Johnson Controls Inc. (JCI) reported a 21% increase in profit to $409 million (excluding non-recurring items) in the fourth quarter of its fiscal year from $339 million (excluding non-recurring items) in the same quarter of previous year. On earnings per share, profits improved to 60 cents from 52 cents in the prior year and the Zacks Consensus Estimate of 57 cents.

Net sales in the quarter rose 15% to $9.04 billion, higher than the Zacks Consensus Estimate of $8.72 billion. For the full fiscal year, sales increased 20% to $34.3 billion.

The improvement in sales and earnings during the quarter was attributable to the company’s aggressive expansion in the key geographic markets and an overall recovery in the global automotive markets.

Segment Performance

Revenues in the Automotive Experience segment grew 18% to $4.1 billion, driven by higher production volumes and new program launches. Segment revenues in North America hiked 32% to $1.8 billion, Europe increased 8% to $1.8 billion, and Asia surged 74% to $563 million.

The segment reported an income of $129 million versus $77 million in the previous year driven by higher volumes, operational efficiencies and higher profitability of the company’s joint ventures in China.

The backlog of net new business in the segment soared 60% to $4 billion for 2011–2013, compared with a backlog of $2.5 billion for 2010–2012. The higher backlog reflected market share gains in seating and interior systems, particularly in Europe and China.

Revenues in the Building Efficiency segment escalated 10% to $3.6 billion on the back of higher demand. The backlog rose 10% to $4.7 billion while orders increased by 32% globally, excluding the impact of currency fluctuations. The segment recorded a 13% rise in income to $275 million compared to the year-ago level due the same factors outlined above.

Revenues in the Power Solutions segment appreciated 19% to $1.3 billion due to a rise in aftermarket and original equipment unit shipments as well as an increase in volumes associated with the consolidation of a Korean joint venture. Segment income fell 6% to $182 million from $194 million in the fourth quarter of 2009, as the prior-year quarter was favorably impacted by the magnitude and timing of lead purchases as well as product mix.

Financial Position

Johnson Controls had cash and cash equivalents of $560 million as of September 30, 2010 compared with $761 million in the year-ago period. Total debt amounted to $3.39 billion as of the above date. This translated into a debt-to-capitalization ratio of 25%, an improvement from 30% a year ago.

In fiscal 2010, Johnson Controls’ operating cash flow increased to $1.51 billion from $917 million in the year-ago period, driven by an improvement in income. Meanwhile, capital expenditures increased to $777 million from $647 million in the prior year.

Fiscal 2011 Guidance

Johnson Controls anticipates sales to increase 9% to $37 billion for the full fiscal 2011, driven by a recovery in the Building Efficiency business, higher automotive production and growth in the emerging markets. The company expects to record earnings in the range of $2.30 per share to $2.45 per share for the full fiscal year.

Our Take

We are optimistic about Johnson Controls given its improved results and clear cut guidance. However, tough competition and higher exposure to original equipment manufacturers are expected to hamper its results in the future. As a result, the company has a Zacks #3 Rank, which translates to a short-term rating (1–3 months) of Hold.

 
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