Johnson Controls, Inc. (JCI)

JCI 
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Johnson Controls (JCI)

Q2 2011 Earnings Call

April 25, 2011 11:00 am ET

Executives

Glen Ponczak - Director of IR

R. McDonald - Chief Financial Officer and Executive Vice President

Stephen Roell - Chairman of the Board, Chief Executive Officer, President and Chairman of Executive Committee

Analysts

Michael Cox - Piper Jaffray Companies

David Leiker - Robert W. Baird & Co. Incorporated

Colin Rusch - ThinkEquity LLC

H. Nesvold - Jefferies & Company, Inc.

Brian Johnson - Barclays Capital

John Murphy - BofA Merrill Lynch

Brett Hoselton - KeyBanc Capital Markets Inc.

Ravi Shanker - Morgan Stanley

Himanshu Patel - JP Morgan Chase & Co

Timothy Denoyer - Wolfe Trahan & Co.

Presentation

Operator

Good morning, and thank you for standing by. [Operator Instructions] This conference is being recorded. [Operator Instructions] I would now like to turn the call over to Glen Ponczak. You may begin.

Glen Ponczak

Good morning, everybody, and thank you for joining us. Before we begin, I'd just like to remind you of our forward-looking statements. The Johnson Controls will make forward-looking statements in this call and in the documents that you received this morning pertaining to its financial results for fiscal 2011 and beyond that are based on preliminary data and are subject to risks and uncertainties. All statements other than statements of historical fact are statements are or that could be deemed forward-looking statements and include terms, such as outlook, expectations, estimates or forecasts.

For those statements, the company cautions that numerous important factors, such as automotive vehicle production levels, mix and schedules, customer or supplier disruptions, energy and commodity prices, the strength of the U.S. or other economies, currency exchange rates, cancellation of or changes to commercial contracts, as well as other factors discussed in Item 1A of Part 1 of the company's most recent Form 10-K, could affect the company's actual results and cause its actual consolidated results to differ materially from those expressed in any forward-looking statement made by or on behalf of the company.

I'm joined this morning by Steve Roell, our Chairman and Chief Executive Officer, who will give an overview of the quarter. Bruce McDonald, Executive Vice President and Chief Financial Officer will come afterwards to give you more in-depth look at our business results and an overall financial review. And we'll conclude the call with questions and answers ending sometime around noon Eastern Time.

And with that, I'll turn it over to Steve.

Stephen Roell

Okay, thanks, Glen. Good morning. Well, actually on the call this morning, I'd like to start by first discussing our financial results for the first half of our fiscal year and the progress that we're making on various growth initiatives. And then I think we'll turn our attention to the second quarter performance, and both Bruce and I will have some comments on that. And then finally, we'll talk about the outlook for the remainder of the fiscal year, including what we know about global automotive production schedules and their impact on our results.

So first of all, focusing on the first half. Clearly, all 3 businesses have performed very well. Automotive Experience sales are up 19% with segment income up 37%. Again, I'll tell you about the first half, the first 6 months. Our Power Solutions sales, 20% higher than the prior year. The segment income up 25%. And finally, Building Efficiency had a great first half with sales increasing 15% and income up 30%. Those numbers are on plan and slightly ahead of the guidance that we've provided you coming into 2011. Our business diversification and global presence remains a key strength of our company, and I know I continue to talk about that. As you can imagine, given some of the events in the automotive industry, clearly having the Power Solutions and Building Efficiency segments are going to be important to us.

Turning to the first half results, specifically for Automotive, a couple of highlights I wanted to make. Typically we talk about our backlog, our 3-year backlog, when we meet with you in October. But I thought I'd at least give you some idea that in the first 6 months, we've booked roughly $800 million of new business. That's net new business. It's a good mix of seating, interior systems and electronics. It's more geographically distributed than in the past 2 years and really represents, again, the major market share gains that we're getting across the globe.

If you recall back at the Analyst Meeting back last fall, we talked about the importance of strengthening our component capabilities. Well, in the past 6 months, we've announced the acquisitions of Michel Thierry, Hammerstein and Keiper Recaro, with a total acquisition value of approximately $1.2 billion. Each of those businesses had strong backlogs and we project that by 2014, they'll add roughly $3 billion to our sales and generate $0.50 per share to our earnings in that timeframe -- at that time. When we complete the acquisitions, our market share of our global seating, metals and mechanisms will be about 27%. And as our press release indicated, we expect to close in the Keiper Recaro transaction in the June, July timeframe. Previously, we thought we could be closing that in May. It's been delayed due to -- just the regulatory review, nothing unusual.

Shifting to Building. A strong first half of new awards has resulted in a record backlog, the first time that we've enjoyed a backlog in excess of $5 billion. And if you recall, we talked about the fact that we would expect to see recovery in emerging markets, particularly in the Middle East and Asia, as we look at the next 4 years. Emerging market orders are up over 30% in the first half with a strong pipeline of new orders still in each of those regions.

In terms of our future growth in 2012 and beyond, we continue to invest in our sales force, our front-liners, product offerings, as well as information technology and infrastructure. We'll talk more about that when we get into some of the -- I'm sure the questions from the analyst. We recently announced the acquisition of EnergyConnect, which will close in Q4 of the fiscal year. It pertains to demand response. Many of you may not know that term. It basically is where it allows commercial building owners to take advantage of variable pricing programs offered by utilities. It's a rapidly growing market we believe our field organizations can take advantage of to help our customers lower their costs.

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