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Johnson Controls' (JCI) Q3 Earnings Beat, Revenues Miss

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Johnson Controls Inc. (JCI - Free Report) reported adjusted earnings of $1.07 per share in third-quarter (ended Jun 30, 2016) fiscal 2016 that surpassed the Zacks Consensus Estimate of $1.03. Moreover, earnings per share increased 18% from 91 cents earned in the third quarter of fiscal 2015.

Johnson Controls Inc. (JCI - Free Report) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

Operational Update

Johnson Controls reported revenues of $9.5 billion, down 1% year over year. Revenues also missed the Zacks Consensus Estimate of $9.65 billion. The decline was due to deconsolidation of the company's automotive interiors joint venture and foreign exchange. However, the top line benefited from higher organic revenue and additional revenues generated from the joint venture with Hitachi.

Cost of sales decreased to $7.6 billion from $7.9 billion in the year-ago period. Gross profit increased to $1.9 billion from $1.7 billion a year ago.

Selling, general and administrative expenses in the third quarter totaled $1.18 billion, higher than the prior-year quarter figure of $975 million. The company reported business segment income of $1 billion, up 18% from $848 million recorded a year ago.

Segment Results

Automotive Experience: Revenues in this segment fell 19% year over year to $4.4 billion, mainly due to deconsolidation of the interiors business and the impact of foreign exchange. Excluding the impact of these items, sales dropped 1%.

Segment income rose 1% to a third-quarter record of $344 million. The increase was driven by cost-reduction initiatives, restructuring savings and operational efficiencies.  

Building Efficiency: In this segment, revenues came in at $3.6 billion, up 33% from the year-ago level. Excluding incremental revenue associated with the Hitachi joint venture and foreign currency impact, revenues improved 4%, backed by better results in North America and Asia.

The quarter-end backlog increased 2% year over year. Orders, excluding M&A and adjusted for foreign exchange, were up 5% year over year, led by an increase in orders in North America and Asia.

Segment income climbed 46% to $397 million in the reported quarter from $272 million in the prior-year quarter, driven by higher revenues from the Hitachi joint venture and higher volumes, partially offset by product and sales force investments.

Power Solutions: Revenues in the Power Solutions segment improved 3% to $1.5 billion. Excluding the impact of foreign exchange and lower lead pass-through costs, revenues increased 5%. Segment income was $262 million, up 12% from the year-ago period.

Financial Position

Johnson Controls had cash and cash equivalents of $467 million as of Jun 30, 2016, indicating an increase from $213 million as of Jun 30, 2015. Total debt rose to $8 billion as of Jun 30, 2016, from $7.5 billion as of Jun 30, 2015.

In the first nine months of fiscal 2016, Johnson Controls’ operating cash flow was $75 million compared with $663 million in the year-ago period. Meanwhile, capital expenditures increased to $279 million from $264 million in the prior-year period.

Share Repurchases

Johnson Controls repurchased $500 million worth of shares in the third quarter of fiscal 2016.

Outlook

For fiscal 2016, Johnson Controls modified its earnings per share guidance to $3.95–$3.98 from the prior projection of $3.85–$4.00, based on strong operating performance.

Johnson Controls expects earnings per share in the fourth quarter of fiscal 2016 to be in the range of $1.17–$1.20.

Zacks Rank

Johnson Controls is a supplier of automotive interiors, batteries and other control equipment. It currently carries a Zacks Rank #3 (Hold). Some better-ranked automobile stocks include Commercial Vehicle Group Inc. (CVGI - Free Report) , Spartan Motors Inc. and U.S. Auto Parts Network, Inc. (PRTS - Free Report) , all carrying a Zacks Rank #2 (Buy).

JOHNSON CONTROL Price, Consensus and EPS Surprise

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