Kevin Nowlan
Chief Financial Officer at BorgWarner
Thank you, Fred, and good morning, everyone. Here are the two key takeaways from our second quarter financial results. First, we reported double-digit organic revenue growth driven by higher industry production and outgrowth in Europe and China. Second, our margin performance was strong, driven by solid conversion on higher revenue and customer recoveries of material cost inflation more than offsetting higher input costs coming from our suppliers.
Let's turn to Slide 10 for a look at our year-over-year revenue walk for Q2. Pro forma for the spin-off of PHINIA last year's Q2 revenue was just over $3 billion. You can see that the strengthening U.S. dollar drove a year-over-year decrease in revenue of approximately 1% or $33 million. Then you can see the increase in our organic revenue about 22% year-over-year. That compares to an approximately 15% increase in weighted average market production.
Finally, the acquisitions of Santroll, Rhombus and SSE added $18 million to revenue year-over-year. The sum of all this was just under $3.7 billion of revenue in Q2.
Turning to Slide 11. You can see our earnings and cash flow performance for the quarter. Our pro forma second quarter adjusted operating income was $369 million equating to a 10.1% margin. That compares to pro forma adjusted operating income of $258 million or 8.5% from a year ago. On a comparable basis, excluding the impact of foreign exchange and the impact of M&A, adjusted operating income increased $126 million on $667 million of higher sales.
The biggest positive driver of this performance was that we converted approximately 18% on our additional sales. In addition, our customer recoveries in the second quarter, net of material cost inflation from our suppliers were an $11 million tailwind year-over-year. You'll recall that last quarter, we were incurring supplier cost inflation was very little in the way of customer recoveries to offset that headwind.
In Q2, we negotiated a number of settlements with our customers that contemplated recoveries of material cost inflation for both Q2 and Q1. Because we essentially under recovered inflation in Q1 and over recovered in Q2, when you think about the jump-off for our go-forward margin performance, you should really be looking at the total first half performance not any individual quarter. Pro forma for the spin-off of PHINIA, our adjusted EPS improved by $0.31 compared to a year ago, driven almost entirely by the increase in our adjusted operating income.
Turning to free cash flow. Excluding onetime cash costs, our free cash flow was a $42 million usage during the second quarter due to higher capital spending to support our growth in eProducts, and increased working capital related to our sequentially increasing revenue and the customer recoveries that we booked late in the quarter, but have not yet collected.
Now let's take a look at our full year outlook on Slide 12. First, as Pat mentioned, our full year guidance now reflects the spin-off of PHINIA and treats the prior period results of those particular segments as discontinued operations, which importantly is not reflected in many of the external estimates within the Street consensus.
Starting with foreign currencies. Our guidance now assumes an expected full year headwind from weaker currencies of $35 million. This is a headwind of $111 million in revenue versus our prior guidance with the Chinese yuan being the largest driver of the change in our outlook. Second, we expect organic growth of approximately 13% to 16% year-over-year compared to our prior guidance of 10% to 15%. The increase is driven predominantly by our higher production outlook, reflecting the stronger first half volumes. However, our assumption for inflation cost recoveries from our customers has also increased modestly.
As it relates to eProduct revenue, we're expecting to deliver between $2.3 billion and $2.4 billion in 2023, which is up from the approximately $1.5 billion we generated in 2022. As you can see, we've adjusted the high end of this outlook versus our prior guidance primarily related to two things. First, we're experiencing a slower than anticipated ramp-up in our battery pack production. Demand for our commercial vehicle battery packs is increasing rapidly. However, our capacity installation to support that demand has progressed a little more slowly in 2023 than we planned. Second, we're currently seeing lower customer volumes on a North American EV program that is already in production.
Finally, the Santroll, Rhombus and SSE acquisitions are expected to add approximately $75 million to 2023 revenue. Based on these expectations, we're projecting total 2023 revenue in the range of $14.2 billion to $14.6 billion, which compares to our prior guidance of $14.0 billion to $14.6 billion.
Let's switch to margin. We continue to expect our full year adjusted operating margin to be in the range of 9.2% to 9.6%, which compares to our 2022 margin of 9.4%. Looking at the net impact of inflationary cost versus customer recoveries, our current expectations are that the net year-over-year impact of material cost inflation on full year margin is likely to be a 10 to 20 basis point headwind.
As it relates to R&D, our full year 2023 guidance continues to anticipate a $60 million to $70 million increase in eProduct related R&D. With our ongoing success securing new electrified business wins, we're continuing to lean forward by investing more in R&D to support our eProduct portfolio. Excluding the impact of this planned increase in eProduct related R&D, our 2023 margin outlook contemplates the business delivering full year incrementals in the mid-teens. Based on this revenue and margin outlook, we're expecting full year adjusted EPS from continuing operations in the range of $3.50 to $3.85 per diluted share.
Turning to free cash flow. We continue to expect that we'll deliver free cash flow from continuing operations in the range of $400 million to $500 million for the full year, excluding approximately $150 million in one-time cash costs related to the spin-off of PHINIA. That's our 2023 outlook.
Turning to Slide 13. You can see an update for our ePropulsion segment. We were pleased with the sequential improvement in second quarter revenue as compared to the first quarter. The improved margins you see on the slide benefited from that higher revenue, roughly flat eR&D sequentially and second quarter customer recovery of first half material cost inflation from suppliers. Despite a modestly lower full year revenue outlook for our ePropulsion segment, we continue to expect a slightly positive segment margin in Q4.
EPropulsion second half revenue growth is heavily weighted towards program launches and volume ramp up in the Chinese NEV market. As you can see on the right side of the slide, our Chinese NEV customer base is quite diverse as we supply many of the leading NEV manufacturers in the country. This customer diversity is a critical element of why we believe will ultimately be successful in the world of electrification and it doesn't apply only to China. At BorgWarner, we currently have eProduct business with 7 of the 10 largest global light vehicle manufacturers of electric vehicles and high-voltage plug-in hybrids.
So let me summarize my financial remarks. Overall, our second quarter financial results were strong. We achieved organic growth of approximately 22% year-over-year. We generated 10.1% adjusted operating margin based on a 19% all-in conversion on incremental revenue, and we delivered strong revenue growth year-over-year and bottom line adjusted EPS. As we look ahead to the second half of 2023 and beyond, we continue to expect to deliver strong organic growth to drive improved profitability in our eProducts as we leverage our top line growth, and to continue to make the necessary investments to support the long-term profitable growth of our eProduct portfolio.
With that, I'd like to turn the call back over to Pat.
