Johnson Controls Inc.
) revealed 15% growth in net income to $441 million in the third
quarter of its fiscal year ending September 30, 2012 from $383
million in the comparable quarter of prior year. On per share
basis, adjusted net income grew 14% to 64 cents from 56 cents a
year ago. (All excluding non-recurring items.)
However, earnings per share lagged the Zacks Consensus Estimate
by 3 cents. It was lower than the management's expectation as well,
which projected earnings to improve 20% on a year-over-year basis
for the quarter.
Management believes sluggish demand in some of the company's key
markets and a considerably weaker Euro led to lower-than-expected
earnings growth. Further, weak demand in the automotive aftermarket
and higher input costs led to the subdued growth during the
Revenues in the quarter went up a tad 2% to $10.6 billion during
the quarter. It could not meet the Zacks Consensus Estimate as
well, which amounted to $10.9 billion. However, revenue growth was
higher (7%) excluding the impact of foreign exchange.
Pre-tax income increased 7.5% to $504 million from $469 million
a year ago. Income from business segments rose 14% to $615 million
from $541 million in the prior-year quarter.
Revenues in the segment scaled up 7% to $5.5 billion on higher
production volumes in North America and Asia, as well as new
program launches, which were partially offset by lower production
volumes in Europe and a weak Euro. Segment income went up 18% to
$202 million from $171 million a year ago.
Revenues in the segment slipped 2% to $3.8 billion as higher sales
in Asia and Global Workplace Solutions were more than offset by
depressing sales in Europe. Residential Heating, Ventilating and
Air Conditioning (HVAC) sales grew 24% due to strong demand on the
back of higher temperatures in North America. Segment income
appreciated 28% to $264 million from $207 million in the 2011
quarter due to strong earnings in all businesses.
Excluding the impact of foreign exchange, the backlog of
projects at the end of the quarter rose 7% to $5.3 billion driven
by double-digit growth in Asia. Orders in the quarter were flat as
lower orders in Europe and other emerging markets offset a 12% rise
Revenues in the segment fell 3% to $1.3 billion due to
lower-than-expected aftermarket battery demand in North America and
original equipment battery demand in Europe. Segment income
decreased 9% to $149 million from $163 million in the third quarter
of fiscal 2011 due to higher costs for acquiring spent battery
cores for recycling.
Johnson Controls had cash and cash equivalents of $602 million
as of June 30, 2012 compared with $335 million as of June 30, 2011.
Total debt increased to $6.7 billion as of June 30, 2012 from $5.2
billion as of June 30, 2011. This translated into a higher
debt-to-capitalization ratio of 36.5% as of June 30, 2012 compared
with 31.3% as of June 30, 2011.
In the first nine months of fiscal 2012, Johnson Controls'
operating cash flow improved significantly by 56% to $765 million
from $489 million in the year-ago period, mainly driven by higher
net income, increase in deferred income tax and reduction in
inventories. Meanwhile, capital expenditures increased to $1.4
billion from $900 million in the prior year.
Due to the continued softness in the global markets and a weak
Euro, Johnson Controls lowered its fourth quarter earnings growth
guidance. The company anticipates earnings in the quarter to grow 0
to 5% compared with the earlier projection of 25%. However, it
expects to improve long-term profitability based on inherent
strength in all its businesses.
Johnson Controls is a supplier of automotive interiors,
batteries, and other control equipment. Its main competitors
) in the Automotive Experience segment,
Honeywell International Inc.
) in the Building Efficiency segment and
) in the Power Solutions segment.
Due to lower-than-expected earnings and soft guidance, the
company currently retains a Zacks #3 Rank on its stock, which
translates to a short-term rating (1-3 months) of Hold and we
reiterate our Neutral recommendation on its shares for the
long-term (more than 6 months).
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