Johnson Controls Misses Earnings, Revenue Estimates in Q2 - Analyst Blog

Johnson Controls, Inc. JCI reported adjusted earnings of 73 cents per share in second-quarter fiscal 2015 (ended Mar 31, 2015), marginally missing the Zacks Consensus Estimate of 74 cents. However, earnings increased 20% year over year from 61 cents recorded in the second quarter of fiscal 2014.

Notably, the financial details of last year have been revised as the company classified its Global Workplace Solutions (“GWS”) business as a discontinued operation.
 

Johnson Controls Inc. - Earnings Surprise | FindTheCompany

 

Including transaction and integration-related costs, Johnson Controls’ net income in second-quarter fiscal 2015 amounted to $529 million or 80 cents per share, compared with $261 million or 39 cents per share in the year-ago comparable quarter.

Operational Update

Revenues in the reported quarter went down 3% year over year to $9.2 billion, lagging the Zacks Consensus Estimate of $10.1 billion. Excluding the effect of currency translation, sales increased 4%.

Cost of sales decreased to $7.6 billion from $8 billion in the year-ago period. Gross profit increased 6.9% year over year to $1.6 billion from $1.5 billion.

Selling, general and administrative expenses in the second quarter totaled $975 million, up from the prior-year quarter figure of $952 million. The company reported business segment income of $698 million, up 18% year over year from $593 million.

Segment Results

Automotive Experience: Revenues in this segment declined 7% year over year to $5.2 billion due to foreign currency fluctuation which was partially offset by an increase in volume. Excluding the impact of foreign exchange, revenues increased 1%. Production in North America improved 2% and was consistent year over year in Europe.

Revenues from China improved 17% to $1.9 billion, driven by a 6% rise in industry production. Adjusted segment income surged 13% to $261 million from $232 million in the year-ago period, mainly due to higher profit from both its Seating and Interiors business. The segment results also benefited from higher Chinese joint venture income.

Building Efficiency: In this segment, revenues increased 4% year over year to $2.4 billion due to incremental revenues associated with the acquisition of ADT in 2014. The quarter-end backlog was $4.6 billion, in line with the year-ago level.

Orders were up 8% year over year due to stronger demand in North America, Asia and the Middle East. Adjusted segmental income increased 36% in the reported quarter to $173 million from $127 million in the prior-year quarter, with significant improvements related to the ADT acquisition as well as improved margins in North America, Europe and the Middle East.

Power Solutions: Revenues in the Power Solutions segment increased 2% to $1.6 billion. Adjusted segment income was $264 million, up 13% from $234 million in the year-ago period.

Financial Position

Johnson Controls had cash and cash equivalents of $164 million as of Mar 31, 2015, indicating a decrease from $209 million as of Mar 31, 2014. Total debt rose to $7.58 billion as of Mar 31, 2015 from $6.25 billion as of Mar 31, 2014.
 
In the first half of fiscal 2015, Johnson Controls’ operating cash outflow was $200 million as against $449 million in the year-ago period. Meanwhile, capital expenditures decreased to $556 million from $602 million in the prior-year period.

Business Update

In the second quarter of fiscal 2015, Johnson Controls entered into an agreement to sell its GWS business to CBRE Group, Inc. for $1.475 billion. GWS will be reported as a discontinued operation from the reported quarter.

Further, the company signed an agreement to establish the automotive interiors joint venture with SAIC Yanfeng Automotive Trim Systems Co. The transaction is expected to be completed by the end of fiscal 2015.

Johnson Controls also announced plans to increase its Chinese battery manufacturing capacity of AGM lead-acid batteries to 6.4 million units, compared with the current capacity of 1.8 million units. In addition, its traditional lead acid battery capacity is expected to expand to 15.5 million units from 12.5 million units.  

Outlook

For fiscal 2015, Johnson Controls expects better results than fiscal 2014, based on higher profitability in all three businesses. The company expects earnings per share in the third quarter to be in the range of 90–92 cents, up 14%–16% year over year, while for fiscal 2015, earnings per share are expected in the band of $3.30–$3.45, representing a year-over year-increase of 10%–15%.

The guidance for fiscal 2015 is lower than the prior projection of earnings per share of $3.55–$3.70. The decrease is due to the exclusion of GWS’ contribution.

Johnson Controls is a supplier of automotive interiors, batteries and other control equipment. It currently carries a Zacks Rank #3 (Hold).

Better-ranked automobile stocks include Allison Transmission Holdings, Inc. ALSN, CarMax Inc. KMX and PACCAR Inc. PCAR. While Allison Transmission sports a Zacks Rank #1 (Strong Buy), both CarMax and PACCAR carry a Zacks Rank #2 (Buy).

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