Johnson Controls (JCI)
Q3 2011 Earnings Call
July 20, 2011 11:00 am ET
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
David Leiker - Robert W. Baird & Co. Incorporated
Rod Lache - Deutsche Bank AG
H. Nesvold - Jefferies & Company, Inc.
Brian Johnson - Barclays Capital
Christopher Ceraso - Crédit Suisse AG
Himanshu Patel - JP Morgan Chase & Co
John Murphy - BofA Merrill Lynch
Theodore O'Neil - Wunderlich Securities Inc.
Previous Statements by JCI
» Johnson Controls' CEO Discusses Q2 2011 Results - Earnings Call Transcript
» Johnson Controls CEO Discusses Q1 2011 Earnings Call Transcript
» Johnson Controls CEO Discusses F4Q2010 Results - Earnings Call Transcript
Well, thank you, Melissa. Good morning, everybody, and thank you for joining us for our third quarter 2011 earnings conference call.
Before we begin, I'd like to remind you of our forward-looking statements. Johnson Controls has made forward-looking statements in this presentation and documents 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 that are or 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 or 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 filing, which was filed November 23, 2010, could affect the company's actual results and could cause its actual consolidated results to differ materially from those expressed in any forward-looking statement made by or on behalf of the company.
Joining this morning is Steve Roell, our Chairman and Chief Executive Officer. Steve will give an overview of the third quarter. After that, Bruce McDonald, Executive Vice President and Chief Financial Officer, will give a more detailed review of the businesses and the financial review. And that will be followed with questions and answers concluding right at noon, Eastern Time.
And with that, I'll turn it over to Steve.
Okay, well, thank you, Glen, and good morning, everyone. We're generally very pleased with our fiscal third quarter results. Our consolidated sales of $10.4 billion was a record for us, with each of our 3 business segments achieving sales growth in excess of 20%. I should note, this was the seventh consecutive quarter of double-digit sales growth for us and 6 of those have been in excess of 15%. If you exclude the impact of foreign exchange, our revenues were up 15%. But if you correct for the impact of the Japan disaster of almost $400 million, our growth rate was 22%.
In previous presentations, I've highlighted the fact that a large portion of our growth is organic and that's going to continue to be the case. This quarter, we achieved market share gains in the global aftermarket battery segment. We have significant [ph] higher sales from new awards in our European seating business, and we saw increased demand for energy efficiency and Global Workplace Solutions services. Once you adjust for the metal and fabrication acquisitions that we had, as well as the Korean battery transaction of late last fiscal 2010, our organic growth was 16% in the period.
Coming into the quarter, we were concerned that the production interruptions stemming from the Japan disaster would be more extensive and prolonged. The auto industry in general lacked visibility in the end of the entire supply chain as we discussed at that time. I believe that a combination of higher inventory, product substitution by the automakers and certainly, alternate sourcing helped mitigate the impact to some extent. But as you can see, it still had a major impact on our earnings.
Now looking at the macroenvironment in the quarter, the underlying automotive production levels were certainly more stable than we initially thought that they would be and, obviously, I'm putting China on the side of that. Emerging markets remain strong, with China being the major market for us. But I will mention that the growth of the period was achieved despite several headwinds, and let me just comment on a few of those.
We talked about our battery shipments, and we had strong battery shipments in the quarter. Our aftermarket was up over 10%, and we saw 5% growth in North America, as an example. But in this market, as well as in Europe, we noted that there were significantly higher inventories coming into the period. I think we can tell you what happened. If you go back to the January/February timeframe, there was strong demand. And as a result of that, the distribution really ordered inventory that as a result, we believe, had them carry excessive inventories out of the March timeframe and into April. So April and May were characteristically lower, weaker than what we normally would have seen, and then we saw a recovery in June.
We can tell you that in July, we continue to see strong demand despite what would be cooler weather in Europe than normal and, of course, the hot heat that we're seeing here in the U.S. So demand has recovered but we thought we would highlight for you that there was a weak period of battery shipments that took place early in the last quarter.
There was eventually a significant [ph] market after we saw 2 consecutive quarters of good growth. Our first half of the year shipments were up almost 15%. Battery recovery was not sustained as we had expected, and the market was extremely weak in the quarter just ended.