Johnson Controls Posts Profit: Supplier Nets $396 Million in Third Quarter

As one of the most diversified and resilient companies in the turbulent auto industry, seat maker Johnson Controls Inc. has managed to keep posting record sales and profits. It did so again on Wednesday, but that wasn't enough to keep the stock from tumbling. Between April and June, Milwaukee, WI-based JCI, which has its automotive headquarters in Plymouth, MI, reported net income of $396 million, or $1.98 per share, on sales of $8.9 billion. Both are record highs for JCI's fiscal third quarter.

From Detroit Free Press

As one of the most diversified and resilient companies in the turbulent auto industry, seat maker Johnson Controls Inc. has managed to keep posting record sales and profits.

It did so again on Wednesday, but that wasn’t enough to keep the stock from tumbling.

Between April and June, Milwaukee, WI-based JCI, which has its automotive headquarters in Plymouth, MI, reported net income of $396 million, or $1.98 per share, on sales of $8.9 billion. Both are record highs for JCI’s fiscal third quarter.

Despite those results, Johnson Controls’ stock dropped $4.61, or 3.7 percent, to $120.50 Wednesday.

From 2000 to 2005 JCI stock moved in lockstep with chief rival Lear Corp. But as the troubles of the nation’s automakers grew worse, JCI’s strategy in and out of the auto industry helped the company nearly double the value of its stock.

At the same time, Lear’s shares lost a third of their value.

Johnson Controls not only makes vehicle seats and car batteries, it’s also a big player in building operations. About a third of JCI’s sales in the quarter came from its work in heating and cooling systems and building management.

The company manages Metro Airport’s McNamara Terminal, including its electrical systems and janitorial services.

"It’s helped them weather the storm and helped to propel their performance," said CSM Worldwide auto analyst Mike Wall.

JCI’s success outside the industry explains why it came out ahead of Southfield-based Lear.

Last year Detroit automakers, while cutting production, accounted for about one-third of JCI’s sales, while GM and Ford alone accounted for almost half of Lear’s sales.

Lear closed 15 plants worldwide, and in the last two years cut more than 23,000 people from its workforce, opting to set up more manufacturing in low-cost countries and fast-growing markets.

The plan has made shareholders optimistic about Lear’s future and on Monday led them to reject a management-supported takeover bid by financier Carl Icahn.

Johnson Controls isn’t immune to the domestic car industry’s woes, either. JCI is closing 15 plants and cutting its workforce by 5,000, mostly from its automotive businesses.

The industry’s risks — such as high material costs — were in play Wednesday.

Executives said the weaker-than-expected cash flow stems from Johnson Controls’ battery business, which supplies automakers and the aftermarket.

The price of lead used in those batteries has nearly doubled since the beginning of the year, from $1,724 per metric ton in early January to $3,223.50 earlier this week, according to the London Metal Exchange.

The company said it has been able to pass that increase along to customers, but it has to pay it up front to make batteries, reducing its cash for now.

"That’s unprecedented and that has created issues for us," Johnson Controls Executive Vice President Steve Roell said in a conference call with analysts Wednesday.