Earnings Recap — Q2 FY2026
CY Q3 2026 · Reported August 5, 2026 · Beat 7 of last 7 quarters
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BorgWarner's accelerating industrial portfolio—turbine generators, battery storage, and microgrid inverters—positions it as a supplier of behind-the-meter power solutions for AI data centers. The company's progress toward 2027 production and strong hyperscaler interest could provide a new growth vector beyond automotive, leveraging its existing power electronics and thermal management expertise. The expanded R&D investment signals a meaningful push into the AI infrastructure buildout.
BorgWarner reported Q2 2026 sales of over $3.6 billion, roughly flat YoY, with organic sales up 0.5% excluding battery and FX. Adjusted operating income rose to $413 million (11.3% margin) from $373 million (10.3%) a year ago, and adjusted EPS grew 17% (specific EPS figure not stated on the call). The company announced 7 new business awards across foundational and eProducts portfolios, and made progress on its data center/industrial portfolio: turbine generator achieved CARB-level emissions, UL compliance progressing, and microgrid inverter samples shipped to 4 customers. Management returned $134 million to shareholders in the quarter and increased the share repurchase authorization by $1 billion.
Management maintained full-year 2026 sales guidance of $14.0B–$14.3B, adjusted operating margin of 10.7%–10.9%, and free cash flow of $900M–$1.1B, while raising adjusted EPS guidance to $5.05–$5.30 from $5.00–$5.20, primarily due to share repurchases. They expect organic sales to decline 3.5%–1.5% YoY, with battery sales a ~170 bps headwind. The company is increasing second-half industrial R&D spending by $10M–$15M to accelerate product readiness for data center and industrial markets, while maintaining margin guidance. Management highlighted strong customer interest from multiple hyperscalers for the turbine generator, with production on track for 2027. They also expect bookings to improve outgrowth in 2027.
“We achieved the CARB-level emissions, which is really a differentiator for us compared to what's out there.”
on Turbine generator emissions milestone
“We see strong customer demand and are confident that our mechanical and electronic core competencies will enable us to successfully capture growth outside of our core automotive market.”
on Industrial portfolio expansion
“We are leaning forward and accelerating our R&D spending on these products by investing an incremental $10 million to $15 million to support our future growth.”
on Industrial R&D investment
Will Borg announce every smaller DC win within the Endeavour relationship? Or is it likely to batch them together as they become material?
Joe said they won't announce every individual event, but will share important milestones. He noted the Endeavour relationship continues to grow and that recent Koch news adds credibility, without materially changing their partnership.
What is driving the extremely strong conversion on growth? And why wouldn't cost controls continue in the second half?
Craig attributed the 100 bps margin expansion to 60 bps from foundational businesses, 20 bps from BES restructuring and charging exit, and 20 bps from cost controls. He noted every business unit expanded margins and corporate provided a tailwind.
You came in about $40M higher this quarter, raising R&D by $10-15M. Should we think of this as a sustained pace into the future?
Craig walked through the H1 to H2 bridge, expecting mid-teens decremental on lower sales, with the R&D step-up reducing margin to 10.6% at midpoint. Joe said the investment is tied to opportunities and will likely be sustained as products take 18-24 months to develop.