Johnson Controls Inc. (JCI) posted a 9% increase in profit of $410 million or 60 cents per share in the first quarter of its fiscal 2012 from $375 million or 55 cents per share in the same quarter of prior fiscal year. However, the profits were lower than the Zacks Consensus Estimate by 2 cents per share.

The higher profits were attributable to higher earnings in the company’s Power Solutions and Automotive Experience segments. Net sales in the quarter rose 9% to $10.4 billion, which is slightly lower than the Zacks Consensus Estimate of $10.5 billion.

Segment Performance

Revenues in the Automotive Experience grew 15% to $5.3 billion driven by incremental revenues associated with the acquisitions made in 2011 and launches of new automotive seating and interior programs. Revenues increased 15% in each of the company’s geographic market. The segment reported a 10% increase in income to $194 million in the quarter from $177 million a year ago due to significant increases in income in Europe and Asia.

Revenues in the Building Efficiency inched up 4% to $3.5 billion driven by a 13% increase in revenues in Asia and 10% increase in Global Workplace Solutions. However, sales in Europe and residential Heating, Ventilation and Air-Conditioning (HVAC) market declined during the quarter.

Segment income dipped 4% to $133 million from $139 million in the comparable quarter of fiscal 2011, as higher income from North America Systems was more than offset by lower income from North America Service, Asia and Global Workplace Solutions.

Revenues in the Power Solutions segment increased 4% to $1.6 billion on the back of a favorable product mix. Segment income surged 25% to $271 from $217 million in the first quarter of fiscal 2011 due to a favorable product mix, benefits of increased vertical integration and a non-recurring equity income benefit.

However, the favorable effects were partially offset by costs associated with the shutdown of the company’s Shanghai battery plant and incremental costs associated with the consolidation of its hybrid battery joint venture.

Financial Position

Johnson Controls had cash and cash equivalents of $241 million as of December 31, 2011 compared with $321 million as of December 31, 2010. Total debt amounted to $6.0 billion as of December 31, 2011 translating into a debt-to-capitalization ratio of 35% compared with $3.5 billion as of December 31, 2011 and a debt-to-capitalization ratio of 25% as of December 31, 2010.

In the quarter, Johnson Controls had a cash outflow of $97 million compared with an inflow of $93 million in the year-ago quarter, due to lower equity in earnings of partially-owned affiliates and decrease in accounts payable. Meanwhile, capital expenditures (net) increased to $535 million from $249 million in the prior-year quarter.

Guidance

Johnson Controls lowered its earnings guidance for the second quarter and the fiscal year 2012 due to decline in automotive production in Europe, weak demand for aftermarket battery due to weather-related factors, indefinite shut down of Shanghai, China battery plant and lower demand for residential HVAC.

The company anticipates earnings in the second quarter to be 52 cents-54 cents. For the full year, the company lowered its earnings guidance to $2.70-$2.85 compared with the earlier guidance of $2.85-$3.00.

Our Take

Johnson Controls is a supplier of automotive interiors, batteries, and other control equipment. Despite an improvement, the company’s profits were lower than expected during the quarter under study. This along with the grim outlook, tough competition and the company’s high exposure to original equipment manufacturers have led its shares to retain a Zacks #4 Rank, which translated to a short-term (1 to 3 months) rating of Sell.

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