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Mixed Bag from Johnson Controls

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Johnson Controls Inc. (JCI - Free Report) reported adjusted earnings per share of 77 cents for the fourth quarter of its fiscal year ended September 30, 2012, ahead of the Zacks Consensus Estimate of 75 cents and up 1.3% from 76 cents a year ago. Earnings were in line with the management expectation of 0% to 5% growth in the quarter.

In absolute terms, profits went up marginally to $526.0 million from $523.0 million in the year-ago quarter. Meanwhile, on a reported basis, the company saw a loss of $8.0 million or a penny per share, compared with a profit of $234.0 million or 34 cents in the fourth quarter of fiscal 2011.

Management believes earnings had favorable impacts from the improved profitability in Building Efficiency, Power Solutions and North America Automotive Experience businesses. However, these were offset by weak performance in automotive and building markets in Europe.

The company’s revenues for the quarter decreased 3.6% to $10.4 billion. It was marginally lower than the Zacks Consensus Estimate of $10.8 billion. However, excluding the impact of foreign exchange, revenues grew by 1% in the quarter.

The company recorded a pre-tax loss of $28.0 million in the quarter versus a pre-tax income of $206.0 million a year ago. Income from business segments went down 2% to $726.0 million from $741.0 million in the prior-year quarter.

Segment Results

Automotive Experience: Revenues in the segment declined 2% to $5.0 billion, due to lower production volumes in Europe and a weaker Euro, which offset the higher production volumes in North America and Asia, as well as the positive impact from new program launches. Segment income slashed 33% to $159.0 million from $237.0 million a year ago.

Building Efficiency: Revenues in the segment slipped 7% to $3.8 billion, driven by lower sales volume in North America, Europe and Middle East, partially offset by higher sales in Asia. Residential Heating, Ventilating and Air Conditioning (HVAC) sales grew 9% due to strong demand on the back of higher temperatures in North America. Segment income appreciated 33.5% to $327.0 million from $245.0 million in the 2011 quarter. The increase was due to reduction in selling, general and administrative (SG&A) expenses.

Excluding the impact of foreign exchange, the backlog of projects at the end of the quarter rose 3% to $5.2 billion, driven by strong growth in North American Systems and in Asia. Orders in the quarter went down 10%.                                     

Power Solutions: Revenues in the segment remained flat at $1.56. Revenues were favorably impacted by the growth in North American OEMs, increased share in European aftermarket, and strength in Asia. However, this was partially offset by sluggish demand in North America and lower shipments to European OEMs. Segment income decreased 5% to $240.0 million from $253.0 million in the fourth quarter of fiscal 2011.

Fiscal 2012

Johnson Controls reported fiscal 2012 adjusted earnings per share of $2.59, up 5.3% from $2.46 a year ago. However, reported earnings decreased to $1.2 billion or $1.78 per share from $1.4 billion or $2.06 in fiscal 2011.The company’s revenues for the year increased 2.7% to $41.9 billion from $40.8 billion in fiscal 2011.

Financial Position

Johnson Controls had cash and cash equivalents of $265.0 million as of September 30, 2012 compared with $257.0 million as of September 30, 2011. Total debt increased to $6.1 billion as of September 30, 2012 from $5.1 billion as of September 30, 2011.

In fiscal 2012, Johnson Controls’ operating cash flow improved significantly by 44.9% to $1.6 billion from $1.1 billion in the year-ago period. Meanwhile, capital expenditures increased to $1.8 billion from $1.3 million in the prior year.


The company has not provided any specific guidance for fiscal 2013. It expects that earnings in the first half of fiscal 2013 will be lower than the year ago period due to weak end markets and adverse effects of foreign currency.

However, it anticipates earnings will be higher in the second half of fiscal 2013 compared to the year-ago period, driven by positive impact from restructuring activities. Meanwhile, earnings in fiscal 2013 are expected to be flat or a bit higher than fiscal 2012.

Our Take

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

The company currently retains a Zacks #4 Rank on its stock, which translates to a short-term rating (1–3 months) of Sell and we reiterate our Underperform recommendation on its shares for the long-term (more than 6 months).

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