Skip to content
    BWA
    Earnings call· Jun 2026(Q2 FY26)

    BORGWARNER Q2 FY26 earnings call BWA

    Aug 5, 2026 Source

    Executive summary

    BorgWarner Q2 FY26 — Strong Operating Performance and Increased Shareholder Returns

    BorgWarner delivered strong Q2 FY26 results, driven by robust cost controls and operational execution, leading to significant margin expansion and EPS growth despite a flat sales environment. The company is accelerating its industrial R&D investment to capitalize on emerging data center and industrial market opportunities while simultaneously enhancing shareholder returns through increased buyback authorization. Management remains focused on balancing short-term performance with long-term strategic growth.

    Highlights

    5

    • Adjusted operating margin expanded by 100 basis points to 11.3% in Q2 FY26.

    • Adjusted EPS grew by 17% year-over-year to $5.05-$5.30 per diluted share (midpoint of updated guidance).

    • Generated $492 million in free cash flow in Q2 FY26, supporting $250 million in share repurchases and $70 million in dividends in H1 FY26.

    • Board approved a $1 billion increase to share repurchase authorization, bringing total authorization to $1.35 billion (10% of market cap).

    • Secured 7 new business awards across foundational and e-products portfolios, including E-Turbo, Torque-On-Demand transfer case, and integrated drive modules.

    Concerns

    3

    • Sales in the Battery Energy Systems segment declined year-over-year by $62 million due to lack of North American incentives and weaker European demand.

    • Full-year 2026 organic sales change is projected to be down 3.5% to down 1.5% year-over-year, roughly in line with the market decline.

    • Foreign currency benefit for full-year sales guidance was modestly lowered to $175 million compared to 2025.

    Guidance & targets

    8
    CategoryTargetConfidence
    Full-year 2026 Sales
    $14.0 billion to $14.3 billion
    high materiality
    High
    Full-year 2026 Adjusted Operating Margin
    10.7% to 10.9%
    high materiality
    High
    Full-year 2026 Adjusted EPS
    $5.05 to $5.30 per diluted share
    high materiality
    High
    Full-year 2026 Free Cash Flow
    $900 million to $1.1 billion
    high materiality
    High
    Full-year 2026 Organic Sales Change
    down 3.5% to down 1.5% year-over-year
    medium materiality
    Medium
    Industrial R&D Investment
    incremental $10 million to $15 million
    medium materiality
    High
    Turbine Generator Production Start
    2027
    high materiality
    High
    Turbine Generator Revenue (initial year)
    $300 million
    high materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Battery Energy Systems
    Sales declined year-over-year by $62 million due to lack of North American incentives and weaker European demand. The segment's restructuring actions in 2025 and 2026, along with the exit of the charging business, benefited financial performance. Underlying performance is better than targeted mid-teens decremental.
    		—-$62 million——
    Foundational Businesses (TT and DMS)
    Contributed 60 basis points to the overall 100 basis point adjusted operating margin improvement, demonstrating strong performance.
    		———60 bps improvement

    Operational metrics

    27
    Adjusted Operating Margin
    11.3%up 100 bps YoY
    Q2 FY26

    Strong performance driven by cost controls.

    Adjusted Operating Income
    $413 millionvs $373 million YoY
    Q2 FY26

    Increased from $373 million in Q2 2025.

    Adjusted EPS Growth
    17%YoY
    Q2 FY26

    Driven by higher adjusted operating income and share repurchases.

    Share Repurchases (Q2 FY26)
    $100 million
    Q2 FY26

    Part of capital return to shareholders.

    Share Repurchases (last 4 quarters)
    $650 million
    TTM

    Represents approximately 5% of market capitalization.

    Dividend Payments (H1 FY26)
    $70 million
    H1 FY26

    Part of capital return to shareholders.

    Total Capital Returned (Q2 FY26)
    $134 million
    Q2 FY26

    Through share repurchases and cash dividend.

    Share Repurchase Authorization Increase
    $1 billion
    through 2029

    Approved by Board of Directors, increasing total authorization to $1.35 billion.

    Total Share Repurchase Authorization
    $1.35 billion
    through 2029

    Combined with $350 million remaining under prior authorization.

    Foreign Currency Sales Benefit
    $54 millionYoY increase
    Q2 FY26

    Due to strengthening of foreign currencies.

    Organic Net Sales Increase
    $18 millionup 0.5% YoY
    Q2 FY26

    Modestly ahead of decline in light vehicle market production, primarily due to strong North American transfer case volumes.

    Full-year FX Sales Benefit
    $175 millionvs 2025
    FY26

    Due to strengthening of Euro and Renminbi; modestly lower than previous guidance.

    Battery Business Sales Headwind (FY26)
    170 basis pointYoY sales growth headwind
    FY26

    Expected decline due to lack of North American incentives and weaker European demand.

    Adjusted Operating Margin Improvement (Charging Business Exit)
    10 bpsYoY improvement
    FY26

    Expected benefit from the exit of the charging business in 2025.

    Decremental Conversion (low end of margin outlook)
    low double digits
    FY26

    Contemplated at the low end of the full-year margin outlook.

    Adjusted Operating Margin (excluding industrial R&D step-up)
    10.8%in line with H1
    FY26 (midpoint)

    If the incremental R&D investment were excluded, the margin would be higher.

    Adjusted Operating Margin (including industrial R&D step-up)
    10.6%
    FY26 (midpoint)

    Reflects the impact of the incremental R&D investment on the full-year margin guidance midpoint.

    First Half Sales
    just under $7.2 billion
    H1 FY26

    Reference point for H1 to H2 financial bridge.

    Second Half Sales (midpoint of guide)
    around $7 billion
    H2 FY26

    Expected sales for the second half of the fiscal year.

    Battery Decline Headwind (H1 to H2)
    $60 millionvs H1
    H2 FY26

    Expected headwind to sales from H1 to H2.

    FX Headwind (H1 to H2)
    $80 millionvs H1
    H2 FY26

    Expected headwind to sales from H1 to H2.

    Industry Production Decline (H1 to H2)
    about 1%vs H1
    H2 FY26

    Assumed modest decline in industry production from H1 to H2.

    Decremental Conversion (H1 to H2)
    15%
    H2 FY26

    Expected decremental conversion on lower revenues from H1 to H2.

    China Sales as % of Global Sales
    about 20%
    current

    Represents BorgWarner's exposure to the Chinese market.

    China Light Vehicle Production Forecast
    down 4% to 7%
    current forecast

    Expected regional change in production.

    North America Light Vehicle Production Forecast
    up 1.5% and down 2.5% to 3%
    current forecast

    Expected regional change in production, with some volatility on the passenger car side.

    Turbine Generator Capacity
    2 gigawatts
    initial installation

    Capacity being installed for turbine generator production.

    Industry KPIs

    5
    MetricValueDetails
    EPS$5.05 to $5.30USD
    Revenue$3.6 billionUSD
    Operating margin11.3%%
    Operating income EBIT$413 millionUSD
    Share buyback capital return$1.35 billionUSD

    Product announcements

    8
    ProductTypeDetails
    E-Turbo programlaunch
    Torque-On-Demand transfer case with mechanical locklaunch
    Variable Cam Timing (VCT) programsexpansion
    Integrated Drive Module (IDM)launch
    High-voltage inverter programsexpansion
    Turbine Generator (TG)milestone
    Battery Energy Storage (BES) solutionsexpansion
    Microgrid inverter offeringsroadmap

    Deals & partnerships

    1
    EndeavorCollaboration on turbine generator and other industrial market solutions

    BorgWarner partners with Endeavor for its value in the turbine generator relationship. The partnership is growing stronger, and recent news about Endeavor's financial partners (Coke) adds credibility to Endeavor's edge data center business without materially changing the relationship. BorgWarner goes to market through Endeavor for the turbine generator.

    Risks & headwinds

    4
    Sales decline in Battery Energy Systems segmentQ2 FY26 and Full-year 2026

    $62 million year-over-year decrease in Q2 FY26; 170 basis point headwind to full-year sales growth

    Mitigation: Ongoing restructuring actions in 2025 and 2026, exit of charging business in 2025.

    Modestly lower foreign currency sales benefitFull-year 2026

    Full-year sales benefit of $175 million compared to 2025, modestly lower than previous guidance

    Decline in light vehicle market productionFull-year 2026

    Weighted end markets expected to be flat to down 3% for FY26; organic sales change down 3.5% to 1.5% YoY

    Mitigation: Focus on cost controls, strong operational execution, and customer diversity.

    Regional volatility in light vehicle productionCurrent forecast

    China down 4-7%; Europe down slightly; North America between up 1.5% and down 2.5-3%

    Mitigation: Customer diversity helps wash out mix issues; strong position with Chinese OEMs benefiting from exports.

    What to watch in Q3 FY26

    5

    Turbine Generator UL certification

    Q3 FY26
    CurrentComponent certification expected to start in September
    TargetSuccessful start and progress of UL component certification

    Why it matters

    UL certification is a key milestone for market entry and commercialization of the turbine generator product.

    Our compliance process continues to progress well. UL component certification is expected to start in September and our component level evidence books have already been submitted.

    Q&A highlights

    6

    Can you provide more color on quoting progress for AI initiatives, specifically the BorgEndeavor Turbocel relationship? Will BorgWarner announce every smaller data center win, or only material ones?

    The turbine generator (TG) is on track for a 2027 launch with strong hyperscaler interest and achieved carbon-level emissions. The Endeavor partnership is growing, and BorgWarner will announce important milestones, not every small win. Recent news about Endeavor's financial partners adds credibility and does not materially change the relationship.

    “We won't decide do we announce every individual event. We try to share the important events and milestones with the investors. And then with the recent news on Endeavour and their partner in Coke. We're also aware of it. It's not unusual that these financial partners are constantly out raising money for the data center growth, which is out there. But we don't think it materially changes anything between us and our relationship with Endeavour.”

    asked by Chris McNally · answered by Joseph Fadool

    2 min read6 chapters

    Detailed Narrative

    01

    Strong Operational Execution and Cost Controls

    BorgWarner demonstrated strong operational execution in Q2 FY26, achieving a 100 basis point expansion in adjusted operating margin to 11.3% and 17% adjusted EPS growth. This performance was driven by ongoing cost reduction actions across the business, with every business unit expanding operating margins. Lower corporate costs also contributed to the positive financial results, enabling the company to maintain its full-year margin guidance despite increased R&D investments.

    02

    Accelerated Industrial Market Expansion

    The company is accelerating its product readiness across data center and other industrial markets, investing an incremental $10 million to $15 million in R&D in H2 FY26. Progress includes achieving carbon-level emission standards for the turbine generator, with UL component certification expected to start in September. Battery Energy Storage solutions are being widened to include DC blocks, UPS, high-power racks, and controls, with quoting activity continuing. Microgrid inverter offerings are also progressing, with initial customer feedback being positive and Gen 2 designs under development.

    03

    Continued Business Award Momentum

    BorgWarner secured 7 new business awards in Q2 FY26, highlighting the strength of its technology portfolio. These include an E-Turbo program for a European OEM (production 2029), a Torque-On-Demand transfer case for a Chinese OEM (production Q4 2026), and variable cam timing programs in Europe and China. E-product awards include an integrated drive module with a global OEM (production 2027) and a major extension of two high-volume, high-voltage inverter programs with a European OEM (production 2029).

    04

    Capital Allocation and Shareholder Returns

    The company returned approximately $134 million to shareholders in Q2 FY26 through share repurchases and cash dividends. The Board of Directors approved a $1 billion increase to the share repurchase authorization, bringing the total to $1.35 billion, representing approximately 10% of BorgWarner's market capitalization. This demonstrates confidence in the company's long-term cash-generating ability and commitment to a balanced capital allocation approach.

    05

    Turbine Generator and Hyperscaler Interest

    The turbine generator product is seeing strong customer interest, including from multiple hyperscalers, for both primary and backup power applications, with a shift towards prime use. The company is on track for a 2027 launch, with 2 gigawatts of capacity being installed and an anticipated $300 million in revenue in the initial year. The partnership with Endeavor remains strong, and recent news regarding Endeavor's financial partners does not materially impact BorgWarner's contractual relationship.

    06

    Automotive Business Performance and China Exports

    BorgWarner's light vehicle business performed modestly stronger than industry production in Q2 FY26. China represents about 20% of global sales, and the company benefits from strong Chinese OEM exports. While there are small regional changes in production forecasts (China down 4-7%, Europe slightly down, North America between up 1.5% and down 2.5-3%), BorgWarner's customer diversity helps mitigate mix issues.

    AI-generated summary of the company’s earnings call. Not investment advice.