On Friday, January 22, 2010, Johnson Controls (JCI) will release its sales and earnings results for the first quarter of fiscal 2010 ended December 31, 2009. The Milwaukee, Wisconsin-based supplier of automotive interiors, batteries and other control equipment showed a profit of $402 million or 52 cents per share, excluding non-recurring items, for the fourth quarter of its fiscal year ended September 30, 2009. This was above the Zacks Consensus Estimate of 48 cents.
Johnson reported positive numbers in the quarter despite weakness in both North American automotive and residential heating, ventilating and air conditioning (HVAC) markets. However, the profits were down from $511 million or 73 cents per share in the fourth quarter of the last fiscal year.
Johnson’s constant focus on cost control not only increases production efficiency, but also provides opportunities to drive margins over the next several years. In 2008, Johnson had initiated a $495 million restructuring plan under which the company aligned resources with its growth strategies while reducing the cost structure of its global operations. The restructuring actions are expected to be completed by the end of fiscal 2010, driving earnings by 20-25 cents per share.
In 2009, Johnson Controls initiated a second round of restructuring, which included a workforce reduction of about 6,400 employees and the closure of 9 plants. The restructuring initiative is expected to increase earnings by 15 cents per share in 2010 on its completion.
Johnson is well positioned to benefit long-term from its focus on China. The company owns 26 manufacturing plants catering to the automotive business in China. In the seating business, the company has acquired more than 50% of the country’s market share.
However, Johnson Controls is experiencing weakness in its North American business, following a general softness in the industry. On the other hand, anemic demand, high inventory levels at the OEMs and continuous market share losses are pressuring suppliers like Johnson Controls.
Moreover, auto parts manufacturers such as Johnson Controls are at risk due to lost production and disrupted payments from bankrupt U.S. automakers General Motors and Chrysler. Although the companies have regained their positions, auto parts manufacturers dependent on them have yet to overcome the disruptions on account of their bankruptcies.
Johnson Controls anticipates a sales increase of 9% to $31 billion for fiscal 2010. Earnings are expected to increase to $1.35–$1.45 per share, marginally lower than the Zacks Consensus Estimate of $1.49. Sales, earnings and margin improvements are expected in all three of its businesses in 2010. These estimates are backed by higher global automotive production forecasts in 2010 compared to 2009 and a resumption of higher growth rates in global emerging markets.
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