Q2 2025 Borgwarner Inc Earnings Call

Rocco: Good morning. My name is Rocco, and I will be your conference specialist. At this time, I would like to welcome everyone to the BORGWARNER 2025 second quarter results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. If you would like to ask a question during this time, simply press star one on your telephone. If you would like to withdraw your question, press star two. If you are using a speaker phone, please pick up the handset before asking your question. As a reminder, today's conference is being recorded. I would now like to turn the call over to Patrick Nolan, Vice President of Investor Relations. Mr. Nolan, you may begin your conference.

Good morning. My name is Rocco and I will be your conference specialist.

At this time, I would like to welcome everyone to the board order. 2025 second quarter results conference call

All participants will be in listen-only mode.

Should you need assistance please signal the conference specialist by pressing the star key followed by zero.

After today's presentation, there will be an opportunity to ask questions.

To ask a question. If you would like to ask a question during this time, simply press star 1 on your telephone,

If you would like to withdraw your question, press *2.

Up the handset we're asking you a question.

As a reminder, today's conference is being recorded.

I would now like to turn the call over to Patrick Nolan vice president of investor relations, Mr. Nolan, you may begin your conference.

Patrick Nolan: Thank you, Rocco. Good morning, everyone, and 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 homepage and our Investor Relations homepage. With regard to our Investor Relations calendar, we will be attending investor conferences between now and our next earnings release. Please see the events section of our Investor Relations homepage for a full list. Before we begin, I need you to inform you that during this call, we may make forward-looking statements which involve risks and uncertainties as detailed in our 10K. 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 performs and for comparison purposes with prior periods.

Thank you, Rocco.

Good morning, everyone. And thank you for joining us. Today, we issued our earnings release earlier this morning. It's posted on our website for warner.com, both on our homepage, and our investor relations homepage.

With regard to our investor relations calendar. We will be tending investor compasses between now and our next earnings release.

Please see these events section of our investor relations homepage for a full list.

Before we begin, I need you to inform me that during this call, we may make forward-looking statements, which involve risk and uncertainties as details on our 10K.

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

Patrick Nolan: When you hear us say on a comparable basis, that means excluding the impact of FX, net M&A, and other non-comparable items. When you hear us say adjusted, that means excluding non-comparable items. When you hear us say organic, that means excluding the impact of FX and net M&A. We will also refer to our incremental margin performance. Our incremental margin is defined as the change in our adjusted operating income divided by the change in organic sales. We will also refer to our growth compared to our market. When you hear us say market, that means the change in light and commercial vehicle production weighted for our geographic exposure. Finally, please note that we have posted today's earnings call presentation to the IR page of our website. We encourage you to follow along with these slides during our discussion 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 stand on a comparable basis, that means excluding the impact of FX, net M&A, and other non-comparable items.

When you hear us, they adjusted. That means excluding non-comparable items.

When you hear us, say organic, that means excluding the impact of FX and net m&a.

We will also refer to our incremental margin performance.

Our incremental margin is defined as the change in our adjusted operating income divided by the change in organic sales.

We will also refer to our growth compared to our Market.

When you hear us, say Market, that means the change and light in commercial vehicle production weighted for our Geographic exposure,

Patrick Nolan: With that, I'm excited to turn the call over to Joe.

Finally, please note that we have posted today's earnings call presentation to the IR page of our website. We encourage you to follow along with these slides during our discussion today.

With that, I'm excited to turn the call over to Joe.

Joe: Thank you, Pat, and good morning, everyone. I'm very pleased to share our results for the second quarter of 2025 and provide an overall company update starting on slide five. I wish to begin by thanking our employees, our customers, and suppliers for all of their trust, efforts during this quarter, and for their continued support. Our sales performance was supported by a 31% increase in light vehicle e-product sales. This growth was well ahead of the high teams' increase in global hybrid and BEV production in the quarter. Our organic sales were relatively flat year over year, which was in line with our market. However, excluding the decline in our CV battery and charging system segment, our organic sales were up modestly year over year. I'm excited to report that the strong award activity we saw in the first quarter continued into the second quarter.

Thank you, Pat and good morning, everyone.

I'm very pleased to share our results for the second quarter of 2025 and provide an overall company update starting on slide 5.

I wish to begin by thanking our employees, our customers and suppliers for all of their trust efforts, during this quarter, and for their continued support.

Our sales performance was supported by a 31% increase in light vehicle, e-rod sales.

This growth was well ahead of the High Teens increase in global hybrid and Bev production in the quarter.

Our organic sales were relatively flat year-over-year, which was in line with our Market.

However, excluding the decline in our CV battery and charging system. Segment our organic sales were up modestly year-over-year.

Joe: Today, I will share nine new business awards across both foundational and e-products, which are a sampling of the awards that we secured during the quarter. We believe these awards will illustrate the strength of our portfolio and the demand for efficient powertrain technology around the globe. Our adjusted operating margin performance was strong in the second quarter, coming in at 10.3%, which includes a 40 basis point tariff headwind. This strong underlying operational performance was once again driven by our focus on cost controls across our business and turning those earnings into free cash flow. Lastly, we remain focused on the efficient deployment of our capital to drive shareholder value. In the quarter, we returned over $130 million to shareholders through share repurchases and payment of our cash dividend.

That the strong award activity, we saw in the first quarter continued into the second quarter.

Today, I will share 9 new business Awards across both foundational and e-products which are a sampling of the awards that we secured during the quarter.

We believe these Awards will illustrate the strength of our portfolio and the demand for efficient powertrain technology around the globe.

Our adjusted operating margin performance was strong in the second quarter coming in at 10.3%. Which includes a 40 basis point tariff headwind.

This strong underlying operational performance was once again, driven by our focus on cost controls across our business and turning those earnings into free cash flow.

Lastly, we remain focused on the efficient deployment of our Capital to drive shareholder value.

Joe: Additionally, our board of directors approved both a 55% increase in our quarterly cash dividend per share and an increase in our current share repurchase authorization to $1 billion. These actions demonstrate our confidence in the long-term cash-generating ability of our business and our focus on driving shareholder value through a balanced capital allocation approach. As I look back on the first half of 2025, I'm very proud of our team and our results. As Craig will detail, our first half financial performance was strong and enabled us to increase our sales, margin, EPS, and free cash flow guidance for the year. I'm equally pleased with the strong award activity we secured in the first half of 2025, which we believe supports our focus on long-term profitable growth. Now, let's look at some of the new foundational product awards on slide six.

In the quarter, we returned over 130 million to shareholders through, share repurchases, and payment of our cash dividend.

Additionally, our board of directors approved, both a 55% increase and our quarterly cash dividend per share and an increase in our current share repurchase authorization to 1 billion dollars.

Balanced Capital allocation approach.

As I look back on the first half of 2025, I'm very proud of our team and our results.

As Craig will detail. Our first half financial performance was strong and enabled us to increase our sales margin, Epps and free cash flow, guidance for the year.

I'm equally pleased with the strong award activity. We secured in the first half of 2025, which we believe supports our focus on long-term profitable growth.

Now.

Let's look at some of the new foundational product Awards on slide 6.

Joe: First, BorgWarner has secured two significant turbocharger Conquest business wins for a major global OEM, Next Generation Vehicles in Europe and North America. The company will supply its proven Wastegate gasoline turbocharger for use in Next Generation compact and light commercial vehicles in Europe. Production is scheduled to begin in August 2027. In addition, BorgWarner has also been awarded a high-performance turbocharger program for a North American engine platform, with production planned to start in September of 2028. These awards underscore our ability to win in highly contested markets by offering reliable, cost-effective solutions and long-term supply commitments. Second, BorgWarner has secured a business win with a major East Asian OEM to supply turbochargers for their 1.6-liter engine, supporting primarily hybrid electric vehicle (SUV) applications.

First.

4 Warner has secured 2, significant turbocharger Conquest business wins for a major Global oem's. Next Generation vehicles in Europe, and North America.

the company will supply as proven wastegate gasoline turbocharger for use in Next, Generation, Compact, and Light, commercial vehicles in Europe,

Production is scheduled to begin in August 2027.

In addition, BorgWarner has also been awarded a high-performance turbocharger program for a North American engine platform.

With production planned to start in September of 2028.

These Awards underscore our ability to win in highly contested markets by offering, reliable cost-effective Solutions and long-term Supply commitments.

Second.

Joe: This win builds on BorgWarner's strong 18-year partnership supplying turbochargers to this customer and underscores our commitment to delivering high-performance, efficient turbocharging solutions that support the customer's HEV growth strategy. Production is scheduled to begin in 2027. And third, BorgWarner has secured a turbocharger award with a major global OEM for use in a hybrid option for a sports car platform. Production is expected to begin in 2028. I'm excited to see demand for our foundational products, particularly turbochargers, remaining strong around the globe. These awards reflect our strategic focus on supporting global OEMs with combustion engine technologies while others exit the space. I also believe the Conquest and Hybrid awards speak to our technology leadership in turbochargers. Now, let's look at some of the new e-product awards on slide seven.

For Warner has secured a business win with a major East Asian OEM to supply turbochargers for their 1.6. L engine supporting primarily, hybrid electric vehicle, SUV applications,

this wind Builds on 4, Warners strong 18-year partnership, supplying turbochargers to this customer and underscores our commitment to delivering high-performance efficient turbocharging solutions, that support the customer's HV growth strategy.

Production is scheduled to begin in 2027.

And third.

Borg Warner has secured a Turbocharger Award with a major Global OEM.

For use in a hybrid option for a sports car platform.

Production is expected to begin in 2028.

I'm excited to see demand for our foundational products, particularly turbochargers, remaining strong around the globe.

These Awards reflect our strategic, focus on supporting Global oems with combustion engine Technologies While others exit the space.

I also believe the conquest and hybrid Awards, speak to our technology leadership in turbochargers.

Now.

Let's look at some of the new e-rod Awards on slide 7.

Joe: First, BorgWarner has secured an award to supply its dual inverter with a major Chinese OEM to support its hybrid vehicle lineup. The project is scheduled to begin mass production by the end of this year. In China's rapidly evolving NEV market, BorgWarner remains committed to supporting our customers with innovative and high-quality electrification solutions. This award is a great example. Second, BorgWarner has secured an electric motor business with a major Chinese OEM. The award features a platform-based design enabling compatibility across a full range of NEV applications, including battery electric and hybrid models, with a production expected to begin in 2026. We are pleased to see continued progress in our electric motor business in China. Next, BorgWarner has secured contracts with two major global OEMs to supply high-voltage coolant heater technology for plug-in hybrid electric vehicle platforms.

First Borg Warner has secured an award to supply its dual inverter, with a major Chinese OEM to support its hybrid vehicle lineup.

The project is scheduled to begin mass production by the end of this year.

In China's rapidly evolving Nev market for Warner remains committed to supporting our customers, with Innovative and high-quality electrification Solutions. This award is a great example.

Second. Borg Warner has secured an electric motor business with a major Chinese OEM.

The award features a platform-based design, enabling compatibility across a full range of Neve applications, including battery electric and Hybrid models with a production expected to begin in 2026.

We are pleased to see continued progress in our electric motor business in China.

Joe: The first win expands our technology into several of our customers' light vehicle PHEV platforms, including a pickup truck. The second win is with an existing heater customer, which will now be expanded into several PHEV platforms. Both programs are expected to begin production in 2028. Securing these contracts further validates our technology leadership and expertise in battery and cabin heating. Lastly, BorgWarner has secured a new program for our electric cross-differential technology for a leading Chinese OEM's electric vehicles in China. By dynamically controlling power distribution between the wheels, eXD technology improves handling and traction capabilities. Now, let's turn to slide eight and touch on our balanced capital allocation approach. Over the last two quarters, I've been asked about our capital allocation discipline. My view is we need to follow a capital allocation strategy that is focused on delivering sustained shareholder value.

Next 4 Warner has secured contracts with 2 major Global oems to supply high voltage, coolant heater technology for plug-in, hybrid electric vehicle platforms.

The first win expands our technology into several of our customers. Light vehicle P have platforms including a pickup truck.

The second win is with an existing heat heater customer, which will now be expanded into several phases platforms.

Full programs are expected to begin production in 2028.

Contracts further, validates our technology leadership and expertise, in battery, and cabin Heating.

Lastly Ford Warner has secured a new program for our electric cross differential technology for a leading Chinese oems electric vehicles in China.

By dynamically controlling power distribution Between the Wheels exd technology, improves handling and traction capabilities.

Now, let's turn to slide 8.

And touch on our balanced Capital allocation approach.

Over the last 2 quarters. I've been asked about our Capital allocation discipline,

Joe: As we look back over the last five years, we have followed a balanced approach with just under 50% of our capital being deployed to shareholders through share repurchases and dividends, and just over 50% supporting technology-focused acquisitions. As I think about the next several years, I expect to see our balanced approach continue. We plan to focus on accretive inorganic investments and a consistent return of cash to shareholders. Since 2020, we have returned more than $3.5 billion of capital to our shareholders. I believe that today's announcements to increase our quarterly dividend and buyback authorization show our commitment to returning cash to shareholders in a disciplined and consistent manner. As we move forward, we expect to continue to invest organically and inorganically to support our growth.

My view is we need to follow a capital allocation strategy that is focused on delivering sustained shareholder value.

As we look back over the last 5 years, we have followed a balanced approach with just under 50% of our Capital being deployed to shareholders through, share repurchases and dividends, and just over 50%. Supporting technology focused acquisitions.

As I think about the next several years, I expect to see our balanced approach continued.

We plan to focus on a creative inorganic Investments and a consistent return of cash to shareholders.

Since 2020, we have returned more than 3.5 billion dollars of capital to our shareholders.

I believe that today's announcements to increase our quarterly dividends and buy back authorization, show our commitment to returning cash to shareholders in a discipline and consistent manner.

Joe: So you should expect us to continue to be active as it relates to accretive M&A while still returning capital to our shareholders. Next, let's turn to slide nine and discuss how we plan to continue to assess our M&A opportunities. When we think about M&A, there are three criteria we're using to evaluate inorganic opportunities. First, an inorganic investment must have strong industrial logic. It must link to the many core competencies BorgWarner has developed throughout decades of innovation and product leadership. The second criteria is that we want to see near-term earnings accretion. We believe our product portfolio is strong and well-positioned for outgrowth, and as a result, potential M&A should not be driven purely by strategic rationale. Rather, we expect our future M&A to increase BorgWarner's long-term earnings power. Finally, we need to ensure we pay a fair price for the asset.

As we move forward, we expect to continue to invest, organically and inorganically, to support our growth.

So you should expect us to continue to be active as it relates to a creative m&a while still returning Capital to our shareholders.

Next.

Let's turn to slide 9 and discuss how we plan to continue to assess our M&A opportunities.

When we think about m&a,

There are 3 criteria, we're using to evaluate inorganic opportunities.

First, an inorganic investment must have strong industrial logic.

It must link to the many core competencies. Borg Warner has developed throughout Decades of innovation and product leadership.

The second criteria is that we want to see near-term earnings accretion

We believe our product portfolio is strong and well positioned for outgrowth, and as a result, potential M&A should not be driven purely by strategic rationale.

Rather, we expect our future m&a to increase Borg Warner's long-term earnings power.

Finally.

Joe: It's critical that we run multiple DCF scenarios, given the complex regional markets and customers we serve. Over the past few quarters, Craig and I have assessed a number of opportunities and have frankly passed because they didn't meet the hurdles I just spoke about. I'm really pleased with the discipline we've followed to date, and I'm confident in our screening process going forward. To summarize, the takeaways from today are the following. First, BorgWarner's second quarter results were strong. We saw a 31% increase in our light vehicle e-products business and delivered strong margin, free cash flow, and EPS performance. This was despite net tariff cost headwinds, reflecting our continued focus on cost controls. Second, we secured multiple new business awards in the quarter across our entire portfolio, which we believe demonstrates the continued need for efficient powertrain technology across combustion, hybrid, and electric architectures.

We need to ensure we pay a fair price for the asset. It's critical that we run multiple DCF scenarios given the complex Regional markets and customers we serve

over the past few quarters.

Craig. And I have assessed a number of opportunities and have frankly passed because they didn't meet the hurdles. I just spoke about

I'm really pleased with the discipline, we followed to date and I'm confident in our screening process going forward.

To summarize.

the takeaways from today are the following,

First.

4 Warner second quarter, results were strong.

We saw a 31% increase in our light vehicle e-products business and delivered strong margin, free cash flow, and EPS performance.

This was despite net tariff cost. Headwinds reflecting our continued focus on cost controls.

Second.

We secured multiple new business Awards in the quarter across our entire portfolio. Which we believe demonstrates. The continued need for efficient powertrain technology across combustion hybrids and Electric architectures.

Joe: And finally, we took meaningful steps to return capital to shareholders during the quarter, with over $130 million returned through our cash dividend and share repurchases. Additionally, increases to our cash dividend rate and share repurchase authorization demonstrate our commitment to following a disciplined approach of consistently returning cash to shareholders. Overall, I believe our year-to-date results illustrate the strength of our team, our product portfolio, and the long-term earnings power of our business. I'm excited to continue our positive momentum into the second half of 2025. With that, I'll turn the call over to Craig.

Additionally, increases to our cash dividend rate and share repurchase authorization, demonstrate our commitment to following a disciplined approach of consistently returning, cash to shareholders.

Overall, I believe our year-to-date results illustrate the strength of our team, our product portfolio, and the long-term earnings power of our business.

I'm excited to continue our positive momentum into the second half of 2025.

With that, I'll turn the call over to Craig.

Craig: Thank you, Joe, and good morning, everyone. Before I dive into the financials, I'd like to provide a quick overview of our second quarter results. First, we reported just over $3.6 billion in sales, which was relatively flat year over year, excluding foreign exchange. This performance was in line with our market production in the quarter. Importantly, our light vehicle e-product sales increased 31% year over year, driven by strong growth in Europe and in Asia. Second, we had strong adjusted operating margin performance in the quarter at 10.3%. This performance was achieved despite $15 million, or a 40 basis point net tariff headwind in the quarter, which we expect to recover from our customers during the second half of the year. This also represents the fifth quarter in a row with a margin at or above 10%, which demonstrates the consistency of our operating performance.

Thank you, Joe and good morning, everyone.

Before I dive into the financials, I'd like to provide a quick overview of our second quarter results.

First, we reported just over 3.6 billion in sales, which was relatively flat year-over-year. Excluding foreign exchange.

This performance was in line with our Market production in the quarter.

Importantly, our light vehicle product sales, increased 31% year-over-year driven by strong growth in Europe and in Asia.

Second, we had strong adjusted operating margin performance in the quarter at 10.3%.

This performance was achieved despite 15 million or 40 basis. Point net, tariff headwind in the quarter, which we expect to recover from our customers. During the second half of the year.

This represents the fifth quarter in a row with a margin at, or above 10%, which demonstrates the consistency of our operating performance.

Craig: Third, we had strong free cash flow in the quarter, $507 million, which was a 71% increase from a year ago. Now, let's turn to slide 10 for a look at our year-over-year sales walk for the second quarter. Last year's Q2 sales were just over $3.6 billion. You can see that the weakening US dollar drove a year-over-year increase in sales of $66 million. Then, you can see a slight decrease in organic sales, which was primarily impacted by a decline in foundational industry production and lower battery and charging sales. This was partially offset by a 31% increase in our light vehicle e-product sales. The sum of all this was just over $3.6 billion of sales in Q2. Turning to slide 11, you can see our earnings and cash flow performance for the quarter.

Third, we had strong free cash flow in the quarter of 507 million, which was a 71% increase from a year ago.

Now, let's turn to slide 10 for a look at our year-over-year. Sales, walk for the second quarter.

Last year's Q2 sales were just over 3.6 billion.

You can see that the weakening US dollar drove a year-over-year increase in sales of 66 million.

Then you can see a slight decrease in organic sales, which was primarily impacted by a decline and foundational industry production and lower battery and charging sales.

This was partially offset by a 31% increase in our light vehicle e-rod sales.

The sum of all this was just over 3.6 billion of sales in Q2.

Craig: Our second quarter adjusted operating income was $373 million, equating to a strong 10.3% adjusted operating margin. This performance includes a 40 basis point headwind from tariff costs. That compares to adjusted operating income from continuing operations of $376 million, or a 10.4% adjusted operating margin from a year ago. On a comparable basis, adjusted operating income decreased $8 million on $31 million of lower sales. We believe this is great performance when considering our results include $15 million of net tariff costs in the quarter, which we expect to recover from our customers in the second half of the year. Our adjusted EPS from continuing operations was up $0.02 compared to a year ago as a result of the impact of our share repurchases during 2024 and the second quarter of 2025.

During the slide 11, you can see our earnings and cash flow performance for the quarter.

Our second quarter adjusted. Operating income was 373. Million equating to a strong 10.3%. Adjusted operating margin.

This performance includes a 40 basis. Point headwind from tariff costs,

That compares to adjusted operating income, from continuing, operations, of 376 million, or a 10.4% adjusted, operating margin from a year ago.

On a comparable basis, adjusted operating income decreased 8 million on 31 million of lower sales.

We believe this is great performance when considering our results include 15 million of net, tariff costs in the quarter, which we expect to recover from our customers in the second half of the year.

Our adjust DPS from continuing operations was up 2 cents compared to a year ago. As a result of the impact of our share repurchases during 2024 and the second quarter of 2025.

Craig: And finally, free cash flow from continuing operations was a generation of $507 million, which was up $210 million from a year ago as a result of strong working capital and capital expenditure performance. Now, let's take a look at our full-year outlook on slide 12. We are now projecting total 2025 sales in the range of $14.0 to $14.4 billion, which is an increase from our prior guidance of $13.6 to $14.2 billion. This increase is due to stronger foreign currencies and a higher market production outlook, partially offset by expected lower tariff cost recoveries as gross tariff costs are tracking below our prior estimate. Now, let's review our year-over-year sales walk. Starting with foreign currencies, our guidance now assumes an expected full-year sales benefit of $140 million compared to 2024.

And finally free cash flow from continuing operations was a generation of 507 million, which was up 210 million from a year ago, as a result of strong, working capital, and capital expenditure performance.

Now, let's take a look at our full year. Outlook on, slide 12.

We are now projecting total 2025 sales in the range of 14.0 to 14.4 billion, which is an increase from our prior guidance of 13.6 to 14.2 billion.

This increase is due to stronger foreign currencies and a higher market production outlook, partially offset by expected lower tariff costs. Recoveries as growth tariff costs are tracking below our prior estimate.

Now, let's review our year-over-year. Sales walk.

The 2024.

Craig: However, this is a sales tailwind of $300 million versus our prior guidance, primarily due to the strengthening of the euro and Korean won versus the US dollar. Within our 2025 guidance, our full-year unmarket assumption has been increased to down half a percent to 2.5% versus down 2% to 4% previously. This improvement is driven by stronger industry production that we saw during the second quarter and a modestly improved production outlook in the second half of 2025 compared to our prior outlook. Within this guidance, we expect a tailwind from tariff-related recoveries of up to 1% of sales, as this is a pass-through recovery of our costs from our customers. This is a decrease from our prior estimate of recoveries of up to 1.6% of sales, as our gross tariff costs are tracking below our prior estimate.

However, this is a sales Talent of 300 million versus our prior guidance, primarily due to the strengthening of the Euro and Korean won versus the US dollar.

Within our 2025 guidance, our full year on Market, assumption has been increased to down, half a percent, to 2 and a half percent versus Down 2 to 4% previously.

This Improvement is driven by stronger industry production that we saw during the second quarter and a modestly. Improved production Outlook in the second half of 2025 compared to our prior Outlook.

Within this guidance, we expect a Tailwind from tariff related. Recoveries of up to 1% of sales as this is a path to recovery of our costs from our customers.

This is a decrease from our prior estimate of recoveries, of up to 1.6% of sales as our gross, tariff costs are tracking below. Our prior estimate

Craig: Additionally, we expect the company's full-year sales outgrowth to be approximately 100 to 150 basis points. Based on these assumptions, we expect our 2025 organic sales change to be down 1.5% to up 1% year over year. Now, let's switch to margin. We are increasing our full-year adjusted operating margin to be in the range of 10.1% to 10.3% compared to our previous guidance range of 9.6% to 10.2%. This revised guidance now assumes 10 basis points of dilution from tariffs. We view this as strong underlying performance supported by our solid first half operational execution, which we fully expect to continue for the remainder of 2025. Based on this sale and margin outlook, we're expecting full-year adjusted EPS in the range of $4.45 to $4.65 per diluted share, which is an 8% increase versus our prior guidance.

Additionally, we expect the company's full yourselves outgrowth to be approximately 100 to 150 basis points.

Based on these assumptions, we expect our 2025 organic sales change to be down 1.5% to up 1% year-over-year.

Now, let's switch to margin.

We are increasing our full year, adjusted operating margin to be in the range of 10.1 to 10.3%, compared to our previous guidance range of 9.6 to 10.2%.

This revised guidance. Now, assumes 10 basis points of dilution from tariffs.

We view this as strong, underlying performance supported by our solid first half operational execution, which we fully expect to continue for the remainder of 2025.

Based on this sales and margin Outlook, we're expecting full year, adjust Epps in the range of $4.45 to $4.65 per diluted share, which is an 8% increase versus our prior guidance.

Craig: And we're increasing our full-year free cash flow guidance to a range of $700 to $800 million, which is a $50 million increase from our prior guidance. With that, that's our 2025 outlook. Now, let's turn to slide 13 and discuss our recently increased dividend and share repurchase authorization. Starting with our dividend, our board of directors has declared a 55% increase in BorgWarner's quarterly cash dividend per share. Based on the company's current share count, this quarterly dividend represents an annualized distribution to BorgWarner stockholders of approximately $145 million. Turning to our share repurchases, as Joe highlighted in his opening remarks, we repurchased approximately $108 million in BorgWarner stock during the second quarter, which brings our share repurchases since 2020 to more than $1.1 billion. Our board of directors approved an increase in our share repurchase authorization of up to $641 million over the next three years.

And we're increasing our full year. Free cash flow guidance to a range of 7 to 800 million which is a $50 million increase from our prior guidance.

With that, that's our 2025 Outlook.

Now, let's turn to slide 13 and discuss. Our recently increased dividend and share repurchase, authorization.

Starting with our dividend, our board of directors has declared a 55% increase in board Warner's quarterly cash dividend per share.

Based on the company's current share count.

This quarterly dividend represents an annualized distribution to Borg Warner stockholders of a proximately 145 million.

Turning to our share repurchases, Joe highlighted in his opening remarks that we repurchased approximately 108 million shares of BorgWarner stock during the second quarter, which brings our share purchases since 2020 to more than $1.1 billion.

Our board of directors and approved an increase in our share repurchase authorization of up to 641 million over the next 3 years.

Craig: When combined with the $359 million remaining under our prior authorization, management has the ability to repurchase up to $1 billion of the company's outstanding shares, or a 30% increase from our prior authorization. I believe both of these actions demonstrate the confidence we have in the long-term strength of our business and our focus on driving shareholder value through a balanced capital allocation approach. So let me summarize my financial remarks. Overall, we were very pleased with our second quarter results. Our margin and free cash flow performance were solid despite the net headwinds from tariff costs in the quarter. Our strong second quarter performance, lower projected tariff headwinds, and improving second half outlook allowed us to increase our sales, our margin, EPS, and free cash flow guidance. And we returned over $130 million of cash to shareholders in the quarter through our share repurchases and dividend.

We combined with a 359 million remaining under our prior. Authorization management has the ability to repurchase up to 1 billion of the company's outstanding shares or a 30 increase from our prior authorization.

I believe both of these actions demonstrates, the confidence. We have in the long-term strengths of our business and our focus on driving shareholder value through a balanced Capital, allocation approach.

So let me summarize my financial remarks.

Overall, we were very pleased with our second quarter results.

Our margin and free cash flow performance were solid, despite the net headwinds from tariff costs in the quarter.

Our strong second quarter for performance, lower projected, tariff, headwinds, and improving, second half Outlook allowed us to increase our sales, our margin Epps and free cash flow guidance.

and we returned over 130 million of cash to shareholders in the quarter, through our share repurchases and dividends

Craig: On top of that, our board of directors increased our quarterly cash dividend by 55% and increased our share repurchase authorization to $1 billion, which we believe demonstrates our confidence in the long-term cash-generating ability of our business. As I look to the balance of the year, we're focused on, first, continuing to outperform market production by 100 to 150 basis points. Second, we now expect margins to be flat to up 20 basis points year over year, despite tariff headwinds and an expected decline in market production volumes. And finally, we expect to have another year of strong free cash flow of $750 million at the midpoint of our guidance. Our team's strong execution and effective management of tariff headwinds have allowed the company to continue focusing on improving our long-term positioning and creating value for our shareholders.

On top of that, our board of directors increased, our quarterly cash dividend by 55% and increased our share repurchase authorization to 1 billion.

Which we believe demonstrates our confidence in the long term, cash generating ability of our business.

as I look to the balance of the Year we're focused on,

First, continuing to outperform market production by 100 to 150 basis points.

Second, we now expect margins to be flat to up 20 basis points year-over-year, despite tariff headwinds and an expected decline in market production volumes.

And finally, we expect to have another year of strong free cash flow of 750 million at the middle at the midpoint of our guidance.

Our team, strong execution and effective management of tariff. Headwinds has allowed the company to continue focusing on, improving our long-term positioning, and creating value for our shareholders.

Craig: We continue to embrace the importance of a balanced capital allocation approach. The increase in our share repurchase authorization and cash dividend are simply additional examples of our commitment to that approach. By continuing to focus on near-term execution, growing the long-term earnings power of the company through organic and inorganic investments, and following a balanced deployment of our capital, we believe BorgWarner will create significant shareholder value for years to come. With that, I'd like to turn the call back over to Pat.

We continue to embrace the importance of a balanced Capital allocation approach.

The increase in our shared purchase authorization and cash dividend are simply additional examples of our commitment to that approach.

By continuing to focus on near-term execution growing. The long-term earnings power of the company through organic and inorganic Investments and following a balanced appointment of our Capital. We Believe Borg Warner will create significant shareholder value for years to come

Patrick Nolan: Thank you, Craig. Rocco, we're ready to open it up for questions.

With that. I'd like to turn the call back over to Pat. Thank you Greg.

Rocco. We're ready to open up for questions.

Rocco: Thank you. At this time, I would like to remind everyone, if you would like to ask a question, press star one on your telephone keypad. If you're using a speaker phone, please pick up the handset before asking your question. To withdraw your question, please press star two. In the interest of time, please limit yourself to one question and one follow-up question. At this time, we will pause momentarily to assemble our Q&A roster. And today's first question comes from Joseph Spack at UBS. Please go ahead.

Thank you at this time. I would like to remind that everyone if you would like to ask a question press star 1 on your telephone keypad,

If you're using a speakerphone, please pick up the handset before asking your question.

To enjoy your question, please press star 2.

In the interest of time, please let me yourself to 1 question and 1. Follow-up question.

At this time, we will pause momentarily to assemble our Q&A roster.

And today's first question comes from Joseph spak at UBS. Please go ahead.

Joseph Spak: Morning, everyone. I just wanted to start, I guess, on organic growth. Craig, as you mentioned, sort of it was basically kept the same. The tariff impact was lowered and the production was raised. So the outgrowth, if we back out the tariff, is like a little bit better than flat versus maybe a little bit better than 1% prior. So I just wanted to understand what you're seeing on that front.

Morning everyone. Uh, I, I just wanted to to start, um,

I guess on organic growth. Um, Craig, as you mentioned, sort of it was basically kept the same.

The tariff impact was lowered and the production was raised, so the outgrowth, if we back out the tariff, is a little bit better than flat versus maybe a little bit better than 1% prior. So, I just wanted to understand what you're seeing on that front.

Patrick Nolan: Yeah. Hi, Joe. First, it's important to note that our quarterly outgrowth can be a bit volatile. So we think it's more useful to look at outgrowth on an annual basis. But with that being said, we did see a headwind from our lower battery sales, and that was mostly in North America, but to a lesser degree in Europe. That was driven by customer demand. If we exclude the BCF segment, our organic sales increased modestly, implying an outgrowth of 100 basis points. The main driver of that was a 31% increase in our light vehicle e-product sales, which is a continuation of what we saw in the first quarter.

Yeah. Hi. Joe, first, it's important to note that our quarterly outgrowth can be a bit volatile. So, we think it's more useful to look at outgrowth on an annual basis. But with that being said, we did see a headwind from our lower battery sales, and that was mostly in North America but to a lesser degree in Europe, uh, that was driven by customer demand. If we exclude the BCS segment, our organic sales increase modestly, implying an outgrowth of 100 basis points. The main driver of that was a 31% increase in our light vehicle e-rod sales, which is a continuation of what we saw in the first quarter.

Joseph Spak: Okay. Yeah, I was talking about in the guidance. So is that battery also the headwind for the full year?

Okay, yeah I was I was talking about in the guidance. So it was that battery. Also, the headwinds for the full year,

Patrick Nolan: Yeah, it continues to be.

Joseph Spak: That's correct.

Yeah, it continued to be.

Patrick Nolan: It continues to be a headwind for us. So on a full-year basis, we expect that declining revenue in the BCF segment to be approximately 100 basis points to the full-year outgrowth. And then there's another 60 basis points associated with tariff costs and associated recoveries. The rest of the outgrowth changes are relatively minor.

Joseph Spak: Yeah. Okay. That makes sense. And then just on the capital allocation, you know I'm just sort of wondering, I guess, how you're thinking about comfortable cash levels because you know, you last year you bought back 425 million, 325 in the back half. But cash is like meaningfully higher now than when it was at that time when you bought back that amount. So I just want to understand, you know, how I'm not asking you to sort of be unprudent with it, but like how should we think about how you're going to deploy or return that cash or deploy it inorganically from a timing perspective?

That's correct. It continues to be a headwind for us. So, on a full year basis, we expect that declining revenue and the BCS segment to be approximately 100 basis points to the full year out growth, and then there's another 60 basis points, associated with tariff costs and Associated recoveries. Uh, the rest of the outgrowth changes are relatively minor

Yeah. Okay, that, that, that makes sense. Um, and just on on the cap. Allocation, um,

You know, I'm just sort of wandering. I guess. How you're thinking about

comfortable cash levels because, you know, you, you, um,

Last year you bought back, you know, um, 425 million 325 in the back half. Um,

But cash is um like meaningfully higher. Um, now than when it was at that time when you bought back, that that amount. So um, I just want to understand, you know how, you know, I'm not asking you to sort of be unproven with it but like, how, how should we think about how you're going to deploy or return, uh, return that cash or deploy it in organically? Um, from a from a timing perspective.

Patrick Nolan: Yeah. First, I'd say we're really happy with our results in the quarter. Really strong free cash flow generation, half a billion dollars in the quarter. Teams around the globe are doing a fantastic job. As Joe and I mentioned in our scripts, we're focused on a discipline and consistent return of cash to investors. I think that's exactly what you saw in the second quarter. We returned $130 million to our shareholders between our cash dividend and our share repurchases. You know, as we look at the back half of the year, you know, we're focused on that discipline and consistency. So when you think about Q3 and Q4, obviously, we're going to increase our dividend, which is what we shared with you, that 55% increase. We also increased our authorization to a billion. That gives Joe and I a lot of flexibility.

Patrick Nolan: As you think about Q3 and Q4, we're going to pay that dividend, that 55% increase, and we're also going to repurchase shares. You should think about it as a similar level in Q3 and Q4 as you saw in Q2.

Joseph Spak: Okay. And is there a minimum cash level you're targeting now? You know.

And return of cash to investors. I think that's exactly what you saw on the second quarter. We turn return 1300 million to our shareholders between our cash dividend and our share repurchases. You know, as we look at the back, half of the year, you know, we're focused on that, uh, discipline and consistency. So, when you think about Q3 and Q4, obviously, we're going to increase our dividend, which is what we shared with you that 55% increase. We also increased our authorization to a billion. That gives Joan a lot of flexibility as you think about Q3 and Q4. We're going to pay that dividend at 55% increase, and we're also going to repurchase shares. You should think about it as a similar level in Q3 and Q4 uh, as you saw in Q2,

Okay. And is there a minimum? Cash level you're targeting now.

Patrick Nolan: We've always communicated our liquidity target is 20% of sales. We're a bit higher than that currently, and that's why you saw us return some cash to shareholders in the second quarter.

You know, we've always communicated. Our liquidity. Target is 20% of sales. We're a bit higher than that currently. And that's why you saw us return some cash to shareholders in the second quarter.

Joseph Spak: Thank you.

Thank you.

Patrick Nolan: Thank you.

Thank you.

Rocco: And our next question today comes from Colin Langen with Wells Fargo. Please go ahead.

And our next question today comes from Colin Langan with Wells Fargo. Please go ahead.

Colin Langan: Oh, great. Thanks for taking my questions and congrats on a good quarter. When I look at guidance, it's quite an impressive conversion implied prior to current guidance. I think sales at the midpoint is up 200 and the EBIT is up 54. That's a high 20% conversion. And then on top of that, a lot of the improvement in the sales guide is actually FX, which you would think would convert at a lower margin. So what is driving this really high conversion within your guidance?

Oh, great. Thanks for taking my questions and congrats on a good quarter. Um, when I, when I look at guidance, it's quite an impressive conversion. Implied prior to current guidance, I think sales of the midpoint is up to 200 and the

EV bet is up 54. It's a high 20% conversion and on top of that, a lot of the

Improvement in the sales. Guide is actually FX which you would think would convert at a lower margin. So so what is driving this really high conversion within your guidance?

Patrick Nolan: Yeah, maybe, Colin, why don't I walk you through our sales guidance and I'll walk you through our income guidance. So when you walk our sales guidance, our prior guidance, our April guidance, we were at $13.9 billion at the midpoint. Our current guidance is $14.2 billion. When you look at the drivers of that increase, industry production increases 1.5%. That's about a $250 million benefit. FX impacts $300 million, which is what I mentioned in my script. Then we have tariff recoveries coming down 1.6% in our prior guide to 1%. That's an $80 million headwind. And then our battery outgrowth coming down. That's about $100 million as Joe indicated. That's what gets us to 14.2.

Yeah. Maybe why don't I walk you through our sales guidance and I'll walk you through our income guidance. So when you walk our sales guidance, our prior guidance, our April guidance, we are at 13.9 billion at the midpoint. Our current audience is 14.2 billion.

When you look at the drivers of that increase industry, production increases in 1 and a half percent, that's about a 250 million benefit FX impact, 300 million, which is what I mentioned in my script.

Patrick Nolan: When you think about the margin profile going from 9.9 at the midpoint to 10.2, a couple of items there, we're converting at the mid-teens, which is what you would expect on that higher revenue. FX is converting about $0.10 on the dollar, which is typical for us. Then what's coming through is our Q2 outperformance, ring chopped by the teams, and that's coming through our guide. Basically, everything else is rounding. That's what gets us that 30 basis points improvement guide to guide.

Then we have tariff, recoveries coming down 1.6% in our prior guide to 1%. That's an 80 million dollar headwind. And then our battery outgrowth coming down, that's about 100 million is Joe indicated. That's what gets us to 142. When you think about the margin profile going from 999 at the midpoint to 102 a couple items there. We're converting at the mid teens, which is what you would expect on that higher Revenue FX is converting about 10 cents on the dollar which is typical for us. Then what's coming through is our Q2 outperformance, great job by the teams and that's coming through our guide.

Basically, everything else is rounding. That's what gets us that 30 basis points Improvement. Uh, guide to guide.

Colin Langan: Got it. That's very helpful. And you highlighted the e-products up 31. It was up 47 in Q1. I mean, how should we think about the pace through the rest of the year? I thought your original comments were that might moderate after Q1. It looks like it's still remaining very strong. Do the comps get a lot tougher, or should we continue to expect really high double-digit growth?

Got it. That's very helpful. Um,

And you highlighted the the e-products up 31. It was up 47 in q1. I mean, how should we think about the pace through the rest of the year? I thought your original comments were that might moderate after q1. It looks like it's still remaining very strong to the comps. Get a lot tougher or should we continue to expect, you know, really high double digit growth

Patrick Nolan: Yeah. Our goal, Colin, is to outgrow the market, right? So leveraging our portfolio, continue to win business, be number one or number two in nearly every product. So the goal hasn't changed. If you look at the first half of the year, the growth in that e-product side for light vehicle was in that 39% range versus a market that grew 21%. So we're really happy with that outgrowth. We think the teams are doing a really great job, and we've reflected all we know in our updated guide.

Yeah, our goal. Colin is to outgrow the market, right? So leveraging, our portfolio, continue to win business, the number 1 or number 2 and nearly every product. So, uh, the goal hasn't unchanged. Um, you know, if you look at the first half of the year,

The growth in that e, products side for light vehicle was in that 39% range versus a market That Grew 21%. So we're really happy with that outgrowth.

uh but we think the teams are doing a really great job and, you know, we've reflected all we know in our updated guide

Colin Langan: Got it. All right. Thanks for taking my questions.

Got it. All right, thanks for taking my question.

Patrick Nolan: Thank you, Colin.

Rocco: Thank you. And our next question today comes from Dan Levy with Barclays. Please go ahead.

Thank you, calling.

Thank you. And our next question. Today comes from Dan Levy with barklay, please. Go ahead.

Dan Levy: Hi. Thank you for taking the questions. Maybe just wanted to double-click on one of Colin's questions. And you just specifically in the quarter, if you could talk about the performance because you had a $7 million year-over-year EBIT benefit on a $31 million sales decline. And I think that was actually off of a tough comp on margin. So maybe you could just talk about some of the strength that you saw in the second quarter on the performance side and maybe what can be extrapolated from there.

Hi. Uh thank you for taking the questions. Maybe just wanted to double click on 1 of The Columns questions. Let me just specifically in the quarter if you could talk about the performance because you had

7 million, uh, year-over-year ebit benefit uh on a 31 million sales Decline and I think that was actually off of

Patrick Nolan: Sure. Yeah. So when we think about the second quarter, we really capitalized on that extra growth, that higher revenue value in the quarter coming in at over $3.6 billion. You saw that on the PDF front. They did an incredible job of converting that growth into income. And then it's a continuation of what you've seen the last several quarters, really focused on cost controls across the business. Think about productivity, restructuring, supply chain, savings, all going through our P&L. On top of that, we've had a 20% reduction of cost of poor quality, things like warranty, expedited freight, scrap, all coming down. And all of that led to that great performance in the second quarter.

Uh, a tough comp on on margins. So maybe you could just talk about some of the strengths that you saw in in the second quarter on the performance side. And maybe what could be extrapolated from there?

Growth in the income and then it's a continuation of what you've seen. The last several quarters really focused. On cost controls across the business. Think about productivity, restructuring, supply chain, savings. All going through our p&l. On top of that, we've had a 20% reduction of cost of poor quality, things like warranty, expedited freight, scrap all coming down and all of that led to that great performance in the second quarter.

Dan Levy: Okay. Thank you. And then maybe in the second question, if we could double-click on the two foundation segments. We've now had a--I recognize that on a growth-over-market basis, the numbers may actually be okay, but we've now had a number of quarters where the organic growth is tracking negatively. And I guess the question is, is what is the path here? I know you're you're winning business, but what is the path here for the organic growth to get to a point where it's positive again? Is there opportunity, especially in North America, with some of the easing regulations that we could see a pickup in penetration rates of some of the technologies? But what's the path to getting these two segments back to some sort of positive growth?

Okay, thank you. Um, and then maybe as a second question, if we could double click on the 2nd of segments,

Uh We've now had a a I recognize that on a growth of a market basis. The numbers may actually be okay but we've now had a a number of quarters where the organic growth is is tracking negatively and I guess the question is is

What is the path here? I know, you're you're winning business but what is the path here for the organic growth? Uh, to get to a point where it's positive again is their opportunity, especially in North America, with some of the easing regulations that we could see a pickup in penetration rates as some of the Technologies. But what's the path of getting these 2 segments, uh, back to, uh, some sort of positive growth?

Patrick Nolan: Yeah. Maybe first, I'll just ground us with on the combustion market. That's down 4% in the quarter. So that's a little bit our starting point. Now, irrespective of the business unit, we want to outgrow across all the businesses. So TTT, DMS, which is our primary combustion businesses, their goal is to outperform the market of C and H. That's the way we view it. So when I step back a minute and I look at the number of hybrid RFQs, I look at the number of extensions on combustion businesses, and I look at the e-product growth across Europe and Asia, you know we're really confident with the portfolio we have and the competitiveness of our products. So I'm optimistic that we'll continue to see outgrowth over the next years.

Yeah, maybe first I'll just ground us with on the combustion Market that's down 4% in the quarter. So uh, that's a little bit, our starting point. Uh, now irrespective of the business unit, uh, we want to outgrow across all the businesses. So TTT, DMS, which is our primary combustion businesses. Uh, their goal is to outperform the market of C and H. That's the way we view it. So, uh, when I step back a minute and I look at the number of hybrid rfqs, I look at the number of extensions on combustion businesses. Uh, and I look at the e-pro growth across Europe and and Asia

You know, we're really confident with portfolio. We have and the competitiveness of our products, so, um, I'm optimistic that we'll continue to see outgrowth, uh, over the next years.

Dan Levy: And could this be at a point where you'll actually see, even with the sort of the weak starting point, it'll get you to positive organic growth?

And could this be at a point where you'll actually see, uh, e, even with the sort of the week starting point, it'll get you the positive organic growth.

Patrick Nolan: Can you clarify the question?

Can you clarify the question?

Dan Levy: I recognize the starting point is weaker, but is there enough outgrowth that it actually could get you to a positive organic growth opportunity with some of these award wins?

Patrick Nolan: Okay. Got it. So we can't really predict the underlying market. You know the demand has been flat over the last few years, as you know. But that would be an additional pickup. You know if those end markets pick up, then that outgrowth will be even more meaningful, and our incrementals, I think, will flow through to the bottom line even stronger. So you know what we're focused on is really outgrowing our end markets. And for the combustion businesses, that means the C and H segments. And for the e-products, it's the hybrid and BEV. What we're really excited about is the potential for these advanced hybrids. And we're starting to see a lot more RFQ flow. And as we announced in the second quarter, we're winning quite a bit of new programs in the hybrid space. So that's good for BorgWarner.

You you're starting I recognize the starting point is is weaker but is is there enough outgrowth that actually could get you to a positive oranicuhh?

Okay, got it. So we can't really predict the underlying Market, you know, the demand has been uh, flat over the last few years as you know. Um, but that would be an additional pickup, you know, if those end markets pick up then that outgrowth will be even more meaningful and our incremental uh I think will flow through to the bottom line, even stronger. So you know what we're focused on is really outgrowing, our end markets and for the combustion businesses. That means the cnh

Segments. And for the e-products, it's the hybrid. And Bev what we're really excited about is the potential for these Advanced hybrids and we're starting to see a lot more RFQ flow. Uh, and as we announced in the second quarter, we're winning quite a bit of new programs in the hybrid space. So, uh, that's good for board Warner.

Colin Langan: Great. Thank you.

Great. Thank you.

Rocco: Thank you. And our next question today comes from Chris McNally at Evercore. Please go ahead.

Thank, thank you. And our next question. Today comes from Chris McNally at evercore. Please go ahead.

Dan Levy: Thanks so much, team. Great results. I'm curious about, if I look at the year-over-year walk, it seems like there's a $15 million tariff timing. And I don't really care about the timing. I think you guys have been clear. You know a lot of these negotiations, you get paid a month or something later. But I'm curious where the $15 million drag occurred because when we look at your margins, we're seeing really strong ICE margins on the two divisions. The EV losses are coming down. So if I look at Triple T, it's 15.7 first half. Drivetrain, 18%. So I'm just curious if the $15 million is in any of the ICE businesses. You know we may be mismodeling some of your margins going forward on core ICE going, you know as I think, on a multi-year basis.

Dan Levy: So just curious if you could give a little bit of detail where that $15 million lag was because it helps us with the underlying margins.

Patrick Nolan: Yeah. Thanks, Chris. The majority of those costs, those tariff costs are in the combustion business unit, so DMS and TTT. And it's really just great cost controls from those businesses. So again, we focused on productivity, restructuring, supply chain savings, cost of poor quality. Those businesses were able to effectively offset a lot of that tariff headwind in the quarter. Great job by those teams. But that's where you see the impact of tariffs primarily is in the combustion businesses.

Uh, thanks so much team. Uh, great, great results. Um, I'm I'm curious about, um, if I look at the the year-over-year walk, it seems like there's a, a 15 million dollar car of timing. And I, I don't really care about the the, the timing that you guys have been been clear. It's, you know, the, a lot of these negotiations, you, you get paid or, you know, a month or something later, but I'm I'm curious where the 15 million drag uh, occurred because when we look at your your your margins, we're seeing really strong ice margins on the 2 Division, the EV losses are coming down. So I look at Triple T, it's 157 first, half it drivetrain 18%. So I'm just curious if, if the 15 million is in any of the ice businesses, you know we may be misleading some of your margins going forward, um, on on Core ice going, you know, as I think on a multi-year basis. So just curious, if if you can give a little bit of of detail where where that 15 million lag was because it, it helps us with the underlying margins

And we focused on productivity restructuring supply chain savings, cost of poor quality, those businesses were able to effectively offset a lot of that tariff headwind in the quarter. Great job by those teams. But that's where you see the impact of tariffs primarily is in the combustion businesses.

Dan Levy: Wow. I mean, that's why I was curious. That kind of, you know that was my suspicion. Because just reminding us, is this a fair assumption? You've talked about the mid-teens, incremental and decremental, right, which we think about incrementals for EV as it comes from losses to positive, and decrementals we used to think about for ICE. But if we get to a point where the ICE business is only declining on a production basis, you know 3, 4, 5 percent, and you're trying to outgrow that, as you discussed, by low single digits, is it fair to say that we may just have a flattish foundational business and so that you're going to try to hold margins essentially flattish there as well? I mean, obviously, you can't predict those. But in those assumptions, there is a scenario where you keep ICE foundational revenue flat, right?

Wow, that's that's, I mean that's why I was I was curious that that kind of, you know, that was my, my suspicions um, because I just remind us is, is this a fair assumption? You know, you've talked about the, the mid teens incremental and decremental, right? Which we think about incremental for, for Ev, is, it comes from losses to to positive and decremental. We used to think about for for ice, but if we get to a a point where the ice business is only decline on a production basis, you know, 3 4 5 percent and you're trying to outgrow that, um, as you discussed by, you know, low single digits, is it fair to say that we may just have a flattish foundational business and so that you're going to try to hold margins essentially flattish there, as as well. I mean, obviously you can't protect those, but in those assumptions, there is a a scenario where you keep ice foundational Revenue flat, right?

Patrick Nolan: Yeah. Hi, Chris. Maybe I'll just back us up to two points. One, as we've stated, we want to leverage growth across the portfolio. So for the combustion businesses, where we're number one or number two, you know that means looking at how do we grow market share? How do we continue to bring new features into those products like turbochargers, capitalizing on the increasing penetration, which we anticipate for variable cam timing and turbos? So it all starts with really leveraging the entire portfolio. And then for Craig and I, what's really important is that we drive financial performance. And that means not only growing the top line, but expanding margins across the company.

Yeah, hi. Chris may maybe I'll just back us up to, you know, 2 points 1 as we've stated, we want to leverage growth across the portfolio, so for the combustion businesses where we're number 1 or number 2, you know, that means, uh, looking at how do we grow market share? How do we continue to bring new features into those products like turbochargers. Uh, capitalizing on the increasing penetration, which we anticipate, uh, for variable cam timing and turbos. Uh, so it all starts with, you know, really leveraging the entire portfolio. And then uh, for Craig. And I, what's really important is that we drive financial performance. And that means not only growing the top line, but expanding margins across the company.

Dan Levy: Okay. Excellent. And I appreciate all the detail on the turbo wins. Thanks so much, team.

Okay, excellent. And I appreciate all the detail on the on the turbo wins. Thanks so much team.

Patrick Nolan: Thank you.

Thank you.

Rocco: And our next question comes from Emmanuel Rosner with Wolf Research. Please go ahead.

And our next question comes from a manual Rosner with wolf research. Please go ahead.

Emmanuel Rosner: Thank you so much. First question is coming back to the growth of a market. So I realized in looking at it on a 40-year basis, under the 250 basis point, but you got some tariff recoveries. You got some headwinds from the batteries. Can you just remind us what your longer-term framework is or target is for growth of a market and essentially where are we in some of these battery headwind process, but also what will be the drivers of acceleration?

first question is coming back to the

of a market. So I realized in looking at it on a food year basis, uh, on the 250 basis point, but you got some, uh, you got some tax, recoveries you got some, uh, headwinds from the batteries? Um, can you just remind us what your

Um, you know, longer term framework is or Target is for you know, growth of the market and essentially where are we in some of these, you know, battery headwinds, uh process but also you know, what will be the drivers of uh of acceleration.

Patrick Nolan: Yeah. So first, I just want to acknowledge the headwind that our battery business is creating. Again, that's about 100 basis point headwind. Then we had another 60 basis points on tariffs and tariff recovery. Overall, we expect to outperform and outgrow the markets across the portfolio. So recently, we've been in that low single digit the last few years, and we've got goals that are higher than that. So for us, it's just important that we identify and win those businesses across the entire portfolio, and we're starting to do that. I think if I just point to the Q2 announcements, we shared just nine of the wins that we've had. Our teams have done a great job to really identify and win those businesses that mean a lot to the top line. So I'm really pleased with that.

Yeah, so first, I just want to acknowledge the headwind that our battery business is creating, uh, again, that's about 100 basis point headwind. Then we had another 60 basis points on tariffs and tariff recovery. Uh, overall, we expect to outperform and outgrow the markets across the portfolio. So, um, you know, recently we've been in that low single digit, uh, last few years and, uh, we've got goals that are higher than that. So, you know, for us it's just important that we, uh, identify and when those businesses across the entire portfolio and and we're starting to do that. I think, if I just point to the Q2 announcements, uh, we share just 9 of the wins that we've had our teams have done, a great job to really identify and and win those businesses that mean a lot to the Top Line. So I'm really pleased with that.

Emmanuel Rosner: I guess that's my question. How would you sort of see these temporary headwinds play out, I guess, for in future periods? And then to what extent does the booked business that you already have support some sort of growth of a market acceleration as we look beyond sort of like this year's guidance?

I guess that. That's my question. The, um, um, you know.

How would you sort of see these, you know, temporary, headwinds, um, you know, play out, I guess for in, in, in future periods. And then, um,

To what extent does the booked business that you already have support? Some sort of uh uh growth of a market acceleration. Um as we look Beyond sort of like this year's guidance,

Patrick Nolan: Yeah, we're not going to provide, let's say, a long-term target. But again, just back to the battery side, you know those headwinds, which if you look at the full-year forecast, it's about $100 million versus our last guide. And we continue to see some volatility in the short term. I would say longer term, I'm very bullish on our battery business. We believe that energy storage and more efficient energy conversion is really a great trend in the markets. And so longer term, we can expect that battery business to bring quite a bit of value to the company.

Yeah, we're not going to provide, let's say, a, a long-term Target, but again, just back to the battery side, you know, those headwinds, uh, which if you look at the full year forecast, it's about a hundred million dollars versus our last guide. And we continue to see some volatility in the short term. Um, I would say longer term, uh, I'm very bullish on our battery business.

To bring quite a bit of value to the company.

Emmanuel Rosner: Okay. Thanks. And then I guess focusing on those wins that you highlighted for the quarter, it was very noticeable that almost every single one of them is actually some variation of hybrid powertrain. And maybe that's just the one that you're showcasing here out of many more. But is this sort of like a function of the direction the market is going, or is it a function of where you have the highest win rates, or is this just sort of like a small sample? You know, all these wins seem to be somehow in the hybrid powertrains.

Okay thanks. Um and then I guess focusing on those wins that you highlighted for the quarter um it was very noticeable that you know almost every single 1 of them is actually some variation of of hybrid powertrain and and maybe that's just the ones that you're showing here, you know, out of many more. But is this sort of like a function of the direction, the market is going or is it a function of what you know, where you have the highest win rate? So is this just sort of like a, a small sample? Um you know, all all all these wins seem to be somehow um in in the hybrid Powertrain.

Patrick Nolan: Yeah. I think if you look at the first half activity of this year compared to a year ago, the amount of RFQ and RFI activity is significantly higher. So that's the good news. I think the OEMs have really begun to get some clarity on their cycle plans and how they want to react to some of the market dynamics and potential regulation changes. And as you could see in the quarter, we're winning across all the segments and across all of our product lines. So what we're really pleased about is it's not contained within just one segment. You referenced hybrid, which we're really happy about because if we think about the content of a hybrid vehicle and advanced plug-in, let's say we can serve it with both the combustion side of the portfolio and the e-product side.

Yeah, I think if you look at the first half activity of this year, compared to a year ago, uh the amount of RFQ and RFI activity is significantly higher. So, that's the good news. I think the oems have really begun to get some clarity on their cycle plans and how they want to react to some of the market dynamics and potential regulation changes. Uh, and as you could see in the quarter, uh, we're winning across all the segments and across all of our product lines. So, uh, what we're really pleased about is, it's not contained, within just 1 segment, you reference hybrid, uh, which we're really happy about because if we think about the content of a hybrid vehicle and advanced plug-in, let's say, uh, we can serve it with both the combustion.

Patrick Nolan: So we're actually pleased to see more advanced hybrids in the RFQ flow.

Inside of the portfolio and the E product side. So we're actually pleased to see more advanced hybrids uh, in the RFQ flow.

Emmanuel Rosner: Got it. Thank you.

Thank you.

Rocco: Thank you. And our next question today comes from Luke Yunk with Baird. Please go ahead.

Luke Junk: Good morning. Thanks for taking the questions. Joe, maybe on capital allocation with the M&A side of the house, just be curious to double-click on your comment that potential acquisitions wouldn't be driven, I think you used the word, purely by strategic rationale. Sounds like you're widening out the aperture for deals a little bit. Just hoping to better understand that to start. Thank you.

Thank you. And our next question. Today, comes from Luke young with beard. Please go ahead and good morning. Thanks for taking questions. Uh, Joe maybe on uh, Capital allocation, with the m&a side of the house, uh, just be curious to double click on your comment that potential Acquisitions. Wouldn't be driven. I think you used the word purely by strategic rationale. Um, sounds like you're winding up the aperture for deals a little bit. Just hoping to better understand that to start. Thank you.

Patrick Nolan: Yeah. No, thanks for the question. I mean, we still remain active in the space, and I just want to reiterate, you know, first, inorganic investments, they need to be leveraging our core competence. So we have a lot of core competence we've built over decades. And so we're looking for strong industrial logic to start with. Of course, we talk about near-term earnings accretion. That's important and not overpaying for the asset. I wouldn't read in too much to the comment around strategic. You know, we've done a lot of work over the last five or six years making some acquisitions to pivot our portfolio. And some of those were money-losing acquisitions. But if I look today, Craig and I are really pleased with our portfolio. So we're in a different place, a better place. And for us, tightening up the criteria around future acquisitions is really important.

Yeah, no. Thanks for the question. I mean, we still remain active in the space and, uh, I just want to reiterate, uh, you know, first inorganic Investments. They need to be, uh, leveraging, our core competence. So, uh, we have a lot of core competence we've built over decades and so we're looking for strong industrial logic, uh, to start with

Um, of course, we talked about near-term earnings accretion, that's important and not overpaying for the assets. Um, I wouldn't read in too much to the, uh, common around strategic, you know, we've done a lot of work over the last 5 or 6 years, making some Acquisitions to Pivot our portfolio and some of those were

Patrick Nolan: At the end of the day, we want to drive expanded shareholder value and more earnings. So for us, that's a priority.

Money losing Acquisitions, but if I look today, Craig and I are really pleased with our portfolio. So, we're in a different place, a better place. And for us, uh, tightening up, the criteria around future Acquisitions is really important. At the end of the day, we want to drive uh, expanded shareholder value and more earnings. So for us, that's a priority.

Luke Junk: Got it. And then for my follow-up, Joe or Craig, maybe this question could be for both of you. Just curious to get your thoughts on the power drive margins from here. And I guess I'm thinking specifically around China impacts, clearly a very important e-product market in terms of power drive. And we know cycle times are getting faster and faster there. You know, you showed us the inverter award this quarter that's actually going to launch before year-end. And I'm just trying to understand how that cycle time and the engineering side of the house in terms of maybe more off-the-shelf, less customization, how that impacts the margins in that business, engineering intensity, and driving towards a mid-teens type incremental. Thank you.

Got it. And then for my follow-up, Joel, um, or Craig, maybe discussing be for both of you. Um, just curious to get your thoughts on the power drive, margins from here and I guess I'm thinking

Uh, specifically around China impacts clearly a very important uh e product market in terms of power drive and we know cycle times are getting faster and faster there. You know, you showed us the inverter award this quarter that's actually going to launch before year end. And I'm just trying to understand how that uh cycle time and the engineering side of house, in terms of uh maybe more um, you know, off the shelf less customization, how that impacts the margins in that business engineering intensity and driving towards a, you know, mid teens type incremental. Thank you.

Patrick Nolan: Yeah. So I'll cover the margin side of it. So when you think about what's our goal in all of our businesses, but including PDFs, it's converting the mid-teens, converting the mid-teens. That's exactly what we're focused on. And when you look at our performance in PDFs in Q1 and Q2, that's exactly what you saw. We converted in the mid-teens on that extra growth. Joe mentioned it, 38% year-over-year light vehicle e-products growth. And what did we do? We converted in the mid-teens. It gives Joe and I a lot of confidence that we have that capital, that cost structure right, and we're seeing that through our P&L. So great work by the PDF team. I would just add that in China specifically, you know we enjoy lower overhead costs. Actually, the speed to market that the OEMs demand results in lower R&D costs.

Yeah, so I'll I'll cover the margin side of it. So when you think about what's our goal in all of our businesses but including PDS, it's converting the mid teens, converting the mid teens. That's exactly what we're focused on and when you look at our performance and PDS and q1 and Q2, that's exactly what you saw. We converted in the mid teens on, that extra growth, Joe mentioned it 38% year-over-year, light vehicle, e-products growth. And what do we do? We convert in the mid teens? It gives Joe. And I a lot of confidence that we have that Capital that cost structure, right? And we're seeing that through our p&l. So great work by the PDS team.

Patrick Nolan: These aren't three and four-year development programs. They're much shorter, sometimes even less than 12 months, like some of the wins we announced. So that results in lower overhead. And one of the reasons we can go quick to market, some of the OEMs are more open to take things off the shelf with just minor tweaks. We're also able to reuse capital. Our e-product business, you know, is pretty significant in China, and we're building scale there quite rapidly. So you know for us, we want to continue to win there, and it's a really important market.

Uh actually the speed to Market that the oem's demand uh results in lower R&D costs, these aren't 3 and 4 year development programs. Uh, they're much shorter, sometimes even less than 12 months. Like some of the Winds we announced. Um, so that results in over lower overhead and and 1 of the reasons we can go quick to Market, some of the oems are more open to take things off the shelf with just minor tweaks. Uh, we're also able to reuse Capital, uh, our e product business, you know, is pretty significant in China and, and we're building scale their

Uh, quite rapidly. So, you know, for us, we want to continue to win there and it's, uh, really important Market.

Luke Junk: Good stuff. Thank you.

Good stuff. Thank you.

Rocco: Thank you. And our next question today comes from James Ficarello at BNP Paribas. Please go ahead.

Thank you. And our next question. Today comes from James farello, BNP Perry Ball. Please go ahead.

James Picariello: Hey, good morning, everybody. Just with respect to your latest restructuring actions, what's the progress report on the battery consolidation savings? You're getting $15 million this year, another $5 million next year. And as we think about that segment, and I know we kind of touched on this, but if the battery business doesn't show stabilization from here, and of course, we'd be interested in your assessment on that, but are there other actions you could take for that business to go beyond the 15% decremental, the mid-teens decremental if battery revenue were to continue to slide in the years? Thanks.

Hey good morning everybody. Um just with respect to your your latest restructuring actions. Like what What's the progress report on the battery consolidation savings, you know getting 15 million this year. Another 5 million next year. And as we think about that segment and I know we we we kind of touched on this but if the battery business doesn't show stabilization from here, and of course, would be interested in in your assessment on that. But are there other actions you could take for that business? To go beyond the 15% Sacramento, the mid teens Sacramento, if if battery Revenue were to continue to slide,

And out of yours. Thanks.

Patrick Nolan: Yeah. Maybe I'll start with a little bit of the broader view. So as we referenced, you know, the headwinds we're seeing, about $100 million this year compared to our prior guide, we're just going to have to continue to look at the market. It's volatile right now, and we'll manage accordingly. I'm really happy with the actions our teams have taken. You know, we did not sit and wait. They moved quickly. And if I just reference Q2 sales for a minute, the business is slightly EBITDA positive and cash flow break-even. Therefore, we think we have it well positioned to profitably grow as the demand picks up, and we believe in the long-term outlook for this business.

Yeah, maybe I'll start with a little bit the broader view. So as we referenced

You know, the, the headwinds were seen about 100 million this year, compared to our prior guide, uh, we're just going to have to continue to look at the market as volatile right now, and, and we'll manage accordingly. Um, I'm really happy with the actions. Our teams have taken, you know, we did not sit and wait, uh, they move quickly. And if I just reference Q2 sales for a minute, the business is slightly ebida positive and cash flow Break. Even therefore we we think we have it. Well, positioned to profitably grow as the demand picks up and and we believe in the long term outlook for this business.

James Picariello: Okay. And then focusing on the power drive segment as my follow-up, we're seeing really nice first half inflection, core sales up 25% to 30%. Just how should we be thinking about the second half relative to the strength we're seeing? I mean, I know you don't provide segment-level guidance, but I'm curious if you could share any thoughts on whether the second half revenue should sustain the similar momentum or if there's any timing of program rolloff or roll-on to consider. Thanks.

It's okay. And, and then focusing on the, the power drive segment. As my follow-up, we're seeing really nice. First half, in flexion course, sales up 25 to 30%. Just, how should we be thinking about the the second half relative to the strength? We're seeing? I mean I know you don't provide segment level guidance but really curious, if you could share any thoughts on, you know, whether the second half, you know, Revenue should sustain the similar momentum or you know, if there's any timing of

program roll off or roll on to

to consider things.

Patrick Nolan: Yeah. Todd is really dependent on production levels in the second half of the year. Our focus as a team is outgrow industry production. Again, for that side of the business, it's hybrid plus electric production and convert that growth into income in the mid-teens. So that's how you should think about it. And you can make your assumptions on industry production in the second half of the year.

James Picariello: Yeah. And just on the hybrid, are you starting to see more quoting on more RFQ activity on the hybrid side for new programs?

Yeah, that is the dependent on production levels in the second half of the Year. Our Focus as a team is outgrow industry production. Uh again for that side of the business, it's hybrid Plus Electric production and convert that growth into income in the mid teens. So that's how you should think about it and you can make your assumptions on industry production in the second half of the year

Yeah, just on the hybrid. Are you starting to see more quoting on on on the, you know, more RFQ activity on the hybrid side for new programs?

Patrick Nolan: Definitely. When we talk about advanced hybrids, so plug-ins, range extended hybrids, we definitely see much higher RFQ flow than we did a year ago.

Definitely when we talk about Advanced hybrids, so plug in range extended hybrids, uh we definitely see much higher RFQ flow than we did a year ago.

James Picariello: Thank you. With that, I'd like to thank you all for your questions today. If you have any follow-ups, feel free to reach out to me or my team. Rocco, you can go ahead and conclude today's call.

Thank you.

Rocco: Thank you. This concludes the BorgWarner 2025 second quarter results conference call. You may now disconnect your lines.

With that, I'd like to thank you all for your questions today. If you have any follow-ups, feel free to reach out to me or my team rockco. You can go ahead and conclude today's call.

Thank you. This concludes the Borg Warner 2025, second quarter results conference call. You may. Now, disconnect your lines.