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Johnson Controls Offers Impressive FY16 & Long-Term Outlook

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Johnson Controls Inc.JCI has made strong projections for fiscal 2016. The company believes that its strategic and operating plans will lead to better performance during the fiscal year.

Johnson Controls expects earnings per share in the band of $3.70-$3.90 for fiscal 2016, compared with $3.58 per share earned in fiscal 2015. This represents a year-over-year increase of 8%-14%.

Revenues are expected to increase 4% to $38.6 billion in fiscal 2016 from $37.2 billion in fiscal 2015. The top line will benefit from an improvement in results in the Building Efficiency and Power Solutions segments. Higher automotive production will also have a favorable impact on revenues, with an 11% improvement expected in China and a 2% rise projected in North America, partially offset by a marginal decrease in Europe.

Organic sales from both Building Efficiency and Power Solutions are projected to increase by 10% in fiscal 2016.

Segment Outlook

Revenues in the Automotive Experience segment are expected to drop 2%-3% in fiscal 2016 due to last year's capital constraints and targeted new business profitability requirements. The company's results from China are not incorporated in the revenue guidance.

The Automotive Experience segment's margins are projected to increase by 140-160 basis points to 6.8%-7%, driven by operational improvements, cost-reduction initiatives, strong performance by the company's Chinese joint ventures and improved profitability of the metal business.

Revenues from the Building Efficiency segment are expected to increase 37%-39% in fiscal 2016 due to the impact of the consolidated Hitachi joint venture. Excluding this impact, sales are anticipated to rise 9%-11% in fiscal 2016.

The Building Efficiency segment's margins are projected to be 8.1%-8.3% in fiscal 2016, due to favorable impact from the Hitachi joint venture's residential air conditioning business. Excluding this, margins should increase by 30 basis points, driven by higher volumes, a more profitable mix, cost reduction and restructuring initiatives, along with improved operational performance which will offset the increased investment in product development and sales resources.

Revenues from the Power Solutions segment are anticipated to grow 9%-11% due to higher volumes in all regions. The improvement will be driven by strong market share gains in all geographies and a 22% rise expected in sales of Absorbent Glass Mat (AGM) batteries used in start-stop and other vehicles requiring deep cycling capabilities. The Power Solutions segment's margins should be around 17% owing to investments in product launches for start-stop and advanced start-stop for automotive applications and lithium-ion solutions for Distributed Energy Storage ("DES").

Johnson Controls plans capital expenditure of $1.3 billion in fiscal 2016, which is $200 million higher than the fiscal 2015 level due to higher investments in the Power Solutions segment for AGM batteries and China plant capacity, along with product line expansions in the Building Efficiency segment.

Mid-to-Long Term Outlook

Johnson Controls expects revenues from the Building Efficiency segment to grow 4%-6% annually through fiscal 2020, on the back of rising demand for Variable Refrigerant Flow ("VRF") products, expansion in emerging markets and an expanded HVAC product line. The company anticipates margins to be 9.5%-10.5% by fiscal 2020, representing an annual improvement of 30-50 basis points. The rise in profitability should be driven by higher volumes, cost-reduction initiatives and margin improvements in the Hitachi residential air conditioning business, partially offset by increased investments in product development and personnel hiring.

Johnson Controls expects revenues from the Power Solutions segment to increase 7%-8% per annum through fiscal 2020, backed by growth in China, an improved product mix and higher market share. The company projects margin expansion of 40-50 basis points per annum, resulting in margins of 18.5%-19% by fiscal 2020. The improvement is projected to be driven by higher volumes and improved product mix, partially offset by investments in advanced battery technologies and manufacturing capacity expansion, and product launch costs in China.

Additionally, Johnson Controls plans to spin off its Automotive Experience business into an independent, publicly traded company. The transaction is expected to close by Oct 3, 2016.

Johnson Controls is a supplier of automotive interiors, batteries and other control equipment. It is a leader in the supply of HVAC, building controls, refrigeration and security systems for buildings. The company currently carries a Zacks Rank #3 (Hold).

Better-ranked automobile stocks include General Motors Company GM , CarMax Inc. KMX and O'Reilly Automotive Inc. ORLY . All three stocks carry a Zacks Rank #2 (Buy).

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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 Nasdaq, Inc.


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

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