BorgWarner Inc (BWA) — Q1 2015 Earnings Call Transcript

Thanks, Melissa. Good morning, and thank you all for joining us. We issued our earnings release this morning at around 8 a.m. Eastern Time. It's posted on our website, borgwarner.com, on our Investor Relations home page. A replay of today's conference call will be available through May 8, also on our website. The dial-in number for that replay is (800) 585-8367. You'll need the conference ID, which is 17762917. With regard to our Investor Relations calendar, we will be attending the following conferences between now and our next earnings release: May 1, we will be at the Wells Fargo Industrials Conference in New York; May 19, we will be at the Barclays America Select Conference in London; May 27, we'll be at the KeyBanc Automotive Industrial and Transportation Conference in Boston; and June 3, we'll be at the Deutsche Bank Industrials Conference in Chicago. 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. Now moving on to our results. James Verrier, President and CEO, will review highlights of our quarterly operating results as well as some of our recent noteworthy accomplishments. And then Ron Hundzinski, our CFO, will discuss the details of our quarterly results. With that, I'll turn it over to James.

Thank you, Ken, and good day to everybody. Ron and I are very pleased to review. I want to thank our employees around the world for another outstanding quarter. Your efforts drove outstanding results that help us to continue to lead our industry. Now onto our results. So during the first quarter, reported sales were just under $2 billion. That's about down 5% from a year ago, but it's up 3% when we exclude the impact of foreign currencies and the Wahler acquisition. Our growth in the quarter was below our normal high levels due to a few discrete items that I'll discuss in the segment review. Our U.S. GAAP earnings were $0.79 per share or $0.78 per share, excluding nonrecurring charges. Our operating income margin, again excluding nonrecurring charges, was an impressive 13.1% in the quarter. So considering our lower-than-normal growth quarter and some of the restructuring efficiencies and the new plants and plant expansions that we're managing this year, this is outstanding performance by our operations. Let me take a look at the two segments. In the Engine segment, first quarter sales were about $1.4 billion, which is down 2% from a year ago. But again, when we exclude the impact of foreign currencies and Wahler, the segment grew at 6%. These results were primarily led by strong turbo sales around the world, which was partially offset by some unfavorable mix of light vehicle production in North America. And we believe this is a temporary issue and should not impact our full year growth expectations. In the Drivetrain segment, sales of $611 million, which is down 10% from a year ago or down 2% when we exclude foreign currencies. The decline in sales for Drivetrain was related to unfavorable mix of light vehicle production in North America and also some launch delays in Asia. I'm very confident, though, for 2015 this will be a good year for Drivetrain. We expect Drivetrain to grow organically in 2015, and the restructuring work that's underway will position the business for strong growth and margin expansion in 2016 and beyond. Our restructuring and expansion plans are designed to improve our long-term performance. Our financial strength and strong performance is based on our ability to anticipate and drive the next technology developments. BorgWarner continues to invest for the long term. Capital spending continues to grow. We spent about 7% of sales on capital in the first quarter, which is above our long-term target of 6%. Typically, our capital spending is primarily for machinery and new equipment. However, with our strong high single to low double-digit growth rate over the next several years, it requires investments in new plants and plant expansions, which is driving some elevated spending in the near term. We expect this to continue through the end of 2015, after which we should return to our more normal spending levels. Our investment in R&D was just under 4% of sales in the quarter, which is in line with our target for the year. The intensity around organic innovation and product development remains very strong. I'm also proud to share some exciting announcements that we made during the last few months. Just last week, BorgWarner received the 2015 Automotive News PACE Award for its front cross differential or FXD technology. The PACE Awards acknowledge automotive suppliers for superior innovation, technological advancement, and business performance. We're very proud to receive this prestigious award this year, and that is our 15th PACE Award since 2005. The company received Supplier Awards from FCA, Toyota, and Honda Japan within the last few months. And we're very appreciative of the strong relationships we have with our customers, and these acknowledgments are very important to us. The company has recently announced expanded manufacturing capacity for emissions technologies in China, Mexico, and South Korea. The emissions business is gaining momentum globally and is a critical part of our growth going forward. Products produced at the newly expanded facilities include ignition products, EGR modules, valves and coolers, variable force solenoids, diesel cold-start technologies, and coolant control valves. BorgWarner also supplies its GenV electro-hydraulically actuated all-wheel drive coupling for BMW's first-ever front-wheel-drive vehicle, the all-new 2 Series Active Tourer. We also announced that we are supplying VTG turbochargers for two newly developed 1.4 three-cylinder diesel engines from the Volkswagen Group. Both engines comply with Euro 6 emission standards and improve fuel economy by up to 21% compared with the predecessor vehicles. Now I'll provide a brief overview of our updated guidance for 2015. Sales growth in 2015 is expected to be between minus 4% and 0%, which is down from 2% to 6% previously. The change in sales growth guidance is entirely related to weakened foreign currencies that Ron will discuss later. Now excluding currency, our sales growth is still expected to be 9.5% to 12%, unchanged from our previous guidance. We now expect earnings to be within a range of $3.10 to $3.30 per diluted share, which is down from $3.35 to $3.55 per diluted share. Again, nearly all of this change is related to foreign currencies. And again, Ron will provide a little more detail later. And our operating margin is still expected to be above 13%. So I'm very encouraged by our outlook for the rest of the year. 2015 should be another fantastic year for BorgWarner, and the restructuring and expansion activities are a clear transition to even stronger performance in 2016 and beyond. As we look ahead, the industry's continued adoption of our leading-edge powertrain technology combined with operational excellence are the primary reasons we have been, we still are, and we will continue to be the leading auto supplier in terms of growth and operating performance. So now with that, I'd like to turn the call over to Ron.

Thank you, James, and good day, everyone. Before I begin reviewing the financials, I would like to also commend all of our employees for their hard work and congratulate them on a great quarter. Now on to our financials. James already provided a detailed review of our sales performance in the quarter. In summary, sales were down 5% from a year ago or up 3%, excluding the impact of foreign currency and the Wahler acquisition. Working down the income statement. Gross profit as a percentage of sales was 21.6% in the quarter, up 20 basis points from 21.4% a year ago. During the same period, SG&A as a percentage of sales was 8.5%, also up 20 basis points from a year ago. R&D spending, which is included in SG&A, was at 3.8% of sales in the quarter. Operating income in the quarter was $216 million. Excluding $12 million in restructuring charges and an $11 million gain related to a buyout of a joint venture partner, operating income was $261 million or 13.1% of sales. Excluding restructuring charges taken in the quarter of 2014, this is in line with the same period a year ago. Excluding the nonrecurring items previously discussed as well as the impact of foreign currency and the Wahler acquisition, our year-over-year incremental margin was about 25%, well above our long-term mid-teens incremental margin target. Very strong performance considering the cost of two new plants in China, several other plant expansions, and restructuring-related inefficiencies in both segments. Note that our new plants in China will be up and running, and the Drivetrain restructuring will be completed by the beginning of 2016. Both should boost our performance. As you look further down the income statement, equity and affiliate earnings was about $9 million in the quarter, in line with last year. This represents the performance of NSK-Warner, our 50-50 joint venture in Japan, which sells transmission components to our Japanese customers in Japan and China, as well as TEL, our turbocharger joint venture in India. Interest expense and finance charges were $10 million in the quarter, up slightly from a year ago. Provision for income taxes in the quarter on a reported basis was $72 million. However, this included a $4 million benefit from the restructuring charge and other tax adjustments. Excluding that benefit, the provision for income taxes was $76 million, which is an effective tax rate of about 29% in the quarter. Our estimated effective tax rate for the full year is approximately 29%. Net earnings attributable to noncontrolling interest were just under $9 million in the quarter, up from $8 million in the first quarter. That brings us back to net earnings, which were $179 million in the quarter. Excluding nonrecurring items, net earnings were $177 million or $0.78 per share, our outstanding performance for the company. Note that weaker foreign currencies lowered earnings by about $0.09 per share in the quarter. Now let's take a closer look at operating segments in the quarter. As James said earlier, reported Engine segment sales were just under $1.4 billion in the quarter. Excluding currency and Wahler, Engine segment sales growth was 6% compared to the same period a year ago. On a reported basis, adjusted EBIT for the Engine segment was 16.7% of sales. Excluding currency and Wahler, adjusted EBIT for the Engine segment was 17.1% of sales, up 70 basis points from 16.4% reported a year ago. Excluding currency and Wahler, the Engine segment's year-over-year incremental margin was 29%, excellent performance for the Engine segment. The restructuring plan for Wahler is on target. The remaining charges will be recorded over the next two years or so, after which Wahler is expected to be a double-digit margin business. In the Drivetrain segment, reported sales were about $611 million in the quarter. Excluding currency, sales declined about 2% compared with the same period a year ago. Similar to the past two quarters, Drivetrain was impacted by a planned slow ramp-up of a major program by a North American customer in the quarter. We expect the volumes for this program to return to normal levels by the second half of 2015. On a reported basis, adjusted EBIT was 11.6% of sales. Excluding currency, adjusted EBIT was 11.3% of sales. Excluding currency, the Drivetrain segment's year-over-year decremental margin was 36% in the first quarter. To keep this in perspective, Drivetrain lost $5 million in adjusted EBIT on a $15 million decline in sales. That means the segment was only $2 million shy of our target decremental margin of 20%. Please note that Drivetrain is managing through a cost associated with our new DCT component plant in Taicang, China and restructuring-related inefficiencies. The Drivetrain restructuring plan is also on target with regard to both timing and cost. We still expect to have the relocations completed by the end of 2015, after which Drivetrain will be in a much better competitive position in Europe. Now let's take a look at our balance sheet and cash flow. We generated $33 million of net cash from operating activities in the first quarter of 2015, down slightly from $46 million a year ago. The decrease was primarily related to lower net earnings due to weaker foreign currencies. Capital spending was $140 million in the quarter, up $14 million from a year ago. The increase was driven by capital required to support our strong backlog of new net business. Free cash flow, which we define as net cash from operating activities less capital spending, was an outflow of $107 million in the quarter, which is a typical seasonal occurrence for us. Our investment in working capital ramps up in the first quarter to match higher levels of business activity compared with the end of the year. Looking at the balance sheet itself. Balance sheet debt increased by $498 million at the end of the first quarter compared to 2014. Cash increased by $238 million during the same period. The $260 million increase in net debt was primarily due to capital expenditures, a dividend payment to our shareholders, and share repurchases. Our net debt-to-capital ratio was 18.4% at the end of the first quarter 2015, up from 12.8% at the end of 2014. Net debt-to-EBITDA at the end of the year on a trailing 12-month basis was 0.6. Our capital structure remains in excellent shape. Now I'd like to discuss our updated guidance for 2015. James reviewed our guidance to the high level; I'll discuss some of the finer points. We expect sales growth of a negative 4% to 0, which is down from 2% to 6% previously. As James mentioned earlier, the change in sales growth guidance is entirely related to weakening foreign currencies. Our full-year dollar-to-euro exchange rate assumption is now between $1.05 to $1.10, down from $1.20 previously. We also have lowered our exchange rate assumptions for several other currencies, including the Brazilian real, Japanese yen, Korean won, Mexican peso, and the Swedish krona. The impact of these new assumptions translates to approximately $500 million less in revenue this year. Excluding currency, our sales growth is still expected to be 9.5% to 12%, which is unchanged from our previous guidance. We now expect EPS within a range of $3.10 to $3.30 per diluted share in 2015, down from $3.35 to $3.55 per diluted share previously. This change in EPS guidance is also heavily influenced by currency, but includes additional interest expense from our $1 billion bond offering. Of the $0.25 change in EPS guidance, $0.20 is related to currency and $0.05 is related to the net impact of higher interest expense, offset by share repurchases. We expect our share repurchase program to gain momentum over the remainder of the year. Our operating income margin guidance is unchanged, which is above 13%, which implies a mid-teens incremental margin, excluding non-comparables in line with our long-term target. In conclusion, we continue to be confident in our ability to execute in any market. This company has demonstrated a heightened focus on efficiency and cost. This focus has resulted in highly efficient growth and record margins in each of the last four years. With our strong organic growth and operations performing at a very high level, 2015 should be another great year for BorgWarner. As we look beyond 2015, we intend to execute our growth plan, yielding high single to low double-digit growth and to efficiently convert our sales growth to profits. The future is bright for BorgWarner. With that, I'd like to turn the call back over to Ken.

Thanks, Ron. Now let's move to the Q&A portion of the call. Melissa, could you please remind everyone of the Q&A procedure?

Ron, on the Drivetrain, so should we think of the delta on the decremental, the $5 million decline in operating income that typically would be $3 million at delta $2 million? Is that the inefficiency? Should we assume that? Or is there other stuff going on there?

That's a good assumption, Rich. But I would also say that in the Drivetrain itself, the inefficiencies are probably actually running a bit higher than the number you just gave out, okay?

Okay. For the remainder of the year, I understand there are several factors at play, but how are you factoring inefficiencies into your guidance for the last three quarters?

So let me clarify. When I say efficiencies, there are two things in Drivetrain. There are a couple of startups and there are inefficiencies. So I want to make sure I distinguish between those two. The inefficiencies are going to take us through this year, and that was the relocation of Western European plants to Eastern Europe. But what I'd also like to point out is that in the Drivetrain, we still have a DCT plant being launched in China that's going to take us through the rest of the year. So the answer to your question is the inefficiencies should get better, but the drag on the startup of the plant in China should continue throughout the year. So long and short of it is we're going to see this headwind for a little while yet.

Okay. But it sounds like net-net, it should get a little less as we move into the second half. James, there is a comment around a pushout of some programs in Drivetrain in Asia. Is that related to DCT? And then if you take a step back and look at the adoption rates in quoting activity around DCT in Asia, is there any change?

Yes, I would say, Rich, quoting activity on DCT remains extremely strong, especially in China and Europe. We are not observing any shift or slowdown in quoting activity or win rates for BorgWarner, which are very healthy. While there is a minor launch delay related to DCT, the majority is linked to other TorqTransfer and transmission products. I want to clarify that this is not an issue related to BorgWarner, just to provide some clarity, Rich.

Okay, great. Ron, could you quickly clarify your assumption on commodities from last quarter? When you provided the initial guidance, you didn't expect any benefits from commodities. Is that still your outlook for the year?

Not anything material. So it's the same assumption, Rich.

You maintained your revenue guidance for the second year, which is quite impressive. Can you confirm whether you are observing any changes in OEM bake rates or program launches related to fuel efficiency due to gas prices? Additionally, are you noticing any increase in Drivetrain-related costs?

Ravi, let me take a shot at that. First of all, I appreciate your acknowledgment and recognition of that strong growth, and we feel good about it too. And as we've outlined, we still feel good about that. The way I would articulate it is, Ravi, during the year, you'll always get little shifts, little mix shifts between whether it's cars and trucks in North America and other such things. But when you get all the puts and takes together, our sense is we're still comfortable with our full year projection of that 9.5% to 12% growth when you strip out currency. But no real significant shifts, Ravi, is what I would say to you in terms of some of your specific points.

Got it. The guidance regarding mark-to-market and foreign exchange is clear. However, we are experiencing a stronger-than-expected production run rate in Europe. The SAR in the U.S. remains quite strong. I believe your growth assumption for the underlying industry back in Detroit was around 1% or 2%. Is there any possibility to raise that expectation, and is that already included in the new guidance?

What I would say is that our reaffirmation of the full year outlook from January indicates that our overall macro assumptions have not significantly changed. While there are specific factors in various regions, programs, customers, and countries, at a general level, nothing major has shifted in the quarter. This is why we are maintaining the revenue guidance as it is.

Okay. Lastly, Ron, following up on Rich's earlier question, if you were to factor in Drivetrain margins for this quarter considering all the efficiencies, the China launch, and the F-150 delays, what would the margin have looked like this quarter?

What I can say, Ravi, is that I would need to calculate the margin, but we experienced a loss of $5 million. I would estimate that we would have been nearly breakeven. I don't want to commit to a specific number without doing the math, but we likely would have been breakeven on a $15 million decline in sales.

Let's see. First of all, your underlying sales expectations for the full year, 9.5% to 12% growth, is that comparable to the 3% number you reported in the first quarter, indicating an acceleration as you proceed through the remainder of the year? Or is Wahler factored into that, or are there other factors affecting the 3%?

Brett, let me take a shot first, and maybe Ken and I will add a little detail. What that implies is Q2, Q3, and Q4 are going to run stronger than Q1, which we're comfortable with. And a couple of those items that both Ron and I alluded to, specifically the North American customer, which we outlined, is a contributing factor to that. So yes, we're going to run stronger in 2, 3, and 4 than we did in 1. And based on all we know right now, we're very comfortable with that.

Yes. I'll add just this one thing. James alluded to the North American program also gaining steam over the rest of the year. Also, the issues in Asia, the pushouts, are expected to recover in the back half of the year as well. So all of that together pretty much implies that this is a timing issue more than anything, is kind of really the message.

Yes. The North American comment obviously relates to the F-150. But the delays in Asia, what is that in regards to?

Well, James had talked about some Drivetrain-specific issues, and that none of them were really BorgWarner-specific, just a change in timing with our customers on the ramp-up of these programs. So a little bit slower in the first quarter, but picking up as the year goes forward.

Yes, this is based on a comparable basis, which means it excludes foreign currency effects. However, looking ahead, Wahler will no longer be a factor since it was included in last year’s numbers, so that shouldn't be a significant concern moving forward.

Regarding the F-150, I understand the production schedule has been discussed frequently this earnings season. However, how should we evaluate the opportunities related to its content? Is there much variation in terms of powertrain? I believe there might have been one new configuration, but I'm not entirely certain. I just wanted to check if there's anything different this time or if the key issue is primarily related to volume.

I think you said it well there at the end, Pat. The content opportunity doesn't really change for us as you go from the previous version to the current. It's really just the ramp-up and the volumes that are significantly different this year than compared to what they were last year. Last year was very strong in the first half, weaker in the second half, and it should be just the opposite this year.

Okay. And then one question. I think the R&D number that you provided was in the mid-3% range.

3.8%. Right.

Yes. I mean, that's lower than what you guys have traditionally done. Is there just a seasonality to that spend? Or is it something you're dialing back a bit as you're digesting some of these other elevated expenses? How should we think about that?

Pat, I want to emphasize that we are not reducing our efforts. Additionally, there may be some seasonal factors involved since it's quite similar to last year. Another aspect to consider is that there are foreign exchange challenges since much of our engineering takes place outside the U.S., which introduces some fluctuations into the numbers. In fact, if we adjust for that, Ken, wasn’t the actual impact around 4% or so? I believe it’s about a 20 basis point effect from foreign exchange. So, the figure seems a bit skewed, and while I don't want to delve into the specifics, I want to be clear that we are not pulling back at all. Not at all.

That's helpful. I wanted to follow up on the Drivetrain question regarding the rebound you've mentioned. I'm curious about how confident you are in that recovery since you haven't changed your guidance. Could you provide more insight into the visibility of those products? I assume you have access to the order book and backlog, but I'd like to hear more about it.

I believe you articulated that quite well. Our expectations for the full year remain unchanged. Everything that has transpired thus far aligns with our expectations. We anticipated that this significant North American program would be sluggish in the first half but gain momentum in the second half in a significant manner. The only notable timing issue was that the first quarter was slightly off from our projections for this time of year. However, we fully expect that to realign in the second, third, and fourth quarters.

A couple of questions. More of a housekeeping guidance question and then into sort of a broader strategic question. Do you have any visibility yet into incremental margins for '16 over '15? You talked about they could be a step function higher in '16. How are the puts and takes shaking out?

Well, Brian, we have some of these headwinds as far as inefficiencies and restructuring. We have some plant startups. So I would say that at '16, we go into '16 and I would anticipate, I guess, a tailwind in incremental margins from where I sit today. I mean, it's still a long ways off, but I think that's possible.

Okay. The second is a broader question. Yesterday, in a well-followed controversial call, Sergio Marchionne, Fiat Chrysler, made a case that ROICs for auto OEMs were low, margins were low. You probably hear that from your customers all the time when they compare it to your good margins in ROIC. And secondly, that there was a lot of redundant R&D and CapEx across the OEMs, in particular about 20% of vehicle development costs in powertrain. And you would argue, and he would argue, in the mass market, V sedan market who really cares about the engine. So I guess, the question is, is this going to be an opportunity at all, mid-term, for you guys to step up and actually kind of move to what I might call the Apple model? Where they're not making their chips, they're not assembling their cars. You're providing engine and transmission components, but you're not providing engines and transmissions. Any possibility at all the industry could move in a direction that would make it more like other modern industries in terms of the value chain and, hence, perhaps offer better opportunities for all players?

Let me take a moment to respond, Brian. I didn’t read the specifics of his comments; I only caught the headline. From my perspective, which you touched on, we somewhat control what we can within BorgWarner. As you mentioned, we feel very positive about our return on invested capital and our margins. I would emphasize that we prefer to maintain financial discipline regarding capital utilization. Looking at it from our viewpoint, I’m quite satisfied with our current position. In terms of your broader question, I believe there will continue to be an increasing application of technology in the powertrain over the next decade and beyond. I see BorgWarner having opportunities to expand its system and content capabilities, whether through additional electrification content or a wider system package. I view these as growth opportunities for BorgWarner.

I want to add one thing to that, Brian. While James is making those comments, we also continue to see, as he said earlier, increased technology in the powertrain. We don't see the engine becoming a commodity in any way. We still see there's an awful lot of opportunity for improvement in the performance of the engine. And we are going to be a valuable partner to our customers in that regard.

A couple of questions. One is just wanting to confirm. You did give us a helpful impact just from the FX. It looks like $0.20, and calibrated to maybe $64 million and like a 13% margin on the $500 million impact from FX. Is that what we should be thinking about going forward? Is it just basically translation? Or is there also transactional sensitivity as currencies continue to move?

So Rod, you're absolutely right. It's translational. And at a high level, it's roughly equal to our operating margin is the impact both ways on average. So that's correct. I'd like to respond on the transactional side. We do see transactional, but it's not material. Not to say we don't see it, we do. But net-net, it ends up being not that material for us.

Okay. And on this F-150 mix issue, got to check the numbers, but wasn't that an equivalent headwind for you in the fourth quarter? You actually had 6% organic growth in the fourth quarter. Are you basically saying that you're not seeing any other mix headwinds in diesel or any other place? Can you give us a sense of kind of maybe high level the kind of organic growth that you would expect in the second quarter as the Kansas City plant is starting to ramp up now?

Rod, specifically, for the first quarter, as we talked about, the significant piece, obviously, as you outlined, is the large American platform we talked about. But the other aspect was a little bit of the launch issues in Asia that were also playing into that a little bit and a little bit of mix in the quarter, which is basically car truck mix in North America as well. So those were the kind of components that impacted it. As we look forward, Rod, what's holding our guidance, as you know, from a revenue point of view, so that implies that we're going to be stepping up to more normalized growth levels in Q2, 3, and 4. And we're comfortable with that for sure.

I'm asking about the F-150, which was down 40% in the fourth quarter and 40% in the first quarter. It seems that the headwind isn't greater. Are there other factors? I believe the truck to car mix should actually be beneficial and that you're noticing this more at this stage.

Well, specifically, the programs in Asia that James is talking about is the main delta from Q4 to Q1. So we talked about those additional launches that were happening in the first quarter that are ramping slower than we thought. That's kind of the main delta.

Okay. Can you give us an idea of the ramp from here in terms of the organic growth? There are some pretty big programs that are going to start kicking in again, as we look at the Q2 maybe.

Well, you and I can work on that offline. But obviously, the full year organic growth number is still intact, so you can kind of back into it, we think the rest of the year should be.

I wanted to follow up regarding the F-150. There's clearly some pressure in the Drivetrain segment, but the engine seems to be feeling some pressure too. As production ramps up in the second quarter and grows more significantly in the third and fourth quarters, will the engine segment receive a boost? Currently, the engine segment margins remain strong and don't appear to be significantly affected in terms of sales or margins. I'm interested to know if there is also a drag in the Engine segment and whether we can expect a similar recovery in the second half of the year.

Yes, John. So, let's talk about that vehicle that Rich was mentioning here. The content on it that we have is on an EcoBoost engine, we have turbos. Turbos fall under the Engine. We also have timing systems on that engine. So that's also under Engine. And then really, we have transfer cases if a four-wheel-drive option was selected, which impacts the Drivetrain. So yes, the volume reduction we see on that vehicle right now is impacting the Engine segment. But the Engine segment is a lot larger, so it's not as material as it is to the Drivetrain segment.

Okay. Very helpful. And second, on mix. I mean, obviously, there's some stuff that's going on with the German luxury manufacturers in China, where that market is relatively a little bit weaker for them, and the U.S. seems to be picking up and Europe is a little bit better. Is there anything that's going on with mix, given those different end markets that those vehicles are ending up in for you? Or you're not seeing any change with German luxury manufacturers at this point?

Actually, John, from that perspective, no impact for us. We continue to see very strong growth in China, both domestically produced and then imported-from-Europe product. That's all very, actually, helpful for us. And so no, no negative impact at all on the luxury stuff for us. It's been good, good and as kind of expected, John, is the way I would say.

Okay. And then just lastly, I mean, as we think about the share buybacks and the stock being down almost 4% today, would you consider getting a lot more aggressive with the share buybacks? I know you bought back a little bit in the first quarter, but given what we're seeing on the stock and given the sort of the disbelief in what your earnings are going to be around forex, it seems like a good time to buy the stock. Would you consider accelerating the buyback dramatically?

Yes, we would accelerate the buyback. I think I said that actually in my script, that we anticipate acceleration going into the year, John.

Just a couple of follow-up clarifications. So it's good to see that you've confirmed the 9.5% to 12% x currency revenue growth. I think in January, you laid out that of that the backlog was roughly, I think, 10% to 11.5%. Just wanted to clarify if that still is the case or if things kind of shifted around between the base business and the pricing assumptions within that.

Just about everything else is unchanged, little movement here and there. But that chart that we laid out for you in January is still intact, with the exception that foreign currency piece is now a much more dramatic impact.

Great. Can you share any dollar amount of backlog that came in Q1 or provide some timing information on the launches of the backlog this year to help us?

We don't have a specific dollar amount to share, but it seems we are somewhat behind our initial expectations following the first quarter. However, as we evaluate our programs for the remainder of the year, it appears that the losses we experienced in the first quarter are likely to be recouped as the year progresses.

Yes, Itay. We're going to adjust that guidance probably about $50 million down, and that's all driven by FX as well. Nothing on that's driving other than that.

Itay, this is James. Regarding the M&A environment, there haven't been any significant updates since our discussion in Detroit in January. We have a lot of ongoing work, numerous targets we are engaging with, and many opportunities ahead. While we aren't making any announcements at this time, we remain optimistic about M&A activity and are definitely focusing on it aggressively.

This is Jacob Hughes calling in for Joe. Just had a quick strategic question. I saw a competitor announce that they're working on an electric supercharger, which I think combines the benefit of a turbo and supercharger. But what are your thoughts on that? Is that going to be more prevalent, any update what you're doing in that area? Just...

Yes. We do see adoption of, we'll call it, generically electric turbos or electrically-assisted turbochargers. We do see that trend emerging. Not surprisingly, BorgWarner is engaged with most of the OEMs, if not all, that are working on that. And we expect that to be a key program for BorgWarner going forward. We do have production orders for BorgWarner on electrically-assisted turbochargers. We're not in a position to announce those details at this stage, but we do have orders in the backlog, so to speak. And we see a steady growth of it, and we feel very good about it. And just to give you the primary reason why, generally, all forms of electrically-assisted turbocharger require turbocharger know-how, power electronics know-how, and motor know-how, and BorgWarner brings all three together in a very nice integrated system approach.

Can you just talk about the expected ramp from plus 3% organic growth in Q1 to the target range of 9.5% to 12% for the full year? What gives you the confidence you can ramp that strongly? And I definitely understand that Q1 was impacted by the pushout of the program launches. But I guess, what I'm still hazy on is that even if the impact to Q1 was temporal, how does that allow you to be on track for the full year? Can customers somehow make up for lost time by overproducing when the vehicle does launch?

That last point that you made is relevant, especially in the programs we were talking about in Asia. They absolutely can do that. And secondly, remember that this growth number that we're talking about has a baseline. And the baseline gets easier for us in the second half of the year. If you go back to 2014, the first half was a very strong year, especially in the areas that we've been discussing today, and it was much weaker in the second half. So for us to see outsized growth in the second half is easier because it's an easier comparison.

Okay. That's very helpful. And then my last question is just on raw materials. Can you remind us what your biggest commodity exposures are, and then how the cost-sharing arrangements work with your customers? And any help you can give us in terms of how it could impact your results in 2015. And then sort of separately to that, but related, does some amount of the pressure on revenue relate to the cost-sharing as you pass savings on with no negative impact to EBIT?

Okay. So, Ryan, let's go back in time. A couple of years ago, we used to see headwinds of about $30 million in commodity prices; I think in '14 that came down to probably under $15 million. And then, in 2015, it's coming down again as far as that year-over-year headwind. So it's come down to where, at this point this year, it's a much smaller number than it was three years ago. So with that said, this year, it's much less. And the commodities we're buying, we see copper, we see nickel, we see resins, and we see steel. But steel comes in a lot of different areas. Now what I will say is this, this is a very complex discussion, because what happens is each one has different contracts and different timing periods. And some of it's pass-through and some of it's not. So for example, in nickel, we probably have pass-throughs of maybe 50% to enable to pass prices up and down the chain, that it's not that materially a headwind or tailwind for us on average. So it's a very complex question you're asking, but we are in an environment that's more positive. I will say that.

Over in China, we've seen vehicle license lotteries coming into play in a lot of large cities, primarily because of the smog issues. We've also seen the government over there incentivize a lot more for the electrified powertrains. I'm curious, are the OEs over there more interested in your technologies than OEs in other parts of the world? Have they started to utilize these things more so than in other world regions?

Richard, I would summarize it this way. Our growth rate for BorgWarner in China remains on path to be, rough numbers, about a 30% CAGR over the next five years. And it remains very strong. I would say to you, the adoption of the BorgWarner technologies for fuel economy and emissions comes in China. We've seen no pushout slowdown at all in China at the adoption rates. And all of our technologies in the product portfolio for BorgWarner are getting adopted. And if you think about how that translates into new facilities that we've been building, whether it be Drivetrain-related or Engine-related, it really is very, very strong adoption. And that applies to both the domestic customers, Richard, as well as the global joint venture partners. So no slowdown and very rapid adoption rates of all of our technology over in China.

Okay. Ron, could you explain why the percentage change in the operating segment income decreased less on the Engine side compared to the revenue change than it did on the Drivetrain side? Was there any influence from currency that might have impacted the year-over-year changes in adjusted EBIT?

In my opening remarks, I provided some figures regarding the comparable changes in those two segments. I mentioned that the Drivetrain segment saw a decline of approximately 40 percent. It's important to focus on this segment because it involves small numbers. I would say that the Drivetrain did not perform as well, roughly generating about $2 million. However, given the small numbers involved, it's worth noting that the performance of the Drivetrain wasn't as strong compared to the Engine side.

I'd like to thank you all again for joining us. We expect to file our 10-Q 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-Q, please direct them to me. Melissa, please close out the call.