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Johnson Controls Inc. (JCI - Analyst Report) posted a 23.6% decline in adjusted earnings to 42 cents per share in the second quarter of fiscal 2013 ended Mar 31, 2013 from 55 cents in the same quarter of prior fiscal year, but earnings were in line with the Zacks Consensus Estimate. Net income declined 24.1% to $287.0 million from $378.0 million in the second quarter of fiscal 2012.

Revenues in the quarter declined 1.3% $10.43 billion but marginally exceeded the Zacks Consensus Estimate of $10.39 billion. The decline was attributable to lower revenues in the company’s Automotive Experience and Building Efficiency segments.

Segment Results

Revenues from the Automotive Experience segment slid 3% to $5.4 billion due to lower sales in Europe, which more than offset the higher revenues from North America. Automotive production in North America improved 1% and decreased 8% in Europe. However, segment income plunged to $103.0 million from $243 million, due to lower production volume in Europe.

Revenues from the Building Efficiency segment declined 3% to $3.5 billion, owing to soft global demand, which adversely affected sales and orders. North America Systems reported higher sales, which were offset by lower revenues from Europe, Asia and North America Service. However, segment income went up marginally to $139.0 million from $138.0 million, driven by improved labor productivity, reduced costs and implementation of new pricing programs.

Revenues from the Power Solutions segment rose 10% to $1.6 billion driven by higher unit shipments in Asia and North America, partially offset by lower volumes in Europe. Segment income improved 10.9% to $221.0 million in the quarter under review from $200.0 million year ago.

Financial Position

Johnson Controls had cash and cash equivalents of $481.0 million as of Mar 31, 2012 compared with $240.0 million as of Mar 31, 2011. Total debt increased to $6.7 billion as of Mar 31, 2012 translating into a debt-to-capitalization ratio of 36.1% compared with $6.3 billion and a debt-to-capitalization ratio of 35.3% as of Mar 31, 2011.

In the first six months of fiscal 2013, Johnson Controls had a higher cash flow of $515.0 million compared with $146.0 million in the year-ago period. Meanwhile, capital expenditures decreased to $664.0 million from $986.0 million in the prior year.

New Facility

During the quarter, Johnson Controls completed the ramp-up of recycling facility in South Carolina. The company is also planning for a second battery plant in China.


Johnson Controls reiterate its guidance to generate earnings between $2.60 and $2.70 per share in fiscal 2013. For the third quarter of fiscal 2013, the company expects earnings per share of 75 cents.

The company also expects that it will record better performance in the second half of 2013 due to benefits from restructuring initiatives, higher profitability from its Building Efficiency segment and improvements in European and South American Automotive Experience buisnesses. It also expects Power Solutions business to record higher profitability in the second half of fiscal 2013.

Our Take

Johnson Controls is a supplier of automotive interiors, batteries, and other control equipment. Currently, the company retains a Zacks Rank #3, which translates to a short-term rating (1–3 months) of Hold.

Some other stocks that are performing well in the industry where Johnson Controls operates include Gentherm Inc. (THRM - Snapshot Report), Tower International, Inc. (TOWR - Snapshot Report) and Visteon Corp. (VC - Snapshot Report). All these companies carry a Zacks Rank #1 (Strong Buy).

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