Shares of Johnson Controls Inc. (JCI) declined 2.3% to $50.16 yesterday due to broader market decline, even though the company provided profitable guidance for 2014. The company projected higher sales and earnings in fiscal 2014 based on its continued market leadership in core businesses and strong overall performance.
Johnson Controls expects earnings per share in the band of $3.15 to $3.30 for the year, compared with $2.66 per share earned in fiscal 2013. Revenues are likely to improve 3% to $43.8 billion in the year driven by growth in all the business segments. Revenues will benefit from higher automotive production in all its locations compared to 2013 level, with 11% improvement in China, 6% in North American and 2% in Europe.
Segment Outlook
Revenues in the Automotive Seating segment are estimated to rise 1% to 2% in fiscal 2014, based on higher production volumes in North America and stable volume in Europe. Chinese business results are not incorporated in the revenue guidance. However, revenues in the Automotive Electronics are expected to witness 2.5% to 3% decrease and the Automotive Interiors sales should decline by 1.5% year over year.
The Automotive Experience segment’s margins are projected at around 4% to 4.2%, driven by higher volumes, operational improvements, and benefits from restructuring actions.
Revenues from the Building Efficiency segment are estimated to increase 1% to 3% in 2014 due to growth in the emerging markets partially offset by Global Workplace Solutions (GWS) portfolio rationalization. Segment margins are forecasted to rise to 7%–7.2%, due to pricing actions, benefits from cost reduction initiatives and GWS operating model changes.
Revenues from the Power Solutions segment are expected to climb 7% to 8%, due to expanding volumes in all regions with higher market share growth in China. Increased production of Absorbent Glass Mat (AGM) batteries will also benefit the results. Segment margins should be around 16% to 16.2% due to higher profitability in China, operational improvements and positive impacts from vertical integration.
Johnson Controls plans capital expenditures of $1.2 billion in 2014, which is $200 million lower than the 2013 level. The company predicts free cash flow generation of about $1.6 billion which will provide opportunities for future capital expenditures, strategic acquisitions, share repurchases and dividend payouts.
Mid-Term/Long-Term Outlook
Till 2018, Johnson Controls expects revenues from the Automotive Experience segment to be consistent with 2013 levels due to lower capital investments and new vehicle programs. The company predicts margin to expand to about 7% by 2018 due to the favorable impacts from vertical integration, operational improvements and commercial discipline.
Johnson Controls expects revenues from the Building Efficiency segment to rise 5% to 6% on the back of recovery in global markets and gain in market share. The company forecasts margins, excluding GWS, to reach 10% due to higher volumes, pricing initiatives and supply chain improvements.
Johnson Controls expects revenues from the Power Solutions segment to rise 8% to 9% per annum due to expansion in China and improved product mix together with gain in market share. The company projects margin expansion of 100 to 150 basis points till 2018, due to better product mix and the benefits of vertical integration.
Johnson Controls is a supplier of automotive interiors, batteries, and other control equipment. It leads in the supply of HVAC, building controls, refrigeration and security systems for buildings. The company currently holds a Zacks Rank #3 (Hold).
Some better-ranked stocks the same industry include Tower International, Inc. (TOWR), Gentex Corp. (GNTX) and Lear Corp. (LEA). All these companies carry a Zacks Rank #1 (Strong Buy).
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