High Automotive Production And ADT Acquisition Drive Johnson Controls’ Revenue

Johnson Controls‘ (NYSE:JCI) fourth quarter fiscal year 2014 (fiscal year ends September 30) revenues grew 3% year-on-year, to reach $11 billion, driven by its Automotive and Power Solutions segments. ^[1] The company’s Building Efficiency segment benefited from the consolidation of Air Distribution Technologies (ADT). Net profits grew 194% and earnings per share grew 206% primarily due to the impact of restructuring, mark-to-market adjustment related to pension and OPEB plans, and other one-time costs. Excluding these non-recurring costs, earnings per share grew 14% in the fourth quarter.

For the full year, Johnson Controls’ revenue grew 3% year-on-year, slightly below $43 billion. Growth in revenue was again driven by its Automotive and Power Solutions segments, which more than offset the decline in Building Efficiency revenues. Building Efficiency revenues suffered due to the weak commercial heating, ventilation and air-conditioning (HVAC) markets of North America and Europe.

In its fourth quarter earnings release, Johnson Controls announced its first quarter fiscal year 2015 earnings guidance of $0.74-$0.77 per diluted share. This excludes the impact of any non-recurring charges. The company will provide full fiscal year 2015 guidance at its annual New York analyst day on December 2, 2014.

Click here to see our complete analysis of Johnson Controls

Higher Automotive Industry Production Raised Johnson Controls’ Top Line

In the fourth quarter ended September 30, global automotive industry production rose by 8% in North America and China, but Europe was down by 1%. ^[2] The overall growth in production helped raised demand for auto seats and auto batteries, pushing up sales in Johnson Controls’ auto segments. Sales at the company’s auto seats segment rose by 3% year-on-year and at its auto batteries segment rose by 5% year-on-year in the fourth quarter.

The company has been benefiting from the growing demand for batteries that help power start-stop vehicles. Start-stop batteries are gaining popularity as they help save fuel by turning off the engine when the vehicle comes to a rest. Johnson Controls is taking advantage of this increasing adoption of start-stop technology in vehicles through its AGM batteries. The company has invested large sums in increasing its global AGM production capacity, and we’re seeing concrete benefits from these investments as demand for start-stop batteries continues to rise. In the fourth quarter, sales volume of Johnson Controls AGM batteries grew 23%. ^[2]

We believe that Johnson Controls is likely to see continued growth in the sales of its AGM batteries. Start-stop vehicles are expected to grow in demand driven by rising fuel prices as well as stricter vehicle emission norms in North America, Western Europe, and Asia Pacific. They are expected to account for more than 50% of the global vehicle sales by 2022. ^[3] One of the predominant players in the market, Johnson Controls should benefit from this growth. Additionally, its long-term supply contract of AGM batteries with SAIC Motors, which is one of the largest car manufacturers in China, will enable Johnson Controls to increase its market share in the fast-growing start-stop battery market.

Air Distribution Technologies drives Building Efficiency revenues

During the third quarter fiscal year 2014, Johnson Controls completed its acquisition of ADT, which is one of the largest providers of air distribution and ventilation products for buildings in North America. The acquisition has not only helped Johnson Controls by the consolidation of its revenues with the Building Efficiency segment but also with significant cross-selling opportunities. Driven by ADT, the Building Efficiency segment’s revenue grew 1% year-on-year, to reach $3.93 billion. ^[1] Excluding the impact of ADT and foreign exchange, revenue from the segment was down 3%. ^[2]

Johnson Controls’ Building Efficiency segment continues to suffer from weak sales in North America. A large part of the segment is exposed to healthcare and educational construction spending, and government spending in the non-residential construction sector in the U.S. Between 2008 and 2013, non-residential construction spending in the U.S. declined 20%, from $710.4 billion to $568.6 billion. ^[4] Spending in these sectors continued to decline in 2014, affecting Johnson Controls Building Efficiency segment. Though seasonally adjusted government non-residential construction spending grew 2.1% and 2.3% year-on-year in July and August 2014, it was not enough to boost the segment’s revenue from North America. However, the increase in spending may have had a hand in driving new orders and backlogs. For the fourth quarter, Johnson Controls reported 2% increase in new orders, excluding contribution from ADT and impact of foreign exchange. Backlogs were also up by 1%. Growth in new orders and backlog bodes well for the segment since it will help ensure a steady stream of revenues in the future.

This fiscal year’s fourth quarter was marked with significant reorganization of Johnson Controls’ Building Efficiency segment. Most recently, Johnson Controls announced that it will soon be selling off its facilities management service, Global Workplace Solutions, in order to position itself as a manufacturer rather than a service provider. ^[5] Though this decision will lead to a decline in revenues by around 10.0%, the segment could see a 200 basis points increase in margins. (Click here to read our article)

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

1. Johnson Controls’ F2014 Q4 8-K SEC Filing, October 30, 2014, www.sec.gov [↩] [↩]
2. Johnson Controls’s F2014 Q4 earnings presentation, October 30, 2014, www.johnsoncontrols.com [↩] [↩] [↩]
3. Navigant Research forecasts stop-start vehicles to account for 53.4% of global vehicle sales by 2022, December 2013, www. navigantresearch.com [↩]
4. U.S. Construction Spending Monthly and Annual Data, www.census.gov [↩]
5. Johnson Controls Plans to Sell Building-Management Business, September 30, 2014, online.wsj.com [↩]