Production pauses and increased commodity costs hit BorgWarner Inc.'s bottom line in the third quarter, but the Auburn Hills-based supplier also reported making strides toward the goal of electrifying its business.
The company had adjusted operating income of $311 million on net sales of $3.4 billion for the quarter, compared with pro forma operating income of $396 million on revenue of $2.5 billion for the same period last year, according to its Wednesday earnings report.
The 35 percent sales increase reflects revenue gains from the acquisition of Delphi Technologies and increased demand for products, which "more than offset the decline in industry production," according to the company.
The decrease in profit was caused largely by supply chain issues, including a $24 million increase in commodity costs, CFO Kevin Nowlan said on a call with investors. Lower than anticipated income and higher than planned inventory levels led the company to consume $10 million in free cash flow.
"Fundamentally, when production declines this rapidly and unexpectedly, it's difficult to get that inventory out of the system in the near-term," Nowlan said. "We expect inventory to improve in the coming quarters once we see less volatility in production orders, which will give us the ability to right-size our supply chain demands accordingly."
Full-year net sales are expected to be in the range of $14.4 billion-$14.7 billion, "under the assumption that the semiconductor supply issues do not worsen and there are no additional production disruptions arising from COVID-19," the company said in a news release. Its previous guidance called for a range of $15.2 billion-$15.6 billion.
