BorgWarner Acquires Swedish Unit - Analyst Blog

BorgWarner Inc. (BWA) announced that it has signed an agreement to acquire the Traction Systems division of Stockholm, Sweden-based Haldex Group, in order to accelerate its growth in the global all-wheel drive (AWD) market. The acquisition will also help the company to build a strong customer base in the European market for AWD equipments.

The acquisition is valued at $205 million (SEK1.43 billion). The traction systems unit expects to generate more than $205 million in revenues for the company next year. The transaction is anticipated to close in the first quarter of 2011.

BorgWarner, a Zacks #3 Rank (Hold) stock, posted a profit of $111.7 million or 87 cents per share during the third quarter of 2010 compared with $17.2 million or 15 cents per share in the year-ago quarter. Excluding the special items, EPS was 71 cents during the quarter, outpacing the Zacks Consensus Estimate of 63 cents.

Sales amounted to $1.41 billion, up 37.3% from $1.03 billion in the same quarter last year, excluding the impact of fluctuations in currency. It exceeded the Zacks Consensus Estimate of $1.28 billion.

The sales growth was driven by massive expansion in the major global markets, notably in Asia (especially China) and Europe. Sales in China improved 70% on a year-over-year basis, representing about 6% of the company's consolidated sales. Sales in Europe benefited from continued volume shifts toward vehicles with higher BorgWarner content.

Operating income increased significantly to $123 million from $27.5 million in the third quarter of 2009 led by successful implementation and execution at the company's operations.

Due to accelerated improvements in the markets, BorgWarner anticipates sales to grow 40% on a year-over-year basis in 2010, up from the prior guidance of 32%–35%. Consequently, earnings are expected in the range of $2.85–$2.95 per share, up from the previous outlook of $2.60–$2.80.

Growth for the company is expected to be driven by a recovery in North America, along with strong growth in its Asian businesses due to higher production levels and new program launches in China, India, Korea and Japan.