Johnson Controls Beats on Q3 Earnings

Johnson Controls, Inc. (JCI) reported record adjusted earnings of 95 cents per share in fourth-quarter fiscal 2013 (ended Sep 30, 2013), up 23% from 77 cents in the comparable quarter of the prior-year, excluding non-recurring items. With this, earnings per share surpassed the Zacks Consensus Estimate by a penny.

Earnings were at the upper end of the management guidance of 93–95 cents. Top-line growth in each of its businesses and rise in segment income are the main factors behind increased earnings in the quarter. On a reported basis, earnings were 15 cents a share against the loss of a penny in the year-ago quarter.

Operational Update

Revenues in the quarter went up 6% year over year to $11 billion in line with the Zacks Consensus Estimate. Revenue growth across all the segments led to the year over year increase.

Cost of sales increased 1.6% year over year to $8.9 billion from $8.8 billion. Gross profit improved 32% year over year to $2 billion. Consequently, gross margin expanded 400 basis points (bps) to 19% in the quarter.

Selling, general and administrative expenses in the fourth quarter went down to $802 million from $1.4 billion in the prior year quarter. The company reported segment income (excluding non-recurring items) of $920 million, up 27% year over year.

Segment Results

Automotive Experience: Revenues in this segment improved 9% year over year to $5.5 billion on higher production volumes in North America and Asia, but was partially offset by lower production volumes in Europe. Adjusted segment income surged 47% to $233 million mainly due to higher income from its Seating segment. Interiors business also performed well, benefiting from improved operational efficiencies as well as restructuring actions.

Building Efficiency: In this segment, revenues grew 2% year over year to $3.9 billion led by double-digit growth in North America Service and higher revenues in Asia, partially offset by lower sales in Global Workplace Solutions. The quarter-end backlog stood at $4.8 billion, a 5% decrease from the prior year. Segment income rose 9% in the reported quarter to $357 million due to ongoing cost reduction initiatives and favorable mix.

Power Solutions: Revenues in the Power Solutions segment grew 9% to $1.7 billion due to increased global unit shipments from the last-year period, partially offset by soft aftermarket demand in North America. Segment income gained 38% to $330 million, driven by increased vertical integration, cost reduction actions and improved pricing.

Fiscal 2013 Performance

Johnson Controls posted adjusted earnings rise of 5% year over year to $2.66 per share for full-year 2013, a penny ahead of the Zacks Consensus Estimate. Revenues for the full-year increased 1.8% to roughly $42.7 billion from $41.9 billion in 2012, in line with the Zacks Consensus Estimate.

Financial Position

Johnson Controls had cash and cash equivalents of $1,055 million as of Sep 30, 2013, a significant increase from $265 million as of Sep 30, 2012. Total debt decreased to $5.5 billion as of Sep, 2013 from $6.0 billion as of Sep, 2012. Consequently, debt-to-capitalization ratio improved to 30.8% as of Sep 30, 2013 from 34% as of Sep 30, 2012.

In fiscal 2013, Johnson Controls’ operating cash flow increased to $2.6 billion from $1.6 billion in the prior year; mainly driven by lower accounts receivable and higher accounts payable as well as accrued liabilities. Meanwhile, capital expenditures decreased to $1.3 billion from $1.8 billion in the prior year.

Outlook

Johnson Controls anticipates earnings to increase around 30% in the first quarter of fiscal 2014 against 2013. The company believes improving end markets will enable modest growths in revenues in the upcoming year.

Johnson Controls is a supplier of automotive interiors, batteries, and other control equipment. It currently holds a Zacks Rank #2 (Buy).

Other stocks performing well in the same industry include Denso Corporation (DNZOY), Federal-Mogul Corporation (FDML) and Gentex Corp. (GNTX). All these hold a Zacks Rank #1 (Strong Buy).

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