JCI Returns to Profitability

Wisconsin-based energy components supplier Johnson Controls (JCI) returned to profitability in the third quarter of its financial year ended June 30, 2009 as projected. The company has been posting losses since the first quarter ended December 31, 2008.

In the reported quarter, Johnson Controls showed a profit of $163 million or $0.26 per diluted share. This was against a loss of $193 million or $0.33 per diluted share recorded in the prior quarter. However, compared on a year-over-year basis, the company depicted a 63% fall in profit from $439 million in the third quarter of 2008.

Johnson Controls saw a significant recovery in its Automotive Experience segment over the second quarter of 2009. The segment posted a narrower loss of $14 million in the quarter, down from $275 million in the previous quarter. Nevertheless, sales in the segment fell 38% to $3 billion due to the severe impact of prolonged production shutdowns and lower consumer demand.

Johnson Controls’ Building Efficiency segment was adversely affected by the overall slowdown in construction spending, lower HVAC equipment volumes and the continued deferral of discretionary maintenance and retrofit projects. Net income in the Building Efficiency segment fell 37% to $190 million. Sales in the segment declined 14% to $3.2 billion.

Lower lead prices and the trickle down of ill effects from the automotive industry negatively affected Johnson Controls’ Power Solutions segment. The segment revealed a 27% fall in net income to $106 million. Meanwhile, sales in the segment shrank 39% to $856 million.

Johnson Controls is optimistic about the forthcoming quarter. The company expects its automotive business to be profitable in the fourth quarter due to its cost reduction actions. It also anticipates the other segments to show improvements over the 2008 levels.

We continue to recommend JCI as Hold with a six-month target price of $22.00.

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