Johnson Controls Inc.
) projected higher sales and earnings in fiscal 2013 based on its
continued investments in technology and global expansion, despite
challenging market conditions. The company expects earnings per
share in the band of $2.60 to $2.70 for the year, up 0.4%-4.2%
from the prior year.
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Revenue is expected to improve 3% to 4% to $43.5 billion in the
year, driven by growth in automotive production in North America
and China, partially offset by lower production in Europe.
Meanwhile, global non-residential construction spending is
projected to be flat year over year, due to weaknesses in North
America and Europe, which will likely offset the strength in the
emerging markets of Asia.
Revenues in the Automotive Seating are expected to grow 2% in
fiscal 2013, based on higher production volumes in North America,
partially offset by lower production in Europe. Margins will be
around 4.2% to 4.4%, driven by operational efficiency and
benefits from the cost cutting measures, partially offset by
lower production in Europe. Revenues in the Automotive
Electronics are expected to swell 2% due to higher volumes in
Asia, partially offset by lower electronics sales in Europe.
Revenues from the Building Efficiency segment are estimated to
increase 2% to 4% in the year due to growth in the emerging
markets and moderate recovery in North America Systems and
Service. Segment margins are expected to increase to 6.4%-6.5%,
due to improved operating leverage, pricing actions and the
benefits from cost reduction initiatives.
Revenues from the Power Solutions segment is expected to increase
10% to 12%, attributable to higher battery volumes across all
regions and channels, higher production in China, and increasing
market demand for AGM batteries, which are used in Start-Stop
vehicles. Segment margins will be around 14.6% to 14.8% due to an
improved product mix and continued operational
Johnson Controls plans capital expenditures of $1.4 billion in
2013, 80% of which will be allocated toward growth and margin
expansion opportunities. The increased capital expenditures will
be mainly focused on raising manufacturing capacity for AGM
batteries, expansion in the emerging markets and launch of new
Automotive Experience businesses throughout the year.
In the next five years, Johnson Controls expects annual margin
expansion of 30 to 40 basis points in the Automotive Seating
business, driven by positive impact from vertical integration,
operational improvements and better quoting disciplines. After
few years, the company expects margins to improve to 7% to 8% in
In the next five years, the company anticipates annual margin
expansion of 60 to 70 basis points in its Automotive Electronics
and Interiors business led by higher profitability in
Electronics, an operational turnaround in Interiors and cost
reduction measures. In the next few years, margins are expected
to rise to 4%-6% in the business.
The company expects the Building Efficiency segment to record
annual margin expansion of 40 to 50 basis points, based on
improved supply chain management and growth in the emerging
markets. Margins from Power Solutions are expected to improve 200
basis points by 2017, driven by better product mix, manufacturing
efficiencies and favorable impacts from vertical integration.
Johnson Controls reported adjusted earnings per share of 77 cents
in the fourth quarter of 2012 ended September 30, 2012, ahead of
the Zacks Consensus Estimate of 75 cents and up 1.3% from 76
cents a year ago. Earnings were in line with management's
expectation of 0% to 5% growth in the quarter.
Management believes that earnings were favorably impacted by
improved profitability in Building Efficiency, Power Solutions
and North America Automotive Experience businesses. However,
these were mostly offset by weak performance in automotive and
buildings markets in Europe.
The company's revenues for the quarter decreased 3.6% to $10.4
billion. It was marginally lower than the Zacks Consensus
Estimate of $10.8 billion. However, excluding the impact of
foreign exchange, revenues edged up 1% in the quarter.
Johnson Controls is a supplier of automotive interiors,
batteries, and other control equipments. Its main competitors
Magna International Inc.
) in the Automotive Experience segment,
Honeywell International Inc.
) in the Building Efficiency segment and
) in the Power Solutions segment.
The company currently retains a Zacks #4 Rank, which translates
to a short-term rating (1-3 months) of Sell and we reiterate our
Underperform recommendation on its shares for the long term (more
than 6 months).