Johnson Controls Tops Q4 Earnings on Solid Performance - Analyst Blog

Johnson Controls, Inc. (JCI) reported adjusted earnings of $1.04 per share in fourth-quarter fiscal 2014 (ended Sep 30, 2014), surpassing the Zacks Consensus Estimate of $1.01. Earnings were up 14.3% from 91 cents in the comparable quarter of the previous year. Notably, the financial details of last year have been revised as the company has classified its Automotive Electronics business as a discontinued operation.
 

Including restructuring and non-recurring items, Johnson Controls' net income amounted to $311 million or 46 cents per share.

Operational Update

Revenues in the reported quarter went up 2.6% year over year to $10.98 billion, lagging the Zacks Consensus Estimate of $11.21 billion. Revenue growth across all the segments led to the upside.

Cost of sales increased 5.3% year over year to $9.1 billion from $8.7 billion. Gross profit declined 9% year over year to $1.8 billion.

Selling, general and administrative expenses in the fourth quarter totaled $1.3 billion, in comparison with the prior-year quarter figure of $756 million. The company reported business segment income of $983 million, up 10.6% from $889 million in the year-ago quarter.

Fiscal 2014 Performance

Johnson Controls posted adjusted earnings rise of 24.7% year over year to $3.18 per share for full-year 2014, a penny ahead of the Zacks Consensus Estimate. Revenues for the full year increased 3.4% to roughly $42.8 billion from $41.4 billion in 2013, missing the Zacks Consensus Estimate of $43.2 billion.

Segment Results

Automotive Experience: Revenues in this segment improved 3% year over year to $5.3 billion on the back of higher industry production. Production in North America improved 8%. However, it declined 1% in Europe. Revenues from China improved 17% to $1.8 billion, driven by an 8% hike in industry production. Adjusted segment income surged 27.3% to $261 million from $205 million, mainly due to higher profit from its Seating and Interiors business.

Building Efficiency: In this segment, revenues increased 1% year over year to $3.93 billion due to better results from Asia and higher revenues associated with the Air Distribution Technologies (“ADT”) acquisition, partially offset by lower revenues from North America. The quarter-end backlog increased 1% to $4.8 billion. Also, orders including the incremental contribution of the ADT acquisition excluding foreign exchange were 11% higher than last year.

Adjusted segmental income increased 10.7% in the reported quarter to $393 million from $355 million in the comparable quarter last year owing to incremental contribution by ADT and the Global Workplace Solutions (“GWS”) segment income.

Power Solutions: Revenues in the Power Solutions segment increased 5% to $1.8 billion from $1.7 billion a year ago. Adjusted segment income was $329 million, at par with the year-ago level.

Financial Position

Johnson Controls had cash and cash equivalents of $409 million as of Sep 30, 2014, indicating a decrease from $1.1 billion as of Sep 30, 2013. Total debt rose to $6.7 billion as of Sep 30, 2014 from $5.5 billion as of Sep 30, 2013. Consequently, the debt-to-capitalization ratio stood at 37.1% as of Sep 30, 2014 versus 30.9% as of Sep 30, 2013.

In fiscal 2014, Johnson Controls' operating cash flow was $2.4 billion as against $2.7 billion in the year-ago period. Meanwhile, capital expenditures decreased to $1.2 billion from $1.4 billion in the prior-year period.

Restructuring

Johnson Controls announced the reorganization of its Building Efficiency business in the fourth quarter.

The North America branch business of the Building Efficiency segment will operate separately from the global products business. The company expects this to be more profitable for its business.

In addition, Johnson Controls announced that it plans to divest the Global Workplace Solutions business. The company is undertaking this strategy in order to invest in businesses that are core to its long-term growth and multi-industrial portfolio.

Outlook

Johnson Controls anticipates earnings in the range of 74–77 cents in the first quarter of fiscal 2015.

The company is recording better performance in all its businesses since the beginning of fiscal 2015. It has also witnessed recovery in some of the late cycle markets. Johnson Controls focuses on new growth markets with higher returns along with emphasizing its presence in China.

Johnson Controls is a supplier of automotive interiors, batteries and other control equipment. It currently holds a Zacks Rank #4 (Sell).

Better-ranked automobile stocks worth considering include Gentex Corp. (GNTX), Gentherm Inc. (THRM) and Accuride Corp. (ACW), all of which sport a Zacks Rank #1 (Strong Buy).