MILWAUKEE — Johnson Controls reported a profit of 26 cents per diluted share for the third quarter of 2009. Net sales in the quarter were $7 billion, with segment income of $282 million and net income of $163 million. These results compare with net sales of $9.9 billion, segment income of $645 million and net income of $439 million, or 73 cents per diluted share for the third quarter of 2008.
"In most of our global markets this quarter, economic conditions remain very challenging. I am pleased to report that despite this environment, we returned to solid profitability. The cost improvement initiatives we undertook earlier this year are providing the expected benefits. We believe the company is well positioned to further increase our profitability in our fourth quarter and into 2010. I want to thank our employees and management for their dedication, which enabled us to achieve such a significant improvement in earnings performance," said Johnson Controls Chairman and Chief Executive Officer Steve Roell.
Among Johnson Controls’ various business segments, Automotive Experience sales in the quarter declined 38 percent to $3 billion versus $4.8 billion last year due to significantly lower production volumes globally.
Automotive industry production in North America was down 48 percent versus a year ago as a result of prolonged production shutdowns in the quarter as well as overall lower consumer demand. European production declined 27 percent. There were some positive volume comparisons in certain European countries where governments are providing incentives to consumers who scrap old cars and purchase new vehicles. The company said that most of these new vehicle sales were in the "A" and "B" (lower cost) segments.
Automotive Experience reported a loss of $14 million in the quarter versus a profit of $199 million in the 2008 period, due to the lower global volumes. This represents a significant sequential improvement over the second quarter of 2009 when the business reported a $275 million loss on revenues of $2.4 billion. The company’s Asian operations increased segment income by 31 percent to $17 million versus 2008. The European segment posted a small profit in the 2009 quarter. The North American segment reported a loss of $34 million reflecting the impact of extended production shutdowns by several of its key customers. The improvements in segment income were primarily the result of cost reduction initiatives which will enable the Automotive Experience business to be profitable in its fourth quarter.
The company said that during the automakers’ scheduled summer shutdowns, it would take over two seating and interiors programs currently supplied by Johnson Controls competitors. Johnson Controls said it expects automakers to continue to look for ways to assure continuity of supply and it is well positioned to gain market share from financially distressed competitors.
Power Solutions sales in the third quarter were $856 million, down 39 percent from $1.4 billion in the year ago period. Lower lead prices and currency translation negatively impacted revenues; overall unit volumes were 12 percent lower. Original equipment automotive battery volume was lower in both North America and Europe due to the decline in auto production levels.
Power Solutions segment income was $106 million in the third quarter, down 27 percent from $145 million last year. The company said the decline was due primarily to the lower unit volume. Income was also negatively impacted in the quarter by a $15 million charge associated with the sale of a former manufacturing facility and other fixed asset write-offs. Due to its cost reduction initiatives, Johnson Controls said it expects Power Solutions fourth quarter income to improve to 2008 levels despite the continued lower expected original equipment volumes.
Johnson Controls said that in the third quarter it started shipping the industry’s first lithium-ion hybrid battery systems, for the Mercedes S-Class, which arrives in showrooms this summer. In May, Johnson Controls applied for U.S. government matching funds to build a lithium-ion battery manufacturing plant in the U.S. The company previously announced it had been awarded $148.5 million in incentives from the State of Michigan.
The company also said it was accelerating its plans to build a new lead smelter in Mexico to process recycled lead. Increasing its in-house smelting capacity is expected to lower production costs and improve segment profitability. The new smelter is expected to be completed in October 2010.
Third quarter details
Earnings in the 2009 third quarter were positively impacted by a net non-recurring tax benefit of $9 million. Excluding these items, the company earned 25 cents per diluted share in third quarter.
Johnson Controls said it generated positive cash flows from operating and investing activities of $343 million in the third quarter and that its net debt to total capitalization improved to 33.8 percent.
"There are still many uncertainties in our industries, but there is better clarity than there was three months ago. Automotive production globally remains at low levels, but appears to be stabilizing. Industry analysts are beginning to see a bottom in the commercial buildings and residential HVAC markets in the next six to nine months. In addition, we expect an increasingly positive impact from the U.S. stimulus program," Roell said. "Due to our improved cost structure, Johnson Controls is well-positioned to benefit significantly as the markets improve."
