Johnson Controls’ Cost-Cutting Propels Earnings Higher Despite A Challenging Macro Environment

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Johnson Controls‘ (NYSE:JCI) sales grew by 6% annually to $11 billion in its fourth quarter (of fiscal 2013) despite a challenging macro environment. More importantly, the company’s profits rose to $105 million in the quarter, from a loss of $8 million in the prior year period, on margin expansion driven by cost-cuts. [1] The maker of auto batteries, auto seats and interiors and York-brand air conditioners continued its restructuring initiatives aimed at reducing costs throughout the quarter. Gains from these initiatives expanded the company’s segment operating margins to 13% in the quarter, from around 7% in the same period last year. [1]

See our complete analysis of Johnson Controls here. We are in the process of incorporating the company’s fourth quarter earnings and shall update our analysis shortly.

Top Line Rises Despite Mixed Macro Environment

In the fourth quarter, Johnson Controls’ sales rose across all its segments despite a mixed macro environment.

In the automotive experience segment where Johnson Controls provides auto seats and interiors such as instrument panels, door and floor consoles, among other parts, industry production grew by 5% annually in North America and fell by around 1% annually in Europe. The segment’s sales from China, which primarily consist of auto seats also rose by 20% annually with industry production rising by 6% annually. Overall, the segment’s sales rose by 9% annually to $5.5 billion. [1]

In the auto batteries segment where Johnson Controls is a leading manufacturer of lead-acid and advanced auto batteries that include start-stop technologies, shipments to original equipment manufacturers rose across all major markets including North America, Asia and Europe. In all, sales from this segment rose by 9% annually to $1.7 billion. Profits from this segment also benefited from the full ramp up of the South Caroline lead recycling facility which opened in September last year. Higher capacity at this plant played a major role in expanding the segment operating margin to 20% in the fourth quarter, from 16% in the last year quarter. [1] This facility supported margin expansion by protecting the company from fluctuations in prices of lead which is a key input material for the manufacture of batteries.

In building efficiency as well, sales increased by 2% annually to $3.9 billion driven by residential HVAC markets in North America.

Announcement On Sale Of Remaining Auto Electronics Units By 2013-End

Separately, in its earnings filing, Johnson Controls reiterated that it will make an announcement regarding the sale of its remaining auto electronics units by the end of this calender year. In September, the company completed the sale of the HomeLink unit of its auto electronics segment to Gentex for $700 million. [2] The auto electronics segment constituted around $1 billion of the company’s $42 billion revenues last year and we figure that the divestiture of this segment is a step in the right direction as the company is a niche player in this segment. [3] Johnson Controls provides only body electronics, driver information and some other electronics parts and in order to grow in this space it will need to make significant investments in navigation and other electronic technologies. Cash from the segment’s sale could on the other hand be used to bolster the company’s leading position in the auto battery, seating and interior spaces.

Looking ahead, in the near term, Johnson Controls plans to continue its restructuring initiatives and raise capacity in emerging markets to drive growth.

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Notes:
  1. Johnson Controls fiscal 2013 Q4 earnings form 8-K, October 29 2013, www.johnsoncontrols.com [] [] [] []
  2. Johnson Controls completes sale of HomeLink business, September 27 2013, www.johnsoncontrols.com []
  3. Fiscal year 2012′s 10-K, November 19 2012, www.johnsoncontrols.com []
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  • commented 6 months ago
  • tags: GE GLW JCI
  • I understand Johnson Controls sells auto batteries to Costco. Why are there are no batteries for 2008 and newer Challengers at Costco?