Johnson Controls Earnings Rise 33% Y/Y - Analyst Blog

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Johnson Controls, Inc. ( JCI ) reported earnings of 69 cents per share in first-quarter fiscal 2014 (ended Dec 31, 2013), up 32.7% from 52 cents in the comparable quarter of the prior-year quarter. Earnings per share were in line with the Zacks Consensus Estimate.

The improvement in earnings surpassed management's guidance of an increase of around 30% from first-quarter 2013. The year-over-year improvement was driven by the company's focus on operational and cost efficiency.

Operational Update

Revenues in the quarter went up 4.7% year over year to $10.9 billion, higher than the Zacks Consensus Estimate of $10.7 billion. Revenue growth across Automotive Experience and Power Solutions segments led to the increase.

Revenues also benefited from enhanced global automotive production partially offset by decline in Building Efficiency revenues. The company expects the global commercial buildings markets to improve in the future, which will have favorable impacts on its business later in the year.

Cost of sales increased 3.9% year over year to $9.3 billion from $8.9 billion. Gross profit improved 9.3% year over year to $1.7 billion. Consequently, gross margin expanded to 15.2% in the quarter from 14.5% in the earlier-year quarter.

Selling, general and administrative expenses in the first quarter rose to $1.08 billion from $1.05 billion in the prior-year quarter. The company reported segment income of $686 million, up 25% from $549 million in the year-ago quarter.

Segment Results

Automotive Experience: Revenues in this segment improved 10% year over year to $5.8 billion on higher automotive production in all geographic regions. Adjusted segment income surged to $232 million from $101 million mainly due to higher income from its Seating segment. The Automotive Experience results benefited from higher global production, cost reduction initiatives and operational efficiency in the metals and mechanisms business.

Building Efficiency: In this segment, revenues decreased 4% year over year to $3.4 billion due to lower demand in Europe, the Middle East and Latin America as well as Global Workplace Solutions, partially offset by higher revenues in Asia. The quarter-end backlog stood at $5 billion, a 1% decrease from the prior-year quarter. Orders were 5% higher than last year. Segment income dropped 15% in the reported quarter to $146 million from $172 million.

Power Solutions: Revenues in the Power Solutions segment grew 6% to $1.8 billion on increased global original equipment battery shipments. Segment income gained 12% to $308 million, driven by higher volumes, improved mix of products, vertical integration and benefits from joint ventures.

Financial Position

Johnson Controls had cash and cash equivalents of $245 million as of Dec 31, 2013, a decrease from $314 million as of Dec 31, 2012. Total debt increased to $6.7 billion as of Dec 31, 2013 from $6.4 billion as of Dec 31, 2012. Consequently, the debt-to-capitalization ratio was 36.6% as of Dec 31, 2013 against 35.1% as of Dec 31, 2012.

In the first quarter of fiscal 2014, Johnson Controls' operating cash used was $281 million compared with $298 billion in the year-ago quarter. Meanwhile, capital expenditures decreased to $345 million from $371 million in the prior-year quarter.

Outlook

Johnson Controls anticipates earnings to be within the range of 64-66 cents in the second quarter of fiscal 2014. The company projects higher sales and earnings in fiscal 2014, based on its continued market leadership in core businesses and strong overall performance.

Johnson Controls expects earnings per share in the band of $3.15 to $3.30 for the year. Revenues are likely to improve 3% to $43.8 billion driven by growth in all the business segments. Revenues will benefit from higher automotive production in all its locations compared to the 2013 level, with 11% improvement in China, 6% in North America and 2% in Europe.

Johnson Controls predicts free cash flow generation of about $1.6 billion which will provide opportunities for future capital expenditures, strategic acquisitions, share repurchases and dividend payouts. Margins are expected to improve in all the operating segments in fiscal 2014.

Our Take

The first-quarter of fiscal 2014 was very crucial for Johnson Controls. In the quarter, the company recorded a 16% increase in quarterly dividend and repurchased $1.2 billion shares. In addition, it collaborated with Hitachi for expanding its Building Efficiency product offerings.

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

Other stocks performing well in the same industry include Gentex Corp. ( GNTX ), Magna International Inc. ( MGA ) and Tenneco Inc. ( TEN ). Gentex holds a Zacks Rank #1 (Strong Buy) while Magna and Tenneco are Zacks Ranked #1 (Strong Buy) stocks.



GENTEX CORP (GNTX): Free Stock Analysis Report

JOHNSON CONTROL (JCI): Free Stock Analysis Report

MAGNA INTL CL A (MGA): Free Stock Analysis Report

TENNECO INC (TEN): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: GNTX , JCI , MGA , TEN

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