Johnson Controls Inc. (JCI) saw a 25% increase in profit to 75 cents per share in the fourth quarter of its fiscal year ended September 30, 2011 from 60 cents per share in the same quarter of prior fiscal year (all excluding non-recurring items).
However, the profit was lower than the Zacks Consensus Estimate by a penny. In absolute terms, profit was $514 million versus $409 million in the fourth quarter of 2010 (all excluding non-recurring items).
Net sales in the quarter appreciated 19% to $10.8 billion, which is higher than the Zacks Consensus Estimate of $10.7 billion. The improvement in sales and earnings was attributable to impressive growth in the company’s all businesses.
Segment Performance
Sales in the Automotive Experience segment escalated 24% to $5.1 billion driven by higher global production volumes, incremental volume from recent acquisitions, new program launches and a favorable impact due to foreign currency. Segment income was $234 million, an 81% increase from $129 million last year on the back of higher volumes and improved profitability in Europe and the same at the company’s joint ventures in China.
Sales in the Building Efficiency segment rose 14% to $4.1 billion driven by higher revenues in all the five segments of Building Efficiency, led by Global Workplace Solutions and Asia. Segment income was $278 million, up $3 million from last year driven by higher income generated by North America Systems, Asia and Middle East. These were offset by lower segment income in North America Service and Global Workplace Solutions.
Sales in the Power Solutions segment grew 19% to $1.6 billion, driven by higher volumes in Europe and Asia as well as higher lead prices. Segment income was $213 million, up 17% from $182 million in the fourth quarter of 2010 as a result of the higher volumes, favorable product mix and the positive impact from increased vertical integration.
Financial Position
Johnson Controls had cash and cash equivalents of $257 million as of September 30, 2011 compared with $560 million in the corresponding period a year ago. Total debt amounted to $5.1 billion as of the above date compared with $3.4 billion as of September 30, 2010. This translated into a debt-to-capitalization ratio of 32% as of September 30, 2011, which deteriorated from 25% a year ago.
In fiscal year 2011, Johnson Controls’ operating cash flow decreased to $1.1 billion from $1.4 billion in the year-ago period, driven primarily by lower deferred income taxes, higher accounts receivable, and higher inventory. Meanwhile, capital expenditures increased to $1.3 billion from $777 million in the prior year.
Fiscal 2012 Guidance
Johnson Controls reiterated its financial guidance for fiscal 2012 issued on October 12, 2011. The company expects sales to increase by 8% to $44.2 billion. The projection was based on modestly higher global automotive production, growth across the company’s businesses in emerging markets, and market share gains. It also anticipates earnings to increase to $2.85–$3.00 per share for the year.
Our Take
We are optimistic about Johnson Controls given its improved results and clear cut guidance. However, tough competition and higher exposure to original equipment manufacturers are expected to hamper its results in the future.
As a result, the company has a Zacks #3 Rank on its stock, which translated to short-rating (1–3 months) of Hold and we reiterate our Neutral recommendation on the stock fro the long term (more than 6 months).
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