BorgWarner Inc (BWA) — Q1 2016 Earnings Call Transcript

Thank you, Melissa. Good morning and thank you all for joining us. We issued our earnings release this morning at around 8:00 a.m. Eastern, 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 13. The dial-in number for that replay is 800-585-8367. You'll need the conference ID, which is 77109071 or you can listen to the replay on our website. With regard to our investor relations calendar, we will be attending the following conferences between now and our next earnings release. The Wells Fargo Industrial Conference in New York on May 10. The Barclays Americas Select Conference in London on May 18. The KeyBanc Automotive Industrial and Transportation conference in Boston on June 1st, Deutsche Bank Industrials Conference in Chicago on June 9th and the Citi Industrials Conference in Boston on June 14. Now, back to today's earnings release. 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 comment on the industry and provide a high-level overview of our results and expectations for the remainder of 2016. And then Ron Hundzinski, our CFO, who will discuss the details of our results and guidance. Please note that we have posted an earnings call presentation to the IR page of the website. You'll find the link at the events and presentation section beneath the notice for this conference call. We encourage you to follow along with these charts during the discussion our results. With that, I will turn it over to James.

Thank you, Ken. Welcome everyone, and thanks for joining the call today. Ron and I will take some time to discuss Q1 2016 and share our thoughts on the outlook for the rest of the year. Let’s begin with a perspective on some major macroeconomic issues and the industry as a whole. The key takeaway is that, despite the uncertainty in the global environment—such as Federal Reserve concerns, China's monetary policy, oil prices, and Middle Eastern issues—our outlook remains stable. Although there is instability in the macro environment, we believe the underlying conditions are relatively sound. Now, focusing specifically on the market, we align our light vehicle growth projections with IHS, forecasting about 2% growth in Europe, around 4% in North America, and 5% to 6% in China for 2016. However, the commercial vehicle market, which is crucial for BorgWarner, remains challenged with minimal growth. We are closely monitoring new programs initially set for future years as they come under review. As we look ahead, I want to reiterate the areas we are monitoring closely. Besides commercial vehicles, we are particularly attentive to developments in China, especially as we benefited from incentives at the end of 2015. We are assessing the impact of these incentives as we progress into the second half of the year. We are also focused on inventory levels and building schedules in North America. Regarding regulatory and technological trends, there is a continued strong drive for advancements in fuel economy and emissions standards affecting our powertrain technology programs. Product development and innovation in this area have ramped up, matching or even surpassing previous efforts. We anticipate no major changes to the 2025 CapEx standards following our discussions with the EPA. The transition to electrification in powertrains continues to accelerate, with various architectures in development, notably in the next 2 to 3 years. I want to highlight our progress in electric vehicles, particularly with our EV transition program with Remy, which is set to produce around 15,000 units in 2016. We have been awarded two additional EV programs that we will announce soon, which we believe will significantly impact our position in that market. On the topic of diesel, we predict a gradual shift towards gas over the coming years. While we do not foresee any drastic changes in the mix in the near term, we acknowledge this transition. Now, turning to our Q1 results, which I feel very positive about. We exceeded expectations with solid growth across our segments. Revenue totaled $2.3 billion, resulting in approximately 4.5% growth when excluding foreign exchange and Remy. Our earnings per share were $0.80, and operational margins were strong. Breaking this down by segment, engine sales reached $1.4 billion with a growth rate of 4.5%, while drivetrain sales grew 44%, heavily influenced by the Remy acquisition. Excluding its impact, the growth in the drivetrain segment was 5%. For 2016, we have adjusted our guidance slightly, but the overall outlook remains unchanged. The restructuring process at Wahler is ongoing and more complex than anticipated, particularly in our European facilities. Despite these challenges, our view on Wahler remains positive. Looking ahead to the second half of the year, we see both opportunities and risks. While we remain optimistic about our ability to achieve our full-year guidance of mid-single-digit growth, concerns particularly in China and commercial vehicles weigh on our outlook. Overall, our integration of Remy is progressing well, and we continue receiving positive customer feedback. We are confident in our win rates and future growth. In summary, we started the year strong, delivering solid Q1 results, and we remain focused on leveraging technology to drive our growth. With that, I'll turn the call over to Ron for more detailed financial insights.

Thank you, James, and good day, everyone. Before I review the financial details, I want to share some financial highlights for the quarter. As James mentioned, we have seen expected sales growth during this period. Additionally, we expanded our free margins on a comparable basis and successfully channeled that increased sales into our cash position, evidencing a return to normal capital expenditure spending. As Ken noted, I will refer to the supplemental financial slide deck available on the IR website, and I encourage you to follow along. Let's start on Slide 3. On a reported basis, which includes the impact of market growth, pricing, net new business, foreign exchange, and Remy, our segments were up 14.3%. However, to obtain a clear view of our core business performance, we must exclude the effects of foreign exchange and Remy, leading to a sales increase of 4.5%, which surpassed the upper limit of our guidance. Gross profit as a percentage of sales stood at 20.5% for the quarter. Excluding Remy, our gross margin was 20.9%, a decrease of 70 basis points from the previous year due to plant startups and restructuring inefficiencies, as mentioned by James earlier. SG&A as a percentage of sales was at 8.3%, with a comparable SG&A figure at 7.8% of sales, reflecting a 70 basis points improvement year-over-year. The Company effectively executed cost controls to counterbalance the gross margin decline. R&D spending, included in SG&A, remained flat from last year at 3.8% of sales; but if we exclude Remy, engineering expenditure increased to 4.2%, translating to a 30% rise in absolute spending. Now, let’s proceed to the year-over-year comparison for operating income found on Slide 4. In the fourth quarter of 2016, the adjusted operating income, after accounting for non-comparable items and including Remy, reached 276 million, representing 12.2% of sales. Excluding Remy's $11 million contribution, the operating income was 266 million, or 13.2% of sales, a 10 basis points increase compared to the prior year. When excluding non-comparable items, Remy, and foreign exchange, we noted an operating income increase of 14 million and 90 million in other sales, offering an incremental margin of 15% for the quarter. I would like to take a moment to emphasize that a reconciliation of reported operating income, adjusted for non-comparable items as well as Remy, is available on Slide 15; this is crucial information. Now, as we delve further down the income statement, earnings from equity affiliates for the quarter were approximately 9 million, showing a slight improvement from last year. Interest expenses and finance charges rose to 21 million, up from 10 million last year, largely due to the issuance of $1 billion and €500 million in fixed-rate senior notes in 2015. The provision for income taxes during the quarter was 80 million on a reported basis; this figure included 1 million in tax benefits associated with our non-comparable charges and an additional favorable tax adjustment of 1 million. Further details can be found in our 10-Q, to be filed later today. Excluding these items, the provision for income taxes amounted to 82 million, resulting in an effective tax rate of 31%, an increase from our guidance of 30%. Net earnings attributed to non-controlling interest were roughly 9 million, consistent with the first quarter of 2015. Let’s now examine our diluted earnings per share on Slide 5. Net earnings, excluding non-comparable items but including Remy, were $0.80 per diluted share. For comparison with previous periods, net earnings excluding these items and Remy were $0.77 per diluted share. Next, we'll closely review our operating segments for the quarter, starting with Slide 6. Reported engine segment net sales approached 1.4 billion. Excluding currency impacts, sales growth for this segment was 4.5% compared to the same period last year, primarily driven by increased turbocharger and variable cam timing system sales. As we move to Slide 7, the adjusted EBIT for the engine segment was reported at 233 million, which equated to 16.7% of sales. Excluding currency impacts, the adjusted EBIT was up 10 million corresponding to 63 million in higher sales, yielding an incremental margin of 15%. Moving to Slide 8, the drivetrain segment net sales reached 879 million for the quarter. Excluding Remy and foreign exchange impacts, the sales growth for this segment was 4.8% from the same period last year, mainly attributed to increased all-wheel drive sales. Now on Slide 9, adjusted EBIT for the drivetrain segment stood at 84 million, or 9.5% of reported sales, but without Remy, the adjusted EBIT figures reached 11.7% of sales, marking a 10 basis points increase year-over-year. Excluding Remy and foreign exchange, the drivetrain segment registered an adjusted EBIT increase of 5 million along with 30 million in higher sales, translating to an incremental margin of 15%. Now let’s look at our balance sheet and cash flow. We generated 35 million in net cash from operating activities this quarter, which is typically our weakest period for cash flow. Our investment in working capital ramped up in the first quarter to align with increased business activity compared to the prior year-end. Capital expenditures for the quarter totaled 104 million, a decrease from 140 million last year. While capital spending was high in 2015, we are returning to more typical spending levels of 5% to 6% of sales this year. Our free cash flow, defined as net cash from operations minus capital spending, showed an outflow of 69 million for the first quarter, though this was a 38 million improvement from the previous year. This seasonal pattern is expected. We anticipate generating between 400 million and 475 million in free cash flow in 2016, which represents a 50% increase from 2015 at the midpoint. We plan to allocate 200 million to 300 million of this free cash flow towards share repurchases in 2016. Regarding our balance sheet, debt increased by 48 million, while cash decreased by 185 million in the first quarter compared to the end of 2015. The 233 million rise in net debt was largely due to investments in working capital and share repurchases; we repurchased 2.1 million shares for 80 million in the first quarter, ahead of our planned execution of 200 million to 300 million in share repurchases this year. Our net debt to net capital ratio stood at 37% at the end of the first quarter, up from 35.2% at the close of 2015. At year-end, the net debt to EBITDA on a trailing 12-month basis was 1.5 times. I would now like to address our 2016 guidance, which has been slightly adjusted from our initial projections. Referring back to the slide deck, we begin with our sales growth guidance for the full year on Slide 10. The baseline for this year is 2015 net sales, excluding Remy, which was nearly 7.9 billion. Overall, we project growth between 12.7% and 17.5%, slightly revised from our previous expectations of 13.2% to 18.3%. This adjustment is largely due to lower growth expectations from Remy's commercial vehicle business. We are observing similar trends in Remy and our core business. Currency impacts remain stable, and the net new business pricing and market-related growth estimate is unchanged at 2.5% to 5.5%. On Slide 11, looking at our operating income guidance, we expect 16% to 18% incremental margins from our core business sales growth, slightly down from our earlier guidance of 18% to 20%. This reduction stems from slower progress on the Wahler restructuring as noted by James. Our earlier guidance included an $8 million tailwind from that restructuring, revised down to $3 million. We still anticipate our operating income margin will be at least 13% on a comparable basis, while including Remy, we expect it to hover around 12%. Now on Slide 12, our EPS guidance indicates we expect earnings of $3.11 to $3.32 per share on a consolidated basis, including about $0.12 per share from Remy. Excluding Remy, our expected earnings now range from $2.99 to $3.19 per share. Let’s review our effective quarter guidance issued this morning, starting with the sales growth on Slide 13. Overall, we anticipate growth between 10.6% and 16% in the quarter, accounting for about 12 percentage points from Remy. Excluding Remy, our growth expectations are between a decline of 1.5% and a rise of 3.8%, factoring in negative currency impacts as well. Currency is projected to reduce sales growth by 290 basis points on the lower end and 100 basis points on the higher end. Thus, excluding Remy and currency influences, net new business pricing, and market growth would lead to growth of 1.5% to 4.5% in Q2. Shifting to Slide 14, we expect consolidated earnings in the second quarter to range from $0.78 to $0.83 per share, which includes about $0.03 per share from Remy; excluding Remy, earnings are anticipated to be between $0.75 and $0.80 per share. In conclusion, we had a strong first quarter. Sales growth surpassed our expectations and translated into improved operating income. Although the first half of 2015 posed challenges, making it difficult to set accurate sales guidance impacted last year’s earnings expectations, we have since stabilized the situation and achieved our sales and earnings objectives over the last three quarters. Looking ahead, we are optimistic about maintaining solid sales growth, strong operating margins, and enhanced cash flow for the year. I am confident we will meet our 2016 guidance, as James also expressed earlier. I will now turn the call back over to Ken.

Thanks Ron. We're now going to move to the Q&A portion of the call. Melissa, please remind everyone of the Q&A procedures.

James, following up on your comments regarding risk and opportunities and more risks here maybe versus 60 to 90 days ago, if we look at the first quarter you came in better on organic growth versus your initial expectation, you didn’t change the full-year organic growth rate, but is it fair to say that you've taken some of these incremental risks into account through the second half of the year as it relates to the items you cited earlier?

Yes, that's a good perspective, Rich. I thought it would be helpful to share some potential risks, not necessarily implying they will occur, but we believe it's wise to consider them. This ties back to the situation in China, where we experienced some acceleration in the first half with those incentives, which impacted things slightly later on. We specifically have the Volkswagen business in China and Europe, which presents market share risks. For instance, we noticed some effects in the first quarter regarding Volkswagen in China, where production numbers were significantly down, despite still being over 20 percent of our business. Additionally, we have some major product launches coming up, such as the super duty and Duramax, which we previously mentioned. Overall, while these are minor details, when combined, they lean slightly more towards the risk side rather than opportunities. We believe it's prudent to acknowledge this and adjust our approach accordingly.

And then in North America inventory appears to be elevated here and we need some real decent flow through on the sales side over the next few months to justify that IHS number that you've referenced, what are you seeing on schedules at this point here in North America and it doesn’t seem like you've factored in much on the North American front on the back half, but I'm just curious on how you see things potentially playing out here?

You're right, Rich, we didn't incorporate that into our projections for the latter half of the year. We mostly left those numbers unchanged. What we're observing aligns with your assessment; the first quarter performance came in as expected. Everyone seems to be viewing the second quarter as a crucial period for evaluating production builds and inventory levels. This will provide insight into how we are positioned across all the OEMs. Overall, build rates appear solid, with minimal fluctuations, and are aligning with our expectations. This is the reason we didn't modify our guidance for the back half. We left it intact. It's an area that we, including you, are closely monitoring, and I believe we'll gain clearer insights once we review the second quarter data regarding inventory and production builds. We need production builds to remain strong, and so far, they seem to be holding up well. If they continue like this, we should be in good shape, which is why we didn't adjust our outlook for the second half.

And just one more thing, thanks James. Ron, I recall you mentioned that Europe might have fallen slightly short of expectations, and I wasn't sure if you had indicated why that might be, possibly due to Volkswagen's market share. However, volumes appear to be improving for 2016, so I’m interested in what influenced the lower performance.

We were trying to understand the current situation, and we see that Europe is generally performing well. In the fourth quarter, we had some transmission programs concluding, which created some noise in our results. We also noted a slight share challenge related to Volkswagen, which was somewhat lower than our expectations, though it wasn't a significant number. The main issues for us were related to Volkswagen and the transmission roll-offs.

I wanted to take a step back and ask a longer-term conceptual question. You've provided the backlog guidance of 4% to 6% through 2018, so my question is this: as you consider that backlog number and the growth rate, how should we approach the potential for upside against downside risk? Additionally, looking beyond that three-year timeframe, do you expect to maintain that pace, or is it likely to slow down or speed up?

That's a great thought. Let me address it. First, I want to mention that we're in the first year of our new business, and we feel comfortable and confident about this year. As we look ahead, I want to state a couple of points. Are we secure internally with the projections we've made? Yes. Are we satisfied with them? Not really. I would prefer to be above the 4% to 6% range, and we're working hard to achieve that. As we progress through this year, we'll have a clearer understanding of what to expect, but we need a bit more time. Our current focus is on executing against our targets, and I believe we're starting to do well in that regard. I anticipate that we will move beyond mid-single-digit growth at some point. This is how to consider it—we will achieve that. However, I don't foresee us reaching the levels of '16 or even '17 just yet. I want to stress that BorgWarner is not content with being a mid-single-digit growth company. We are determined to surpass that, but it’s still early; we need to execute and deliver on our mid-single-digit growth strategy. I believe the Investor Day later this year will provide more clarity on why we see opportunities for improved growth, but right now, we need more time to execute, deliver, and fulfill our objectives.

Okay, fair enough, and then switching gears, thank you James. As we think about M&A activity obviously you're digesting Remy and fairly large acquisition for you. As you kind of think about M&A activity should we think about it as kind of subsiding for another, for the next quarter or two, three, four quarters till you digest what you've bitten off so far, or can we expect maybe some additional bolt-on through the remainder of this year into next year?

I think, you're right Brett. Priority one really is flawless execution on the Remy deal which I'm pleased with how that's going. You know from a financial perspective you know we feel comfortable if another deal came along, we could do it and we would do it. So I don’t feel too inhibited from a smaller size bolt-on acquisition, I'm pretty comfortable there, and I think from a resource perspective we feel comfortable. So what I am saying to you is we're not slowing down our efforts to look at smaller bolt-on related deals whether it would be this year or next year, you always know that's kind of hard to predict the accurate timing, but I wouldn't want you to think or anybody to think that we've done Remy, that’s all we’re doing and we've stopped kind of looking and working and talking about deals because that's not the case. We are, they would be clearly smaller than obviously the Remy transaction and they would be likely bolt-on complementary type technologies to what we have. So if that helps you Brett, that's where we're thinking.

Thanks so much, guys. This is Chris McNally. It seems like the first half this year you're on a pretty good track to execute your new plan, on the second half comments I am just very curious, you didn't mention mix and that's one of the areas that everyone is trying to figure out, particularly in North America. Sedan production schedules sort of moving down replaced by rising truck, could you just walk through how that may affect numbers or particularly some of the programs you're associated with?

Yes, sure, this is James again, Chris. As I mentioned earlier Chris, we've not really done anything relative from a guidance perspective to reflect any meaningful shift in North America. As I alluded to earlier, it is a watch point for us more fundamentally inventory and production ratios as opposed to car-truck mix, if that helps you. I would say if let's say the second half of the year, trucks stay a little bit stronger. It's probably a little bit favorable for BorgWarner, but it's not a big shift for us, we generally get a little better if its truck-weighted versus car-weighted. But it's not a big move for us, if that helps us. We have a lot of attraction for the F150.

And the super duty launch.

Good morning everyone. This is standing in for Adam Jonas. I have a couple of questions and I apologize if this has been addressed earlier. In the past, you've mentioned that Remy has a narrow band of customers and that you're looking to leverage your relationships with existing BorgWarner customers, particularly in Europe. How have those conversations developed over the past few months?

I would articulate it this way, think of it in two ways, the core ex-Remy business starters, alternators, etc., and we're engaged in those conversations with customers that as of today have not in the past years from a Remy product, and those conversations are going on, we're only a few months in. But I would say the opportunity for us is good, I mean we've served a lot of customers that Remy didn't; it's a little early to know how that's going to translate into revenue, we need a little more time. But I would articulate the conversations have been open and productive and good thus far. As I alluded and mentioned in my opening comment already, the energy intensity excitement around the combination of products and future technology packages combining former BorgWarner is probably exceeded our expectation from when we did the deal. As we've already said that’s a longer-term revenue play, those are 3 to 5 years offerings. But I would say to you those have been extremely positive.

Understood and just a broader question on content going into cars. Obviously a lot of fuel efficiency content with ICE and electrification and there is also a lot of active safety content expected to get into cars, both clearly very important. And even with some content coming out, you would expect to see big net increases in cost that's in the median term, any thoughts on how the consumer prioritizes different content and is actually able to afford all this increase in cost?

I can comment on that for sure. I think I mentioned earlier that we're not seeing any slowdown in the dialogue and the discussion around the need for technology to drive better fuel economy, emission, and vehicle performance. I know there is a little bit of perception out there that that's going to slow down and so dollars can be shifted over to these other technologies. We have not seen that. Our activity is as good as it's ever been in terms of working with our OEMs and the business equation has not changed. It's purely a value equation of how can the OEM meet their fuel economy and emissions standards at the minimal cost frankly. So that minimizes any impacts on the end consumers. So when I look across the suite of BorgWarner's products to do that, we're in a very-very good position; that's why we're delivering the strong mid-single digit growth. The adoption rates for our products remain very strong and they will do because they are very good cost-effective solutions that get the automakers where they need to in a way that they can support their end consumer.

Couple of questions please. In your comments James, you talked a little bit about the commercial truck outlook and how that's impacting BorgWarner. Is commercial truck still going to be viewed by BorgWarner as being you know a core market or is commercial truck something that BorgWarner might start to move away from?

Now in commercial truck, Richard, is a key part of our business and clearly it's challenged right now in terms of the market conditions, you know we'd seen you know globally you know no real growth in that sector if you wish for a while, but we're in there. You know BorgWarner has continued to grow in that sector, obviously, we grow at a much faster pace on the light vehicles side of the business. So now the commercial vehicle business still remains very core to us. We have a number of our products across the portfolio that play in commercial vehicle; clearly the Remy transaction we did has a strong presence in commercial vehicles and that was attractive to us. So we remain committed to commercial vehicles, I think what we'll always see is with 80 plus percent of our business pass car-related and a lot of growth in pass car as an end market, you're going to see that that growth generally outweighs in light vehicles over commercial vehicles, but that doesn’t step us away from focusing commitment around commercial vehicles.

With the emissions legislation the Clean Air legislation around the world getting more stringent not only on passenger cars but also on commercial as well as stationary applications or marine applications whatever the case might be, are there any types of fuel efficiency or things that are attractive to BorgWarner on the commercial side that can be adapted from passenger or some new technologies that might fit in with BorgWarner's strategy on commercial?

Yes, we currently apply commercial vehicle turbocharger technology to light vehicles and vice versa. Our turbo operations are closely integrated, creating significant synergies between the commercial and light vehicle sectors. For instance, we utilize dual-clutch transmission technology developed for light vehicles with Volkswagen and implement it in Eaton trucks. Additionally, our cooling technology, including fans and pumps, is used in both light and commercial vehicles. Considering the global trend of smaller commercial trucks like delivery vans and the increasing size of light vehicles such as large pickups and SUVs, we effectively blend technologies to enhance our competitive position.

Just one question here I mean in the press release you guys were talking about the Gilly or Jilly EV7 initiative and you kind of allude to that it's designed for emerging high volume electric vehicle market. It sounds like a little bit of a change intrayear perception of the EU market, is that really focused on growth and the push for NEVs in China or is that sort of a broader statement about the global industry?

John I'll take that. I'll say a couple of things, obviously we do see the EV market evolving. Our macro perspective is you know we generally pointed to you know a ’20 to ’25 timeline of about a couple of percent of the fleet, the world fleet would be EVs. We've always said that could be a percent too high or a little low, but in that range 2% or 3%. We're not moving at this point away from that view John. I would say incrementally we see more energy enthusiasm intensity in China around electric vehicles. I would say the bigger message we’re trying to get across, John, is you know this overhang with EVs that BorgWarner doesn’t have anything, is simply not true, and that's kind of what we're trying to articulate that we will serve that market. And this is a great example of hard parts and assets that are going into electric vehicles leveraging BorgWarner's technology and it’s in China and it's a reasonable volume, whether it’s 15,000 this year. So macro not really changed on EV John, 2%-3% likely in the future, China probably getting incrementally a little more aggressive that way, but the key message is BorgWarner is going to be in that space and play.

That is very helpful and then just a follow-up question, I know you guys commented that shift from cars to crossovers might not have to big an impact on content directly in the short run. But I was just wondering if can comment if we see a shift towards more body on frame trucks, specifically the F150, if that could be a real positive mix shift for you and also there may be longer term as these crossovers are pushed towards all-wheel drive systems for active safety and just for the content could there be a step in content from that vantage point as well?

I think as I mentioned earlier that we've done anything with our guidance to move away from any meaningful truck mix, truck-car mix in North America. And I said if we see a stronger second half where trucks a little better than what's expected today, I mean in general that helps us a little bit, we've been quite open that F150 is a very strongly contended vehicle for BorgWarner so that clearly helps and you have driven for us and I think you know this John, as that truck mix goes and they stop putting meaningful four-wheel drive or all-wheel drive transport capability, turbocharged engines; that starts to step up the content pretty meaningfully for BorgWarner. We have to watch and we do the GM truck share ratio because well our content is very strong on the Ford side, it’s much less so on the GM side, to be transplant with you.

First question is with respect to Wahler and the commentary there, can you provide is there any updated timing and can you still get to the ultimate goals you originally see or this can take longer or are we now to assume that this is going to be structurally lower than initially thought?

If you recall and I am sure you do, when we did the acquisition we've talked about 2 to 3-year transition period to get double-digit margins and then as we went through last year and forward a little bit of change on the restructure. We kind of pushed that, and so it’s certainly going to be closer to three. I think two things, one I think will be challenges to get it done in three, but we will get there, now is that 3.5 is it 4, it 4.5. I would ask you give a little bit more time until we can through some of this heavy lifting on the restructuring that we’re right in the middle of, but structurally we'll get there, we'll get to the double-digit margins. We don't do it in the 3-year period, but we're going to get there. And give us a little more time as to whether that’s a 6 months push out or 1-year push out, just because we’re going to get through some of the challenges that we're in right now. But we will get there, I am not worried about that.

Okay and then on the guidance, so I understand that the change in revenue from Remy, the EPS is there and I know you've sort of baked in a lot of additional risk for the year. So should we read in that holding EPS guidance, you're eating into that a little bit or was there something else that I missed, maybe that’s a little bit better that allows you to offset some of that softness?

What I would say Joe, is it's within the range and we're talking about 2-3 cents here, I don't think it's worth going through a lot of hoops basically for kind of immaterial at this point. You're right. The sales guidance was all driven by Remy, commercial vehicles. Now you get some moving parts on the EPS and I won't go in detail, but for example, tax rate went up, that was negative, right. Now we had some offset in the core business which was more positive, but then it was offset by some negatives in Wahler. So there is a little bit of walk, but at the end of the day we're in the same range.

And then last one, there has been a lot more talk on 48-volt, I know that's something you guys have been incrementally more excited about, are you seeing any uptick in quoting activity related to that?

I would say Joe from our viewpoint, I would say the quoting activity in general across all electrification architectures is very strong and probably getting even stronger. A lot of the dialogue we will be in, because this is where BorgWarner operates, is many times with the dialogues with the customer will be, they're not sure whether they want a 12-volt or a 48-volt or 12-and 48-volt. People like BorgWarner can help them find that conclusion. So I am not necessarily in the view that there has been a massive uptick in pure 48-volt architecture. I think it's definitely going to move up in electrification architecture which we talked about for a while and I think this implies sort of a win, which is James’ view, the ones that conserve its flexibility between 12-and 48-volt and not rely on either one. And we have a bunch of products to do that. So whether that’s electric turbocharger, whether that's former Remy motor technology, just to name a couple. So it's stronger and we’re right in the midst of it.

Hi, guys. This is Adam Schmitz on the line for David. On the two additional electric vehicle programs that you won, are there any additional details you can give maybe in terms of products their content where you've won those programs?

I would like to provide more information, but I need to be careful. We are making progress with our electric vehicle programs. I understand you’re looking for data, and if you can give us a bit more time, we will clarify everything once we have our customers on board. I think it's pretty linear actually pretty consistent Adam we're seeing that and quoting activity is strong across pretty much all of the business and our win rates are good and booking rates are good. I think incrementally the one I talked to a couple of time today is the electrified or electrification efforts, are incrementally a little higher and continued to go higher which is good news for us. But generally it's strong, what I didn't want to convey, Adam, was that all the causing activities higher strong on with electrified products and the core business is strong too.

I would like to thank you all again for joining us. We expect to file our 10-Q before the end of the year which will provide detail to results. 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.