BWA
#Thanks, <UNK>.
Now, let's move to the Q and A portion of the call.
Melissa, please remind everyone of the Q and A procedures.
We don't provide that kind of guidance by segment.
We just give the total Company guidance which is on the deck that I was referring to earlier.
Sure.
Back in the announcement last July, I believe it was, we gave guidance that the synergies on the cost side were going to be $15 million.
I would say we are on track to hitting that goal at this point.
We didn't give any synergies at this point on the sales side but we are getting some momentum there as well, and you'll have more clarity there as we go forward.
The cost synergies was 2016.
To be more specific, we're going to realize half year savings up to $15 million in 2016.
The run rate in 2017 would be $15 million.
I need to be more specific there.
I would say it's not purchase accounting coming off.
It's more operational driven.
There is but I think it's 2018 ---+ maybe 2018 or 2019.
Some of the stuff comes off after 3 years, some of it's 10 years.
There's a long tail for that.
We won't see some of those benefits for some time.
<UNK>, you are saying 2017, not 2016, right.
I want to make sure I am correct.
I would day some of the ---+ as you know, we always target mid-incremental margins, mid-teens incremental margin on our sales growth.
That is above our nominal value right now.
That would drive increased margin expansion.
Then you still have ---+ I will admit Drivetrain is still not where the Engine group is.
We still probably have more tail winds there.
Trying to think what else.
Probably the Remy which we just talked about as well.
And then Volar, Volar has to also contribute more going forward.
I don't have all the numbers there <UNK>, but I would say there's a lot of tail winds I just mentioned.
We don't see headwinds now.
Commodity prices are still, I think we are predicting those to stay flat, right.
Oil prices and so on and so forth.
I don't see them right now, no.
I don't see anything right now.
In the quarter we did $220 million a quarter, $350 million for the full year.
Obviously we were very heavily weighted in the fourth quarter.
We purchased a lot.
We intend to stay at a healthy pace right now as well, I would say that in the first half of this year, 2016.
I think at this point it may be more linear at this point I would just model, okay.
50-50, the number you gave out I would say at this point.
Yes, this is <UNK>.
That is a really good summary.
IIFs and markets are close enough to offset each other, which implies about 4% of organic growth.
That is a good summary.
Right.
Two questions.
First is talk about the Drivetrain incremental margin, 156%.
In my script I pointed out that in Q4 of 2014, if you go back to the transcript, you will see there's about a $5 million to $6 million headwind.
You would have saw that actually sales were up and incremental margins were down a year ago.
That is behind us.
What you are getting is, you're getting $6 million of flow through that we didn't have a headwind on in the fourth quarter of this year versus last year.
So that $12 million, half of it's this one area right there.
Then as we go forward into 2016, if you recall, if you go back in our notes, Q1 of 2015 was about a $9 million headwind ---+ $3 million headwind and then we had another headwind in the second quarter as well.
So, obviously, we're going to have those headwinds behind us in the first half of the year and we'll get tail winds there, they will have strong incrementals and then we level out like I think you said in the back half of the year to more normalized margins.
Hopefully that helps.
Right now they are starting to come in.
Remember, I also said that we were running at 9% margins.
We are up in the 12%s, right.
We have been getting some benefit quite frankly over time then as volume comes into play.
We are seeing the benefits now and then we are also seeing the inefficiencies, headwinds going away.
So it's a combination of both that's uplifting those margins into this 12% range right now.
Good morning.
I can ---+ let me take a shot at the operating side first of all.
The good news for us as we look around the world of the company, and I compare it to some of the last, our temporary employees are in much healthier state.
Depending on the region, we run anywhere from 10% to 20% of our workforce re temporary.
That allows us to react pretty quickly and flex on the labor side.
Europe, I think we have more progressive agreements in place than we had before.
So, I feel comfortable on the labor side that we can adjust.
I think the other area that we got pretty proficient in is, if we need to flex on discretionary spend we know how to do that from prior cycles.
Those are probably the two dials that you would move pretty quickly, all leading to targeted detrimental sales at around the 20% rate is where we look to manage the business to.
I would add anecdotally for each of our operations around the world have the plans in place, on the shelf, in a lot of detail by region and by plant.
Bottom line, I feel pretty comfortable that if there is some pressures we will be ready.
I understand capital allocation, depending on the cash flows, we'll have to reassess what we do with capital allocation.
5%, 10% might have some impact I think.
We'd have to watch, <UNK>.
But 10% would become more stressful, I guess.
5% probably wouldn't.
I think your thought is right.
For us and I'm talking obviously, just North America at the moment, that truck to car mix generally speaking, the truck mix is slightly favorable for us.
I think it's pretty well known we have, you know ---+ it varies a little by customer.
We are very well contented clearly on the Ford platforms and the F150 platform in particular.
FCA we're well-positioned, GM we're a little less well-positioned, but we are taking steps to address that.
I would say to you it's pretty well balanced both on Engine content and Drivetrain content.
On the Drivetrain side we are well positioned on the transmission content, but clearly the transfer case capability that we have there is strong.
And on the Engine side I would say one of the big shifts has been more turbo charged engines for those vehicles which we benefited from, which is a big positive for us.
And on Engine timing also we are picking up good content.
Net-net it is a positive tail wind for us.
Not really much of a difference there for us, <UNK>.
It's pretty consistent, cars to trucks and region to region actually which we've said fairly consistently.
It doesn't change that much for us.
There is a couple of moving pieces on that transmission Europe aspect.
One aspect is, one of our German customers did some inventory shifts in Q4 and we saw a little bit of that in Q1 on transmission related products.
You have seen, that's been in the news publicly so I think you probably know that.
That was an element of it.
The other element of it was two European transmission programs that are phasing out for us.
The replacement programs, I would say net-net are neutral to negative for BorgWarner.
It's hard for me to speak to the exact detail on that <UNK>, because of the customer.
Importantly though, these were planned.
This was all part of our net new business assumption, it was all expected for us.
It's not a surprise.
It's nothing new.
I would say at a high level, <UNK>, it's not a signal of the significant shift in transmission architecture.
This is not people making massive moves between stepped automatics to DCT or automated manuals.
I think it's more specific program by program for a couple of customers.
Okay, <UNK>, so, the incremental margin for the quarter of 24% was primarily driven by the drivetrain segment being up 156%.
The drivetrain really drove the full company, right.
Although we had 14%, 15% in engine.
I would say that there is about $6 million or $5 million last year of headwinds that we didn't see.
So, of that $12 million increase in operating income, half of it alone was just not having those inefficiencies in our face, quite frankly.
The other half I would just is that business is improving.
The whole point of the restructuring.
As we go forward, remember, we had ---+ Q1 and Q2 of last year we still had these headwinds coming.
It wasn't until three and four that the headwinds dissipated and the incremental margins started returning.
The first half of 2016 should have good tail winds because we don't have those inefficiencies in front of us anymore, and then they will level out in the second half to more normal incremental margins.
Yes, let me talk to that a little bit, <UNK>.
I think what we have alluded to so far is we feel comfortable as we look out into the next couple of years that Remy's going to deliver good mid-single digit-type growth for us.
As you can imagine, that is primarily driven off the existing portfolio products into new channels.
What I mean by that is there's two primary channels of growth for us with the current product portfolio.
One is customers.
They have a relatively narrow band of customers, and with BorgWarner's breadth of coverage on customers, that's going to drive content with their existing products.
The second growth driver for us is a regional play where they have a strong position in North America, they're well-positioned in China but they start to be quite weak in Europe.
That's going to be a series of opportunities for us to sell current portfolio products.
That will drive the content growth over the next two or three years.
To your point in parallel to that, there's a lot of discussions that we are having with customers around combination products of the Remy architecture and the BorgWarner architecture.
There is a number of areas and we can talk more about this offline.
But the most prevalent area of discussion right now is the notion of a P2 hybrid architecture, so combining our clutching know how together with their motor know how and we've got a lot of interest in that.
That's likely to be a revenue stream that is probably four to five years out, but it's very active and driving it.
So hopefully that gives you a sense of both the shorter term growth levers and then the longer term growth levers.
If you go back to our guidance full year, I think it was on slide deck that we gave at the Deutsche Bank, <UNK>, remember.
There is a slide in there that shows that we have about a $10 million to $20 million tail wind for the full year that was a headwind in 2015, okay.
So, it's $10 million to $20 million as a full year.
It's in that deck.
That is what drives the 18% to 20% incremental margins for the full company for the full year.
Normally it's mid-teens.
But the tail winds are driving it, I want to round to the 20% range.
Sure.
So if you go back in time, this goes way back in time.
We said that the benefits were going to generate about $30 million of operating income benefits going forward.
What's really happened over time is we've been incrementally getting some of that as we go forward, and the margins have lifted up over time from 9% to 12%.
We have been getting a little bit of these benefits as we go forward because the labor costs are lower for example, and so on and so forth.
So we've been getting some of these benefits.
But it's over three, almost four, three years now.
So, that math is a little more difficult.
But basically it's the absolute rise in the margins as well that we are getting.
Yes.
It's still ---+ well, all right, so, it's 4%, but I will be honest right now with the Remy coming on board, it might be 10 basis points lower.
I'm splitting hairs, right now, but I think it's 4%.
<UNK>, this is <UNK>.
It's absolutely both drivetrain and engine.
We are delivering growth on both segments.
Those two phase-out programs I talked about are relatively small actually.
They are in there.
Just to give you a sense, to put a bit more color to though <UNK> to help you, it's ---+ we drive upwards through the year.
So, our launch activity is a little back end loaded, which is not unusual for us.
But it's across both Engine and Drivetrain.
So, we are launching for example DTC uplifts in China.
We're launching solenoid activities in China.
We've got all-wheel drive launches with another Chinese OEM, that's Asia.
If I talk about North America, we've got a super duty launch.
We've got a ---+ so, it's a real mixture, <UNK>, I wouldn't want you to think it's only engine.
It's certainly both.
It's would say it's weighted to China and North America which is consistent with the net new business announcement.
Thanks, <UNK>.
Sure.
So, the guidance that we've issued implies about $8 million nominal value of extra operating income related to Wahler.
The other thing I want to clarify is, when we purchased Wahler, we said two to three years and we also said after we got in the business it was going to be more like three years, not two years.
That would still take us into 2017.
It's where the run rate would be, where we are happy where the business should be.
Yes, the margin improvement, correct.
I would be happy to do that.
Let me give you some commentary.
Our view is yes, there will be the mid-cycle review, obviously, that is all planned.
Our view based on the multiple different inputs we get, is we are not anticipating significant adjustments or change to the plan.
There's going to be sure robust discussion.
That is obviously even more robust with gas at less than $2 a gallon.
So I think there will be discussion.
But I think significantly or changes I don't think are going to happen is our view of the world.
We think it's going to continue on as planned, frankly speaking.
What we do see, which I alluded to in part of my comments, Pat, there is absolutely a push for a spectrum of alternative types of powertrains.
So, we are not seeing people at all step away from advanced IC engines.
That is absolutely front and center.
There is a tremendous amount of activity and launches around advanced gas engines.
Yet we see a strong push for the pure electrics which we are right in the middle of, and hybrids as well in the many different configurations of hybrids.
I think there's a general march towards execution of the standard, maybe with a few tweaks, and each of the OEMs getting a suite or a spectrum of architectures that they can get to deliver on those numbers.
And we are right in the middle of all of those architectures in discussions with them.
That's our view of how we see it right now, Pat.
I would say it this way, Pat.
Clearly we are engaged very deeply with all of our customers, that's a real strength.
But we talk to regulators, we talk to different business groups, different industry groups.
We are taking a large variety of inputs, it's not just our own narrow self view if that makes sense to you, but it clearly is driven off a lot of what the customers are doing.
Because they are the ones that are working with us on what those architectures need to look like.
Thanks.
I would say, I'd give you this sense that Q4 was a good quarter for us in China.
We had about 20% growth in the quarter in China.
Very strong.
As I alluded to earlier, part of that was some of the incentives.
We are seeing that strength roll into Q1.
So, it's still early in the year.
We feel comfortable with the net new business announcement, we feel comfortable with our guidance around growth.
I would say, if anything I feel incrementally a little more positive about China than I did a few weeks ago.
How much of that's going to translate into real revenue by quarter and by backlog, we will see how that plays out.
I would say I'm feeling more comfortable around China after a strong Q4 and the incentives flowing into Q1.
You know, <UNK>, a large part of our backlog is China related.
I think it's a net help for us right now.
In the net new business we delivered in Detroit a couple of weeks ago, we didn't have those, those synergies were not in.
The reason just to be transparent with that, we'd only owned the company for a few weeks.
It was premature.
I think give us a little bit of time is what I would say to you as we go walk through that this year.
But if I was thinking out loud, I would say, as we get our arms around that, I think the contribution to the net new business as we go forward will be stronger from Remy than it was in this one.
Again, you've to hopefully give us a little bit of time to flush that detail through and go after meetings with the customers, et cetera.
But I think we will see a step up in contribution from Remy in terms of growth when we do the next new business.
When that will play in and how much, <UNK>, we just need a little bit of time there.
But I will tell you, directionally, I feel very positive about it.
Thank you
When we made the announcements about a year ago, we identified corporate governance cost is a really easy one to grab.
Obviously they don't have a board of directors any more and the executive group is gone.
That was one.
Another one was cost synergies on our purchasing side.
That is the one that will take more long term, I would say.
Over time we'll get those benefits.
Those are the two main ones we pointed out at the time.
Then there was another one, just basic redundancy, I would call active corporate, not to corporate officers but to corporate staff itself, some redundancy cost there.
We said that we'd get about a $15 million full year run rate, which in 2016 we would see about half of that.
Yes, the ---+ you covered the two big ones which was that China was a lower absolute growth market China for everybody.
That was weighted for BorgWarner because of our launch activity.
And commercial vehicle was the other significant headwind we faced in commercial vehicle.
I would say that was globally.
But Brazil, to your point, was probably the worst.
As we come into this year, our assumptions are based off 3% to 5% light vehicle production growth in China.
No growth in commercial vehicle globally.
Those are our two macro assumptions and that's how we are going into the year and that's how we built our guidance.
Thank you.
I would like to thank you all again for joining us.
We expect to file our 10-Q before the end of the day ---+ excuse me, 10-K before the end of the day, which will provide details of our results.
If you have any follow-up questions about our earnings release, the matters discussed during this call, or our 10-K, please direct them to me.
Melissa, please close out the call.
