Johnson Controls Q4 EPS Tops View; Affirms FY10 Guidance - Update

(RTTNews) - Auto parts supplier Johnson Controls (JCI | Quote | Chart | News | PowerRating) on Tuesday posted sharply higher earnings which topped its own expectations, as last year the company had recorded huge restructuring charges. Excluding items, earnings per share fell from last year, but beat the Street view. The company affirmed its financial forecast for fiscal 2010, given the higher global automotive production forecasts in 2010 and a resumption of higher growth rates in global emerging markets.

Q4 Results

The company fourth-quarter net income was $300 million or $0.47 per share, compared to $16 million or $0.03 per share in the prior-year quarter.

The company noted that the latest quarter results included a pre-tax $105 million warranty charge in the residential HVAC business, a pre-tax charge of $111 million for costs associated with the September 2009 debt exchange offer. The previous year results comprised a pre-tax restructuring charge of $495 million.

Earlier, the company had expected fourth-quarter earnings in the range of $0.40 - $0.42 per share, which included a $0.12 warranty charge in its North America residential HVAC business, but excluded the costs associated with its recent convertible debt exchange offer and the impact of non-recurring tax benefits.

Excluding non-recurring items, earnings per share totaled $0.52, compared with $0.73 in the 2008 period. On average, 16 analysts polled by Thomson Reuters expected the company to post earnings of $0.51 per share. Analysts' estimates typically exclude special items.

Net sales for the latest quarter were $7.9 billion, down from the previous year's net sales of $9.31 billion. Wall Street analysts had a consensus revenue estimate of $7.83 billion for the quarter.

Steve Roell, Chairman and CEO of Johnson Controls, said, "We entered 2009 with two of our markets already depressed--North American automotive and residential HVAC. As the year progressed, we navigated through customer and supplier bankruptcies and deteriorating global economic conditions. We responded throughout the year with actions to significantly improve our cost structure and liquidity."

Segmental Analysis

The company's Automotive Experience segment generated quarterly sales of $3.48 billion, down 14% from $4.06 billion last year, due to lower production volumes in North America and Europe. Excluding the impact of foreign currency, revenues declined 12%. Segment profit dropped 48% to $77 million from $147 million posted a year ago.

Power Solutions sales in the recent quarter totaled $1.1 billion, a decline of 17%, compared to $1.3 billion in the same quarter of last year. Excluding the impact of lower lead prices and currency translation, sales were comparable to last year, as were unit shipments. Segment income was $194 million, up 37% from $142 million in the previous year, driven by operational efficiencies and a favorable product mix. The 2008 quarter results also included the negative impact of commodity costs.

Fourth-quarter sales at the company's Building Efficiency division fell 16% to $3.27 billion from $3.90 billion in the lst year. In all of its global markets, systems and service revenues were lower, reflecting the overall slowdown in construction spending and the continued deferral of discretionary maintenance and retrofit projects. In Eastern Europe, the Middle East and Latin America, revenue declined between 15% and 17%, excluding the impact of foreign exchange. Johnson Controls said it expects the Middle East and Latin America markets to rebound in fiscal 2010.

The company added that it is bidding on about 3,300 projects, worth about $2.7 billion, that are directly attributable to the ARRA stimulus package. Johnson Controls said it continues to see delays of projects where customers are waiting to determine funding eligibility under the program. However, the company continues to believe that the stimulus program would have a positive impact on financial performance in the second half of fiscal 2010. Segment income plunged 56% to $138 million from $316 million a year earlier, negatively impacted by the $105 million residential HVAC warranty charge. Segment income declines in Europe and the rest-of-world markets more than offset double-digit income improvements in North America systems and Global Workplace Solutions.

FY09 Results

For the fiscal year 2009, the company reported a net loss of $338 million or $0.57 per share, compared to a profit of $979 million or $1.63 per share in the previous year. Annual net sales for fiscal 2009 totaled $28.5 billion, compared to $38.1 billion reported in the twelve months ended September 30, 2008.

Future In Focus

Looking ahead, the company affirmed the 2010 financial guidance, still expecting sales growth of 9%, representing about $31 billion, and earnings to increase to about $1.35 - $1.45 per share, significantly higher than 2009. The company said sales, earnings and margin improvements are expected in all three of its businesses in 2010. Analysts are looking for earnings of $1.54 per share, on sales of $31.07 billion.

Johnson Controls noted that the 2010 expectations are the result of higher global automotive production forecasts in 2010 than in 2009, and a resumption of higher growth rates in global emerging markets. The company expects Building Efficiency markets to improve beginning in the second half of the fiscal year, particularly as government stimulus-funded projects have an increasingly meaningful impact on revenues. In addition, Johnson Controls said cost structure improvements taken in the previous year are estimated to provide an increasing benefit to the company's profitability.

Roell said, "Our strategies and offerings enable us to take advantage of the global growth megatrends around energy efficiency, sustainability and the emerging markets."

Johnson Controls added that it has the financial strength to accelerate its investments in growth, both organically as well as through acquisitions. Further, the company believes that it has positioned "the company for the sustainable, profitable growth that has long been a hallmark of Johnson Controls."

Peer Review

Among other players in the field, Honeywell International Inc. (HON | Quote | Chart | News | PowerRating) reported a decline in third-quarter profit, totaling $608 million or $0.80 per share, versus the previous year's income of $719 million or $0.97 per share, hurt by double-digit decline in sales across all its business segments. Net sales fell to $7.70 billion from $9.28 billion in the prior-year quarter. The company projects fiscal 2009 earnings to be $2.85 per share, on sales of about $31 billion. Free cash flow for fiscal 2009 is expected to be $3 billion.

United Technologies Corp. (UTX | Quote | Chart | News | PowerRating) reported third-quarter net income of $1.06 billion or $1.14 per share, lower than $1.27 billion or $1.33 per share in the prior-year quarter, hurt by lower operating margins at five of its six business segments as well as an 11% decline in quarterly revenues. Revenues decreased to $13.38 billion from $15.09 billion last year. Given the overall order trends as well as significant cost traction, the company now expects fiscal 2009 earnings of $4.10 per share, the midpoint of the prior guidance range of $4.00 - $4.20 per share.

Stock Quotes

Johnson Controls shares, which have been trading between $8.35 and $27.90 in the past 52 weeks, closed Monday's trading session at $26.28.

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