February 14, 2013 / 5:35 PM / 5 years ago

UPDATE 1-BorgWarner mulls share buybacks, delaying projects

* Posts better-than-expected 4th-qtr results

* Mulling more share buybacks as deals harder to close

* Shares slightly higher in midday trading

By Deepa Seetharaman

Feb 14 (Reuters) - BorgWarner Inc, which makes automotive turbochargers and emissions systems, said on Thursday may put off some investment projects as part of a push to offset an expected slowdown in sales growth.

The company, reporting better-than-expected fourth-quarter earnings, also said it may use its cash to buy back shares this year, particularly as it gets tougher to buy and sell assets that could boost the company’s market value.

BorgWarner said it expects 2013 sales to grow between 2 percent and 6 percent, lower than the typical 8 percent to 10 percent needed to maintain margins. The outlook reflects the persistent weakness in the European auto industry, which accounts for nearly half of the company’s sales.

“Slower sales growth will mean less incremental income to offset the inflationary cost pressures,” Chief Financial Officer Ron Hundzinski said during a conference call to discuss the fourth-quarter results.

“But we expect to supplement our incremental income with increased productivity gains and spending controls,” Hundzinski told analysts.

As part of those cost-saving measures, BorgWarner could “defer certain investments at times,” Hundzinski added, without specifying the projects that could be put on hold.

During the fourth quarter, the company’s operating margin was 10.9 percent. This year, the company is aiming for 11.5 percent or better.

BorgWarner is one of the biggest suppliers of turbocharging technology, which has been increasingly utilized by automakers, including Ford Motor Co and Hyundai Motor Co, to boost fuel economy and meet upcoming federal standards for fuel mileage.

Last week, Consumer Reports magazine said the benefit of the technology may be overstated, citing its own tests that showed small, turbocharged engines do not have much of an edge over larger, more traditional engines.

BorgWarner executives on Thursday said it was possible to get a wide range of fuel mileage results depending on the type of testing Consumer Reports did and the driving styles.

The company’s shares were up 42 cents at $75.59 in midday trade.


The auto parts supplier reported fourth-quarter earnings of $1.16 per share before one-time items, better than the $1.13 expected by analysts polled by Thomson Reuters I/B/E/S.

Revenue fell 3 percent to $1.72 billion but was slightly higher than analysts’ estimates. Sales in its engine segment declined 6 percent due to weakness in Europe.

Morgan Stanley said higher-than-expected revenue, share buybacks and a lower tax rate helped the company beat earnings expectations. BorgWarner repurchased 1.5 million of its common shares during the quarter.

BorgWarner ended 2012 with $879 million in net cash from operating activities, up from $708 million a year earlier.

The company’s top priority is to use its cash to fund M&A activity, but it has been tough to close transactions in the current economic environment, Hundzinski said.

The company is “a little behind” its desired M&A pace, despite the heightened interest in dealmaking in the industry, he said. As a result, it is considering using its cash to do more share repurchases.

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