UPDATE 1-BorgWarner posts stronger-than-expected profit

Thu Feb 13, 2014 11:08am EST

DETROIT Feb 13 (Reuters) - BorgWarner Inc, which makes automotive turbochargers and emissions systems, posted a higher-than-expected quarterly profit on Thursday on strong demand for all-wheel drive systems, dual clutch transmission modules and other parts in its drivetrain business.

The auto parts maker, whose shares rose 1.5 percent in morning trading, also reiterated the full-year profit outlook it provided last month, although Morgan Stanley analyst Ravi Shanker called the margin forecast very conservative.

"The bad news in the results was the ongoing softness in the core engine business," Shanker said in a research note. "The good news was the continued strength of drivetrain."

The Auburn Hills, Michigan-based company is one of the biggest suppliers of turbocharging technology, which automakers have been using to boost fuel economy and meet upcoming federal standards for mileage.

Net income in the fourth quarter rose nearly 17 percent to $141.4 million, or 62 cents a share, from $121.2 million, or 51 cents a share, a year earlier.

Excluding restructuring charges and other one-time items, BorgWarner earned 79 cents a share, 8 cents more than analysts polled by Thomson Reuters I/B/E/S had expected.

Analysts credited some of the earnings beat to a lower-than-expected tax rate as well as low-than-anticipated corporate expenses. Guggenheim Securities analyst Matthew Stover estimated those two factors had aided the bottom line by a combined 5 cents a share.

Revenue rose 10 percent to $1.89 billion. Analysts had expected $1.9 billion.

In the company's engine segment, adjusted earnings rose 14 percent to $208 million, below expectations of $224 million by Morgan Stanley's Shanker. But the drivetrain segment's profit jumped 43 percent to $71 million, exceeding his estimate of $59 million.

BorgWarner affirmed its 2014 outlook, saying it still expected to earn $3.10 to $3.25 a share. Analysts forecast $3.23.

As part of that outlook, the company expects net sales growth of 7 percent to 11 percent from 2013, excluding acquisitions, and operating income margins of 12.5 percent or higher.

BorgWarner's 2013 margins were 12.4 percent, according to Shanker.

The 2014 outlook excludes the impact of the pending acquisition of Gustav Wahler. In December, BorgWarner said it would acquire the German maker of exhaust gas recirculation valves, tubes and thermostats in the first quarter for an undisclosed amount.

Shares of BorgWarner were up 85 cents at $56.29 in morning trading on the New York Stock Exchange.

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