Johnson Controls Beats, Profits Dip

Johnson Controls Inc. (JCI - Analyst Report) posted a 16.1% fall in earnings to 52 cents per share in the first quarter of fiscal 2013 ended Dec 31, 2012 from 62 cents in the same quarter of prior fiscal year as global demand for its products has weakened. However, profits surpassed the Zacks Consensus Estimate by a penny. Net income declined 16.5% to $354.0 million from $424.0 million in the first quarter of fiscal 2012.

Revenues in the quarter were flat at $10.4 billion, but exceeded the Zacks Consensus Estimate of $10.2 billion. Revenues remain unchanged as the benefit from strong business backlog was offset by weak demand across the globe, especially in Europe.

Segment Results

Revenues from the Automotive Experience segment slid marginally by 1% to $5.2 billion as improved automotive production in North America (11%) and Asia (3%) were offset by decreased production in Europe (9%). However, segment income plunged 50% to $101 million, as improvements in North America were more than offset by higher engineering and product development costs, lower volumes in Europe and operational inefficiencies.

Revenues from the Building Efficiency segment were flat at $3.5 billion as higher sales in Asia and Global Workplace Solutions were offset by lower sales in Europe and North America. However, segment income went up 19% to $172 million driven by cost reduction measures and pricing initiatives.

Revenues from the Power Solutions segment rose 4% to $1.7 billion driven by a double-digit rise in unit shipments in Asia and higher demand in Europe. Nevertheless, segment income dipped 3% to $268 million in the quarter under review

Financial Position

Johnson Controls had cash and cash equivalents of $314 million as of Dec 31, 2012 compared with $241 million as of Dec 31, 2011. Total debt increased to $6.4 billion as of Dec 31, 2012 translating into a debt-to-capitalization ratio of 35.2% compared with $6.0 billion and a debt-to-capitalization ratio of 34.9% as of Dec 31, 2011.

In the quarter, Johnson Controls had a cash flow of $298 million compared with an outflow of $97 million in the year-ago quarter, mainly due to decrease in contributions towards pension, postretirement health and other benefits, higher equity in earnings of partially owned affiliates and increase in accounts payable. Meanwhile, capital expenditures decreased to $371 million from $538 million in the prior year quarter.

Guidance

Johnson Controls reiterated its guidance to generate lower earnings in the first half of fiscal 2013 compared with the year ago period due to weak end markets and adverse effects of foreign currency. For the second quarter of fiscal 2013, the company expects earnings per share between 40 cents and 42 cents taking the automotive production environment in Europe, short-term delays in flexing labor in the region and a high level of launch activity into account.

Our Take

Johnson Controls is a supplier of automotive interiors, batteries, and other control equipment. Its main competitors include Magna International Inc. (MGA - Analyst Report) in the Automotive Experience segment, Honeywell International Inc. (HON - Analyst Report) in the Building Efficiency segment and Exide Technologies (XIDE - Snapshot Report) in the Power Solutions segment.

The company currently retains a Zacks Rank #3, which translates to a short-term rating (1–3 months) of Hold.