Johnson Controls (JCI) posted a profit of $402 million or 52 cents per share, excluding non-recurring items, for the fourth quarter of its fiscal year ended Sept. 30, 2009. This was above the Zacks Consensus Estimate of 48 cents per share. The company reported positive numbers despite weakened North American automotive and residential heating, ventilating and air conditioning (HVAC) markets.

In the last quarter, the Wisconsin-based supplier of automotive interiors, batteries and other control equipment returned to profitability after posting losses since the first quarter of fiscal 2008. However, the profits were down from $511 million or 73 cents per share in the fourth quarter of last fiscal year.

Consolidated net sales tumbled 15% to $7.9 billion. Segment income decreased to $409 million from $605 million in the prior-year quarter.

Segment Results

Sales in Automotive Experience declined 14% to $3.5 billion, due to lower production volumes in North America and Europe. Excluding the impact of foreign currency, the decline was 12%. The segment returned to profitability with an income of $77 million due primarily to the company’s improved cost structure.

Sales in Building Efficiency fell 16% to $3.3 billion due to lower systems and service revenues in all of the company’s global markets, reflecting the overall slowdown in construction spending and the continued deferral of discretionary maintenance and retrofit projects.

In Eastern Europe, the Middle East and Latin America, revenue declines ranged from 15% to 17%, excluding the impact of foreign exchange. The segment reported an income of $138 million, down from $316 million in 2008 quarter. This was attributed to residential HVAC warranty charge, amounting to $105 million.

Sales in Power Solutions sales shrank 17% to $1.1 billion. Excluding the impact of lower lead prices and currency translation, sales were comparable to last year, as were unit shipments. Segment income was up 37% to $194 million from $142 million last year due to operational efficiencies and a favorable product mix.

Full-Year Results

For fiscal 2009, Johnson Controls has revealed a loss of $338 million or 57 cents per share compared to a profit of $979 million or $1.63 per share in the prior fiscal year. The results were disappointing compared to the Zacks Consensus Estimate profit of 46 cents per share. Consolidated net sales declined 25% to $28.5 billion.

Financial Position

Johnson Controls had cash and cash equivalents of $761 million as of Sept. 30, 2009. Long-term debt amounted to $3.2 billion as on that date. The long-term debt-to-capitalization ratio stood at 26%.

In fiscal 2009, Johnson Controls’ net cash flow from operating activities declined to $917 million from $1.9 billion in the previous fiscal. Meanwhile, capital expenditures decreased to $647 million in fiscal 2009 from $807 million in fiscal 2008.

Outlook

Johnson Controls anticipates a sales increase of 9% to $31 billion for the upcoming fiscal year. Earnings are expected to increase to $1.35-$1.45 per share, marginally lower than the Zacks Consensus Estimate of $1.49 per share. Sales, earnings and margin improvements are expected in all three of its businesses in 2010. These appraisals are backed by higher global automotive production forecasts in 2010 compared to 2009 and a resumption of higher growth rates in global emerging markets.

Despite these positive assumptions, we are concerned about weakness in its North American business, high inventory levels at the OEMs, a weakening product mix and raw material/price squeeze. Thus, we recommend the shares of Johnson Controls as Neutral.
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