverter B‑samples). Management left full‑year guidance unchanged, signaling confidence in execution though noting macro and battery demand headwinds. Key challenges include a decline in the battery segment (noted as a ~150 bps sales headwind), modest Q1 free cash flow in absolute terms, and early‑stage uncertainty around scaling the new data‑center/industrial businesses and potential supply constraints. On balance, the highlights (profitability, EPS growth, awards, clear product commercialization milestones and disciplined capital returns) outweigh the lowlights, but management retains caution given market uncertainty.
BorgWarner reaffirmed full‑year 2026 guidance calling for total sales of $14.0–$14.3 billion (with an assumed ~$200 million FX tailwind from a stronger euro/RMB), a 2026 organic sales decline of roughly 3.5% to 1.5% year‑over‑year (battery sales expected to be a ~150‑bp headwind) and weighted end markets flat to down ~3% (light‑vehicle >80% of sales); full‑year adjusted operating margin is forecast at 10.7%–10.9% (2025: 10.7%)—including ~10 bps benefit from the exit of the charging business—and contemplates decremental conversion ranging from low‑double‑digits at the low end to mid‑teens depending on cost actions; adjusted EPS is guided to $5.00–$5.20 per diluted share (midpoint ≈ +4% vs. 2025 adjusted EPS) and free cash flow to $900 million–$1.1 billion.
Reported Q1 2026 sales of $3.5 billion; reported sales roughly flat year‑over‑year with FX tailwind of +$167 million, a battery segment headwind of -$54 million, and the remaining organic sales decline of $95 million (≈ -2.7%) in line with market production.
Adjusted operating income of $372 million and adjusted operating margin of 10.5% in Q1 2026, up 50 basis points from 10.0% a year ago (adjusted operating income was $352 million in prior-year Q1).
Adjusted EPS increased by $0.13, or +12% versus Q1 2025, driven by higher adjusted operating income and the impact of share repurchases (over $650 million repurchased in the past four quarters).
Q1 free cash flow generation of $13 million, a $48 million improvement year‑over‑year. Returned approximately $185 million to shareholders in the quarter (share repurchases and dividend); over the past five quarters deployed >$800 million (≈70% of FCF).
2026 guidance unchanged: sales $14.0–$14.3 billion; organic sales expected down ~3.5% to -1.5% (battery decline a ~150 bps headwind); adjusted operating margin 10.7%–10.9% (vs 10.7% in 2025); adjusted EPS $5.00–$5.20; full‑year free cash flow $900M–$1.1B.
12 announced business awards in the quarter across foundational and e‑products: including 3 electric motor awards in Asia; a 7‑year contract extension with a leading off‑highway OEM; multiple turbocharger program extensions and conquests (including Euro VII commercial vehicle win); drivetrain/timing wins (wet dual clutch, VCT) — indicating broad, multi‑regional customer wins.
Strong progress toward 2027 industrialization: B‑sample turbine generators delivered to customers, supplier nominations complete, UL compliance work underway, customer field testing progressing; initial production expected in 2027 and initial revenue target referenced (~$300M+ in early sales potential).
Portfolio expanded to include battery energy storage systems (BESS) and bi‑directional microgrid/grid‑tie inverters; BESS and inverters expected production‑ready in 2027; first grid‑tie inverter B‑samples shipped to four customers for validation.
Ongoing cost reduction actions drove improved profitability: Q1 outperformance partly attributed to cost controls, exit of charging business contributed ~+$8 million to operating income YoY, and management continues to target mid‑teens decremental conversion assumptions while expanding margins.
Good morning. My name is Michael, and I will be your conference specialist. At this time, I would like to welcome everyone to the BorgWarner 2026 First Quarter Results Conference Call. [Operator Instructions] I would now like to turn the call over to Patrick Nolan, Vice President of Investor Relations. Mr. Nolan, you may begin your conference.
Thank you, Michael, and good morning, everyone. Thank you for joining us today. We issued our earnings release earlier this morning. It's posted on our website, borgwarner.com, both on our home page and on our Investor Relations home page. With regard to our Investor Relations calendar, we will be attending multiple conferences being now in our next earnings release. Please see the Events section of our IR page for a full list. Before we begin, I need to inform you that during this call, we may make forward-looking statements, which involve risks and uncertainties as detailed in our 10-K. Our actual results may differ significantly from the matters discussed today.
During today's presentation, we will highlight certain non-GAAP measures in order to provide a clearer picture of how the core business performed and for comparison purposes with prior periods. When you hear us say adjusted, that means excluding noncomparable items. When you hear us say organic, that means excluding the impact of FX. When you hear us refer to our incremental margin performance, incremental margin is defined as the organic change in our adjusted operating income divided by the organic change in our sales. We will also refer to our growth compared to our mark...