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spk10: Good morning, everyone. My name is Beau and I will be your conference facilitator. At this time, I would like to welcome everyone to the BorgWarner 2024 second quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star one on your telephone keypad. If you would like to withdraw your question, press star two. If you are using a speakerphone, please pick up the handset before asking your question. I would now like to turn the call over to Patrick Nolan, Vice President of Investor Relations. Mr. Nolan, you may begin your conference.
spk07: Thank you, Beau. 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. Before we begin, I need to inform you that during this call, we may make forward-looking statements which involve risks and uncertainties as detailed in our 10-K. Our actual results may differ significantly from the matters discussed today. During today's presentation, we'll highlight certain non-GAAP measures in order to provide a clearer picture of how the core business performed and for comparison purposes with prior periods. When you hear us say 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 organic change in our adjusted operating income divided by the organic change in our sales. Our all-in incremental margin includes our planned investment in ER&D, any impact from net inflationary items, and other cost items. We will also refer to our growth compared to our margins. When you hear us say market, that means the change in light and commercial vehicle production weighted for our geographic exposure. Please note that we've 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. With that, I'm happy to turn the call over to Fred.
spk02: Thank you, Pat. And good day, everyone. I'm very pleased to share our results for the second quarter of 2024 and provide an overall company update starting on slide five at approximately 3.6 billion dollars our q2 sales were relatively flat year over year outperforming a modest decline in production for the first half of the year we outgrew our market by about 350 basis points once again This sales outgrowth shows the resiliency of our efficiency-focused portfolio, which is, I believe, positioned to outgrow the market in any type of propulsion mix scenario. We secured multiple new product awards across combustion, hybrid, and electric for both passenger cars and commercial vehicles. Turning to our bottom line for the quarter, We delivered a very strong 10.4% margin, which was up 30 basis points versus prior year. We delivered EPS of $1.19 per share, which was 13 cents increase versus prior year. Our first half 2024 margin and EPS performance has allowed us to increase our full year margin and earnings guidance, as Craig will detail later. We carried on our restructuring actions, now focusing on our e-propulsion segment to adjust our cost structure to current market dynamics. We expect that these actions will result in annual run rate cost savings of of about 100 million dollars by 2026 with immediate positive impacts we also introduced a new business unit structure designed to maximize cost synergies enhance our go-to-market global strategies and bring further simplicity and clarity to our shareholders lastly we remain focused on efficient deployment of our capital and announced our intention to repurchase $300 million of ball runner stock in the second half of 2024. Next, on slide six, I would like to take a moment to highlight our 2024 sustainability report, which was published earlier this month. BorgWarner's vision is a clean, energy-efficient world, and I'm proud to lead a company where our business goals go hand in hand with our sustainability goals. At BorgWarner, sustainability means delivering value to all stakeholders for today and tomorrow. I would like to highlight just a few points of progress described in the report. First, Forerunners reduced Scope 1 and 2 greenhouse gas emissions by 32% from the 2021 baseline, making progress on our SBTI validated goal to reduce it 85% by 2030. Seconds. The company engaged our supply chain management and engineering teams to advance the company's goal of reducing Scope 3 emissions 25% by 2030 compared to a 2021 baseline. And third, we performed above all benchmarks on employee sense of inclusion and belonging on the company's engagement survey. I would like to thank our entire team for their dedication and excellence in innovating products for cleaner mobility, making leaps towards achieving our climate and other sustainability goals, and investing in our people. Now, let's look at some new product awards on slide seven. First, Port Warner has secured multiple contracts. to supply its electric cross differential, or EXD, to three major OEMs. The companies will incorporate BoardWarner EXD technology into both rear and front wheel drives of electrified powertrain application. Startup production is expected in 2024 and 2026. Our EXD is part of our electric torque management system, which offers a range of products that intelligently controls wheel torque to increase stability, provide superior dynamic performance, and improve traction during launch and acceleration. Next, BorgWarner has secured awards to deliver high-voltage e-fan systems for use on a major global OEM series of electrical commercial vehicles in North America. This marks the largest e-fan business win in North America for us, with expected start of production in Q4, 2027. BorgWarner's complete e-fan system is comprised of three components, including a fan, an e-motor, and an integrated high voltage inverter, with the capacity to reach up to 10 kilowatt of power and 40 Newton meters of torque. Lastly, BorgWarner has secured two EGR cooler awards with a prominent North American-based commercial vehicle customer. Start-up production is expected to be in Q4 2027 with implementation across various medium-duty commercial trucks. Our emissions-reducing EGR solution offers high robustness against thermal fatigue and optimizes coolant distribution throughout the engine for increased performance. We continue to see strong interest across our EGR product portfolio, which supports the need for highly efficient combustion engines That means increased fuel economy needs and stringent emission requirements across the world for combustion and hybrids. Now, let's turn to slide eight, where I would like to discuss our new business unit structure. As we have continued to outgrow the market, and leveraged the leadership, robustness, and scale of our product portfolio, it is now the right time to align our business unit structure to further enhance our ability to execute our strategy. We believe this will drive cost synergies, higher focus, and clarity for all stakeholders. As such, beginning in the third quarter, BorgWarner will reorganize its four business units and associated financial reporting segments as follows. Our turbos and thermal technology business unit is led by Dr. Volker Weng. This business unit is unchanged. Our power drive system, which today is our externally reported e-proportion segment, We continue to be led by Dr. Stefan Demeler. This business unit is also unchanged. Our drivetrain and more systems businesses are now combined into one business unit and is led by Isabelle McKenzie. We've combined our commercial vehicle battery and charging businesses into one business unit, which is led by Hank Pontournaut. To summarize, the takeaways from today are this. BorgWarner's second quarter results were strong. Our sales performance once again outperformed the industry. Our adjusted operating margin was the highest since the Finnair spinoff. And our cash generation was very strong and support our $300 million of intended share repurchase in the second half of the year. We secured multiple new business awards in the quarter, which we believe further demonstrate our product leadership position in all powertrain architectures. BorgWarner is focused on powertrain efficiency. This includes combustion fuel efficiency and electron efficiency, whether it is for hybrids or BEVs. I believe BorgWarner can support any power train architecture. We are a world leader in efficient mobility with a product portfolio that we believe is uniquely positioned to outgrow industry production for years to come. This quarter, we took additional meaningful steps to manage our cost structure in response to the industry mixed dynamics, as well as to provide increased clarity and transparency from a global product line organization. As we look forward, we expect to continue to secure global growth opportunities as the world transitions to more efficient mobility thanks to our product leadership position in combustion, hybrids, and BEVs. At the same time, we will continue to appropriately manage our cost structure as industry volumes and production mix outlook change while continuing to preserve our long-term profitable growth and technological edge. This will allow Port Warner to continue to deliver sales performance through organic growth above market production, convert that growth into higher earnings, and create long-term value for our shareholders. With that, let me turn the call over to Craig.
spk09: Thank you, Fred, and good morning, everyone. Let's start on slide nine with a look at our year-over-year sales walk for Q2. Last year's Q2 sales from continuing operations were just under 3.7 billion. You can see that the strengthening U.S. dollar drove a year-over-year decrease in sales of almost 2%, or 62 million. Then, you can see a modest decrease in organic sales, which was 120 basis points above market production. Finally, the acquisition of Eldor added 6 million to sales year-over-years. The sum of all this was just over $3.6 billion of sales in Q2. Turning to slide 10, you can see our earnings and cash flow performance for the quarter. Our second quarter adjusted operating income was $376 million, equating to a strong 10.4% margin. That compares to adjusted operating income from continuing operations of $372 million or a 10.1% margin from a year ago. On a comparable basis, excluding the impact of foreign exchange and M&A, adjusted operating income increased $22 million on $12 million of lower sales. This is a great result and reflects our ability to deliver profitability despite a declining production environment. This performance was partially helped by $15 million of favorable items, including the initial benefits from our e-propulsion restructuring, stock forfeiture related to a senior executive retirement, and timing of a supplier cost recovery. The net impact of Eldor was a $9 million drag on operating income year over year. Our adjusted EPS from continuing operations was up 13 cents compared to a year ago as a result of higher adjusted operating income, a decline in our effective tax rate, and the impact of our recent share repurchases. And finally, free cash flow from continuing operations was $297 million during the second quarter, which was up $267 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 11. We are projecting total 2024 sales in the range of 14.1% to $14.4 billion, which is a reduction from our prior guidance of $14.4 to $14.9 billion. This reduction is due to weaker foreign currencies, a lower market production outlook, and e-products coming in at the low end of our prior guidance range. Despite this revenue reduction, we expect the company to outgrow market production by 350 to 450 basis points, which once again demonstrates the resiliency of our technology-focused portfolio that we believe is positioned to outgrow market production during any kind of propulsion mix environment. Starting with foreign currencies, our guidance now assumes an expected full-year sales headwind from weaker foreign currencies of 175 million compared to 2023. This is also a sales headwind of 75 million versus our prior guidance, with the Euro, Chinese renminbi, and Korean won being the largest drivers of the change in our outlook. Within this guidance, our full-year end market assumption has been reduced, to down 2% to 3% versus flat to down 2.5% previously. Finally, the Eldor and SSE acquisitions are expected to add approximately $30 million to 2024 sales. Based on end market and e-product headwinds, we expect organic growth of approximately 0.5% to 2.5% year-over-year compared to our prior guidance of 2% to 5%. However, our expected overall growth above market production remains strong at 350 to 450 basis points. Now, let's switch to margin. We are increasing our full year margin outlook to 9.6 to 9.8% from our prior guidance of 9.2 to 9.6%. This is based on our year-to-date performance and the expected benefit of our e-propulsion restructuring actions, which I'll discuss in a few moments. We believe this margin guidance increase reflects our ability to drive profitability in very volatile end margins. Excluding the impact of Eldor-related losses in 2024 and the benefit of our e-propulsion restructuring, the high end of our second half outlook contemplates the business delivering an incremental conversion in the mid-teens, while the low end of our guidance provides a decremental conversion in the low double digits. We view this as strong underlying performance given the anticipated 3.5% to 5.5% decline in market production during the second half of the year. Based on this sales and margin outlook, we're expecting full-year adjusted EPS in the range of $3.95 to $4.15 per diluted share. This increase compared to our prior outlook is being driven by the impact of our higher margin guidance and $300 million in share repurchases that we expect to execute before the end of the year. With an expected $475 to $575 million in 2024 free cash flow, we expect to allocate all of our cash flow to shareholders through share repurchases and dividends. In summary, this is simply another example of the company utilizing its strong free cash flow to deliver value to shareholders. Let's turn to slide 12 and discuss our planned restructuring actions within our e-propulsion segment. As mentioned earlier, the initial benefits of these actions helped our second quarter result by $5 million. We continue to see short-term sales challenges in this business due to various individual platform shortfalls and other regional market dynamics. Therefore, it was critical to right-size the e-propulsion cost structure to their current level of sales with restructuring actions that we started in June. we estimate cumulative cash restructuring costs of approximately 75 million that will extend through 2026. These actions are expected to generate cost savings of 20 to 30 million in 2024 and approximately 100 million by 2026. The intention of this restructuring is to improve the near-term earnings of this business but it also positions the business to be able to deliver mid-teens incremental margins on future growth. So let me summarize my financial remarks. Overall, we delivered a strong second quarter with sales performance better than market production. We delivered a very strong 10.4% margin, which was 30 basis points higher than 2023. And we generated $297 million in free cash flow, which was $267 million higher than 2023. And we did this despite declining market production in the quarter. I believe this, once again, demonstrates the resiliency of our technology-focused portfolio that is positioned to outgrow market production and to deliver strong profitability and free cash flow in any type of end market environment. Last quarter, I shared three financial goals for BoardWarner for 2024 and beyond. I would like to give you my view of these goals as it relates to our 2024 outlook. First, we outperform market production by approximately 350 basis points during the first half of the year. And despite the anticipated weaker second half production environment, we expect to outperform the market by 350 to 450 basis points for the full year. This is a reflection of our leading-edge technology that we believe is positioned to outgrow a very volatile powertrain mix environment. Second, our margin profile remained extremely strong through the first half of the year. When combined with our continued focus on profitable growth, including our planned e-propulsion restructuring actions. This allowed us to increase our full-year margin outlook by 30 basis points, despite a challenging production environment. And lastly, we generated strong free cash flow during the second quarter, and we have strong liquidity, which supports our intention to repurchase 300 million of additional shares during the second half of the year. This means that we expect all of our 2024 free cash flow will be returned to shareholders through the combination of a consistent quarterly dividend and intended share repurchases. The combination of our 2023 and intended 2024 share repurchases represents more than 7% of our outstanding shares post the Finneas spinoff. And we expect to do this while also continuing to invest in our business to support our focus on long-term profitable growth. As I look back at the first half of the year, I'm very proud with how we have performed. And I'm equally excited to see our results in the back half of the year. With that, I'd like to turn the call back over to Pat.
spk07: Thank you, Craig. So, we're ready to open it up for questions.
spk10: Certainly, Mr. Nolan. Ladies and gentlemen, at this time, I would like to remind everyone, if you would like to ask a question, press star 1 on your telephone keypad. If you are using a speakerphone, please pick up the handset before asking your question. In the interest of time, please limit yourself to one question and one follow-up question. We'll pause for just a moment to compile the Q&A roster. We'll go first this morning to John Murphy with Bank of America.
spk01: Good morning, guys. Just a main question here around the e-products restructuring. One, why does it not include Europe? Why is it only North America and China? And is this just in response to program cancellations or push-outs, meaning that the business is just not materializing the way you're expecting? And it appears, just given the very quick savings, that some of these programs may have been loss-making for you, even if they had come through. So maybe just kind of confirm that. So why not Europe? Is it just program cancellations and push-outs? And were these programs loss-making to start with, and maybe any other color around this?
spk02: Yeah, John, from an engineering and I say a no-footprint perspective, This business unit is essentially tilted to North America and China. That's where most of the restructuring will happen because this is where we have the weight. But it also touches some parts of Europe. The restructuring is sized so that when PDS carries on launching so many products, for major OEMs globally, we're converting mid-teens on the way up, and that's how we sized the restructuring. We're focusing on launching the products that we've booked, and we've also focused on very defined programs for long-term product leadership and enhanced product efficiencies.
spk01: Okay, and then maybe just a follow-up on the seesaw on the ICE and potentially on the hybrid side. Are you seeing any, you know, benefits that might come to that side of the business where you're gaining a little bit of revenue that might come in at higher incrementals that, you know, maybe it's, you know, this year or maybe it is we go through 25 and 26 through the course of this program?
spk02: Yeah, so the propulsion mix is – volatile and unpredictable. And what we're doing at Borg is making sure that we are converting on the additional revenue wherever the revenue comes from. We're focusing on launching our new business that we've booked, and this is what translates in the numbers and the updated guide.
spk01: Okay, and just one, just Bob, most of this sounds like it's headcount on R&D. Is that a fair statement?
spk02: It is headcount and other types of spent. Okay, all right. But it's more SCNO than any other things, SCNO role. Got it. That's very helpful. All right, thank you, guys. Thank you, John.
spk10: Thank you. We go next now to Colin Langan at Wells Fargo.
spk03: Thanks for taking my questions, and congrats on a pretty good quarter. If I look at the midpoint of full-year guidance, it does imply something like over a 30% decrement. If I go first half to second half on those lower sales, kind of a higher end of the conversion on lower sales. And on top of that, I think you mentioned there's actually a little bit of savings from the restructuring program into the second half. What is driving that? Is that just normal seasonality? How should we be thinking about first half to second half decrementals?
spk09: Yeah, so when we think about first half, second half, I think actually the better way to look at it is year over year. And when you think about our margin, 9.3% to 9.6% in the second half of the year, when you look at the high end of our guide, we're incrementing in the mid-teens. On the low end, we're decrementing in the low double digits. That's excluding the benefits of restructuring. So, Colin, when you include restructuring, we're incrementing in the 30% range on the high end of our guide, and on the bottom end of the guide, we're holding flat. For us, I think that's really good underlying performance, and so that's how we're looking at it. You're over here.
spk03: Got it. And if I look at growth over market, I think it came down a little bit less than 100 basis points. It seems to be pretty small considering some of the issues. I mean, what is driving that slight change? Is that all the EV delays? And is there any customer mix as other suppliers have reported, or is that not an issue for you given your pretty strong position in China with domestics?
spk02: Yeah, the outgrowth for Q2 is 120 basis points, and this is essentially impacted by e-product revenue at the low end of our guide and also essentially a program in North America, a BEV program in North America that's not really performing well. I would not really look at a smooth outgrowth quarter over quarter as a good proxy. I think 300 basis points for the first half is where we want to be. And we'll be around 400 basis points for the full year, which is also where we kind of want to be.
spk03: I was kind of referring to the full year guide growth of a market that was implied. it seems like it's slightly lower is that also all ev related it is okay all right thanks for taking my question thank you thank you we go next now to chris mcnally at evercore thanks so much team um
spk12: Maybe if I step back for the impressive guide rays of 30 beeps, I mean, basically the way I think about it is essentially given the organic revenue reduction of a little bit less than 300 million, you probably would have lost 20 or 30 basis points on normal incremental. So if you add those two, it's about a 50 to 60 beep of operational sort of better than expected performance and performance. I think what we're all trying to work out is, you know, if you look at Q2 and a 10.4% margin, while you still have e-propulsion losses in the double digits, Can you just walk us through some of the concepts why we can't sort of propel out that 10% plus margin for 25, 26, where obviously you've discussed lower, what rolls off, anything just qualitative. I know there's a lot of moving parts and one quarter doesn't make sort of a trend, but we're all trying to figure out if ICE is here for a little bit longer, what is the negative that drains that down because obviously e-propulsion you will get, you know, better than this minus, you know, sort of double-digit margin. It's a long question, but, you know, curious why we can't see more strength in the foundational business.
spk09: Yeah, Chris, I'd say, though, a way to look at it is when you look at Q2, we were at 10.4%. There was, as I mentioned in my script, about 15 million benefit in the quarter with some items. So when you remove that, it's about 10%. for Q2. As we move into the second half of the year, as you mentioned, you know, revenues coming down about $200 million purely market, $75 million foreign exchange and the balances on the e-product side of our portfolio. And ultimately, at the midpoint, operating income is unchanged. So, I think your question is, you know, how are we doing that? And I think it's coming from our strong first half performance and our restructuring benefits is offsetting the sales decline. I think it's really as simple as that.
spk12: And then this idea as obviously we're going to see pure ice, right, so X plug-in, X hybrid, X EV volumes decline over the next couple of years. Should we assume that if we were able to isolate that margin of business, that that's coming down, meaning they'll see decrementals? Because often at the end of life of a lot of these programs, you actually see R&D sort of also come down. So that's one of the things that we're trying to figure out. If we were to isolate specifically ICE foundational programs, will they see margins? decline as as units go down over the next a couple of years um and obviously then the question will you know some of these programs may be extended or your volumes may come down less but just if we were to think about it's not how you report but sort of um should we see margins on a life-for-life basis on on pure ice come down yeah so i would say uh first um
spk02: A lot of our combustion products go into hybrids and are a key element of making the combustion side of hybrid lean and efficient. So I think when you think about bulk water, I don't think you should try and – and split combustion, hybrid, and BEV. Because our combustion product goes on combustion and hybrid, our e-products also are very versatile and go on EV and hybrid. Those are the same products. And so we have the portfolio to play in all three segments, if you call that segments. And... an outgrowth or segment and convert on that outgrowth. It is as simple as this.
spk12: No, that's helpful. I know it's a tough one to isolate. And I think as we also see in the four new segments, some of the margin progression, I think, Fred, that actually may be easier for the investment community to kind of see the trend segmented in sort of these segments where we do get a little interplay of ICE, EV, and hybrid. Thanks so much. Really appreciate it. Thank you.
spk10: Thank you. We go next now to Joe Spack at UBS.
spk08: Thanks. Good morning. I think before you were looking for ER&D to be plus $40 million to $50 million for the year. Now with this restructuring, and it does sound like it's, again, mostly people, is that now – like a $20 million year-over-year pace, or is there some other sort of savings from the restructuring?
spk09: Yeah, thanks, Joe, for the question. You're right. Yeah, we said $40 million to $50 million starting the year. Now after this restructuring, it's going to be down to $20 million to $30 million. And how I look at it is our e-products portfolio is still growing half a billion dollars. It's still going to be up about 25% year over year, and that $20 million to $30 million is supporting a lot of launches that are going to be happening in the future. It's really focused on application engineering, and that's really what that $20 million to $30 million represents year over year.
spk08: So I guess just to follow on and more importantly, like how should we think about R&D there and capital investment on the e-products given, you know, your new view as sort of how this market is going to evolve here?
spk09: On that growth, we're going to continue to support those programs with e-R&D, and we're still focused, as always, on 15% return on invested capital on all new programs.
spk08: Okay. And then maybe just one more quick one here on e-products, sort of the lower end here. I apologize if I missed this, but is the battery ramp still on track? I think you were looking for that to be like $700 million to $800 million, so the reduction is really in some of those other e-products, or was there a revision to the battery side as well?
spk02: Yeah, back to your prior question, I just want to add that we're incrementing meetings, including the year-over-year additional 20 million ER&D spent. On battery, it's on track. Seneca is doing a great job, and they're now fully in production. We're on track also for Europe, and the battery business performance is – of course, contributing positively to the incremental margins that we are delivering for the first half and also an important part of our guiding up for the full year. Thank you. I'll pass it on.
spk10: Thank you. We go next now to Dan Levy at Barclays.
spk00: Hi. Good morning. Thank you for taking the question. I wanted to start first with the question on the drivetrain and battery system segment, which is another really strong quarter. So maybe you can help us disaggregate the margin strength. So much of this was on the core foundational piece versus, you know, the battery side, where you just talked to it a second ago, but that's obviously ramping.
spk09: Yeah, the quick answer is coming from both. Really, really strong growth in the quarter like you saw. It's coming from both sides of the portfolio on the battery business and the foundational business. And I think we're also, so we're converting on that extra sales at the same time, really focused on cost, you know, taking productivity actions, supplier savings, restructuring. Those are all the benefits that you're seeing come through our P&L. But the short answer, it's really coming from both sides of the business.
spk00: And the foundational side within drivetrain, is there one particular region or one particular product that's trending through? I mean, just trying to get a sense of how sustainable, when I recognize the segments are getting reshuffled, how sustainable these drivetrain, you know, foundational results are.
spk09: Yeah, the drivetrain, the foundational side, seeing good strength out of Asia.
spk00: Got it. Thank you. Maybe as a follow-up, maybe you can help us understand on the forward assumptions on the end markets. You know, we've obviously seen the negative revisions, but maybe, you know, what you're seeing in terms of a customer mix standpoint, how much, you know, conservatism you might be including because we've seen, you know, a number of reductions to the end market outlook, talk about production cuts, just, you know, your views on customer mix and, you know, the conservatism of schedules, please.
spk02: And our guide reflects what we see in the market, and we expect the market to be down 2% to 3% year over year, with the biggest reduction being in China, followed by North America and Europe. In China, we see a bit of a weaker consumer demand now impacting production rates. In North America, we're seeing some customers working to address their inventory level. And in Europe, there is also a bit of a weaker demand and depletion of backlog. But all that is embedded in our guide, both on the top line and bottom line.
spk00: Great. Thank you.
spk10: We'll go next now to Mark Delaney at Goldman Sachs.
spk11: Yes, good morning. Thanks very much for taking the question. One area I was hoping to better understand was e-products within China, and that's a market where EV sales have held up better than some of the other regions. And the company has spoken about some good design wins within e-products with the domestic Chinese OEM. So maybe you could speak a little bit more around what you're seeing in the China market with e-products and to what extent, if at all, are some of the incremental tariffs that the U.S. and Europe have placed on China Chinese imports having an effect on your e-products business for Chinese domestic Williams?
spk02: Yeah, Mark. So, remember, e-products go both into hybrids and devs, and in China, NEVs encompasses both hybrids and devs. The fastest growth is hybrids in China. We're launching a lot of new products in China. About 95% of our e-products in China are made with the big Chinese carmakers. A lot of our products also are used for potential exports and also potential localization. So we're very happy with our business in China. The impact of the tariff, I think it's a little early to anticipate. But China is certainly a part of the world where we're gaining scale, and that's very helpful when we go with those e-products supporting the e-side of hybrids and BEV in other parts of the world.
spk11: That's helpful. My other question was on capital allocation, and I understand that the plan for the balance of this year is for capital allocation to be prioritized for shareholder returns, and you spoke about the $300 million of share repurchases. Do you think beyond 2024, can you help us better understand how you're thinking about allocating capital? We've seen the company use Tuck and M&A in recent years to bolster the capabilities. Is that something you think maybe – part of the calculus going forward, or would you think the preference for shareholder returns and buybacks will be more of the uses of capital as you're looking at into 2025? Thank you. Thanks.
spk02: Yeah, acquisition together with organic product development has allowed us to create that very unique portfolio that we're growing organically. Acquisition may remain an important part of the strategy over the long term, but I can tell you that I would classify our approach as being even more stringent and prudent than in the past. And I don't see M&A highly likely to be announced over the next couple of two, three quarters, thus our intention to repurchase $300 million of stock or pretty much giving back to shareholders 100% of our cash generation. That's what I would tell you, Mark.
spk10: Thank you. Thank you. We go next now to Adam Jonas, excuse me, of Morgan Stanley.
spk06: Hey, Freddie and team. I just got a couple of questions. So, BoardWarner ranks around 490 out of 500 companies in the S&P 500 and PE multiple. It is by far the cheapest auto supplier, auto-related supplier. in the S&P 500, which is really astonishing given, in my opinion, I think in yours too, Freddie, this is one of the most accomplished engineering firms in the industry, maybe in the world. You have custom alloys and the tolerances and the pressures that your products are used. It's very, very high-tech stuff. What, in your opinion, your team's opinion, What is the market telling you about your capital allocation strategy? And I don't know what clues you're getting from today's share price reaction, for example, versus others. It seems like the market is penalizing investments in E and then rewarding capital return. I don't know if you agree with that message or you're in tune with that, or do you have a different hypothesis? And then I have a follow-up. Thanks.
spk02: Adam, I think we need to focus on what we can control. What we can control is create a great product that is versatile across different production mix scenario, outgrow the market, increment, generating cash, and be smart about the cash utilization. As I mentioned before in Mark's prior question, M&A was essential and helped us together with organic product development to create that very unique portfolio. Now, you know, I think we have a great portfolio and we're focusing on growing it organically and going back to the basics of outgrowing, converting generic in cash.
spk06: Okay. That's great. My follow-up is a simple question, I guess. What is the logic for advertising the share buybacks? To me, it's like going to someone and you want to buy a house and you tell the owner, hey, I love your house. It's fantastic. And then making a bid later. Why advertise the target, in this case being your own stock, in a way that might make you a hostage to your own fortune? I just don't understand the logic. Can you explain why you do that?
spk09: Thanks. Yeah. I think for us, it's about transparency to our shareholders. You know, when you look at the second quarter, we were blacked out for the majority of the second quarter, and we wanted to provide clarity to the investment community that we wanted to allocate all of our free cash flow to shareholders. It was the right time, given Fred's comments earlier about Eminent. So we wanted to provide clarity and transparency.
spk06: Okay. My only feedback is you can do that in real time, and you don't always have to have the forward time horizon with the amount. But that's just feedback, and you guys run the business. I appreciate you taking the time to answer the questions.
spk10: Thank you, Adam. Thank you. And we do have time for one final question, and that will come from James Piccarello of BNP Paribas.
spk05: Hi, everyone. Just as we think about e-product sales, now trending toward $2.5 billion for the year. The first quarter finished at $500 million per your 10-Q filing. Can you confirm how the second quarter trended so we can gain a sense for what's implied in the second half? And on Acasol specifically, another – and I think a few other questions we're getting at this. Another supplier this morning that is pretty decent commercial vehicle, Bev Exposure – just cut its commercial EV sales expectation for the year by a substantial clip. That supplier doesn't compete directly against Borg, but from an end market perspective, is this something that Borg Warner is seeing at all in your battery systems business? Thanks.
spk09: Okay. Thanks, James. And I'll confirm Q2 sales were $576 million. You'll see that in our time queue later today. And I'll turn it over to Fred on your other question.
spk02: Yeah, I think our numbers in commercial vehicle have been adjusted a little bit in the prior quarter. The impact of e-products is essentially linked to light vehicle at this point in time. I would just remind you that we're growing 25% year-over-year on e-products. from about $2 billion to about $2.5 billion, which is, if you take a step back, an outgrowth versus what you see in power plant electrification.
spk05: Understood. And then just last, can you provide color on how Eldor losses are now slated to trend for this year? I believe the prior guidance clarifies Call for $45 million or so. And will your re-propulsion restructuring actions also include future efforts at Eldor? Thanks.
spk09: Yeah, right now Eldor is unchanged, and that's how you should think about it. Obviously, we're focused on the total business and targeting $100 million in cost savings by 2026. Thanks.
spk07: 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. Bo, you can go ahead and conclude today's call.
spk10: Thank you, Mr. Nolan. Again, ladies and gentlemen, that will conclude today's BorgWarner second quarter earnings call. Again, thanks so much for joining us, everyone. We wish you all a great day. Goodbye.
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