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Johnson Controls' Earnings Beat Expectations

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Johnson Controls Inc. (JCI - Free Report) posted a roughly 18% rise in profits to $535 million or 78 cents per share in the third quarter of its fiscal year ended June 30, 2013 from $455 million or 66 cents in the comparable quarter of prior year, all excluding non-recurring items. With this, earnings per share surpassed the Zacks Consensus Estimate as well as the management’s own expectation by 3 cents.

Johnson Controls believes that double-digit rise in segment income in all three businesses and quarter-over-quarter improvement in earnings in the company’s automotive business in Europe are the main factors behind earnings growth in the quarter.

Revenues in the quarter went up a tad 2% to $10.8 billion during the quarter. But it could not meet the Zacks Consensus Estimate of $11.0 billion.

Segment Results

Automotive Experience: Revenues in the segment scaled up 4% to $5.7 billion on higher production volumes in North America and Asia, which was partially offset by lower production volumes in Europe. Segment income surged 33% to $279 million mainly due to higher income from its European automotive business, which benefited from improved performance in its Metals operations as well as from restructuring actions.

Building Efficiency: Revenues in the segment slipped 2% to $3.7 billion due to a weak business in all geographies, except Asia. The quarter-end backlog of unexecuted orders stood at $5.1 billion, a 5% decrease from the prior year. However, segment income rose 14% to $314 million due to strong performance by its Service business along with positive impacts from pricing initiatives and cost reduction programs.

Power Solutions: Revenues in the segment grew 8% to $1.4 billion due to higher global unit shipments from the last-year period, partially offset by weaker than expected aftermarket battery demand in both North America and Europe. Segment income zoomed 12% to $171 million, driven by higher volumes, an improved product mix and incremental contribution from the Johnson Controls’ battery recycling facility in South Carolina.

Financial Position

Johnson Controls had cash and cash equivalents of $391 million as of Jun 30, 2013, a significant decline from $602 million as of Jun 30, 2012. Total debt decreased to $6.0 billion as of Jun 30, 2013 from $6.7 billion as of Jun 30, 2012. Consequently, debt-to-capitalization ratio lowered to 33.2% as of Jun 30, 2013 from 36.5% as of Jun 30, 2012.

In the first nine months of fiscal 2013, Johnson Controls’ operating cash flow more than doubled to $1.5 billion from $765 million in the year-ago period, mainly driven by lower accounts receivable and higher accounts payable and accrued liabilities. Meanwhile, capital expenditures decreased to $929 million from $1.4 billion in the prior year period.


Johnson Controls anticipates earnings between 93 cents and 95 cents for the fiscal 2013-fourth quarter and between $2.64 and $2.66 per share for fiscal 2013.

JCI also expects strong operating free cash flow to continue and anticipates that its net debt reduction in the fourth quarter of the year will be roughly $600 to $650 million, excluding divestiture proceeds.

Our Take

Johnson Controls is a supplier of automotive interiors, batteries, and other control equipment. Currently, the company retains a Zacks Rank #2, which translates to a short-term rating (1–3 months) of Buy

Other stocks that are performing well in the industry where JCI operates include Visteon Corp. (VC - Free Report) and WABCO Holdings Inc. (WBC - Free Report) , both with a Zacks Rank #1 (Strong Buy), and American Axle & Manufacturing Holdings Inc. (AXL - Free Report) with a Zacks Rank #2 (Buy).

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