MILWAUKEE, Wis. — For the third quarter of fiscal 2010, Johnson Controls reported a 22 percent increase in revenues with higher sales in each of its three businesses. Net income and segment margin increased significantly. The company also said earnings for fiscal 2010 are expected to be at the high end of its previously disclosed guidance.
Highlights for the company’s third quarter of 2010 include:
• Net sales of $8.5 billion compared to $7 billion in Q3 2009, up 22 percent
• Income from business segments of $496 million compared with $282 million a year ago, up 76 percent
• Net income of $418 million vs. $163 million in Q3 2009
• Diluted earnings per share of 61 cents compared to 26 cents last year
The 2010 quarter includes a non-cash tax benefit of $51 million, or 7 cents per share. The 2009 quarter included a non-cash tax benefit of $9 million, or 1 cent per share. Excluding these non-recurring items, net income in the current quarter was $367 million or 54 cents per share, while net income in the prior year quarter was $154 million or 25 cents per share. The company said it believes that using the adjusted numbers provide a more meaningful comparison of its underlying operating performance.
The company said that the quarter was negatively impacted by approximately 3 cents per share due to both the weaker Euro and a non-cash impairment charge in its automotive business in Japan.
"We are pleased with our third quarter results. We capitalized on the recovery in several of our markets, leveraging our market leadership and improved cost structure to gain share and improve profitability," said Stephen A. Roell, Johnson Controls chairman and CEO. "Sales in our automotive and power businesses grew at a double-digit pace, and our Building Efficiency business generated top-line growth for the first time in more than a year. In addition, the Building Efficiency order rate increased 9 percent, nearly double the pace of the second quarter, which exceeded our expectations."
Roell said the current market environment has presented opportunities for growth investments.
"To support our growth strategies in Asia, we will purchase the remaining shares of our Korean Power Solutions joint venture," Roell said. "We also made an equity investment in Tachi-S to enable greater collaboration with this important automotive seating and interiors supplier and to ultimately expand our relationships with Asian automakers. Additionally, we continue to accelerate our investments in Power Solutions manufacturing capacity and vertical integration. In Building Efficiency, increased investments are focused on significantly increasing our service sales and delivery capabilities, especially in the areas of clean technologies and energy efficiency."
Automotive Experience sales in the quarter increased 43 percent to $4.2 billion versus $3 billion last year due primarily to higher production volumes and new program launches. North American revenues increased 76 percent to $1.7 billion from $1 billion last year, while European sales were up 19 percent to $2 billion from $1.7 billion in the 2009 quarter. Sales in Asia increased to $440 million from $262 million in 2009. China revenues, which are mostly generated through unconsolidated joint ventures, rose 40 percent to $774 million compared with $553 million a year ago. Johnson Controls has a 45 percent share of the Chinese automotive seating market and is launching multiple new interiors programs over the next three years.
Automotive Experience reported segment income of $171 million in the current quarter, compared with a loss of $14 million last year due to higher volumes, operational efficiencies and higher profitability of its automotive joint ventures. The North America segment margin of 5.6 percent reflects the increased production volumes and benefits of cost reduction initiatives. Asia segment margin, including the non-consolidated joint ventures in China, was 5.7 percent. Europe segment margin was 2.4 percent, lower than other geographic regions due to the magnitude of new program launches. The company said it expected launch costs in Europe to continue at a heightened level through 2011.
Johnson Controls increased its forecast for North American auto production in its 2010 fiscal year to 11.4 million units (vs. previous estimate of 10.9 million units). The company’s production assumption for Europe is unchanged at 16.7 million units.
Power Solutions sales in the third quarter of 2010 increased 30 percent to $1.1 billion from $0.9 billion last year reflecting higher aftermarket and original equipment unit shipments as well as the impact of higher lead prices. Excluding the lead impact, sales increased 16 percent. Aftermarket unit shipments increased 9 percent, including the initial incremental volume associated with the award of all of Walmart’s automotive battery business, which began shipping in June. Higher global automotive production resulted in a 36 percent increase in original equipment battery shipments.
Power Solutions segment income was up 27 percent to $135 million versus $106 million in the third quarter of 2009. The higher income is primarily the result of the higher volumes and non-recurring charges incurred in the prior year.
Johnson Controls has accelerated investments to expand lead acid battery production capacity in China where it expects to add a new manufacturing plant annually for the next few years. In addition, the construction of a new lead recycling facility in Mexico is nearing completion. Initial production is expected to launch in the fiscal 2011 first quarter, ramping to full production over the course of the year. The company said its plans to build a recycling facility in the United States are progressing as expected, with an expected launch of production in mid-2012. Upon completion of these facilities, Johnson Controls expects to be able to internally recycle more than 50 percent of its lead requirements versus 15 percent today.
The company said that in conjunction with Volkswagen, it introduced a new technology innovation for absorbent glass mat (AGM) lead-acid batteries that improves performance and life in high heat environments. The AGM batteries are designed specifically for Start-Stop vehicles. Industry forecasts predict that more than 60 percent of vehicles made in Europe by mid-decade will feature Start-Stop technology. Due to the increasing consumer demand, Johnson Controls is expanding its AGM manufacturing capacity in Europe by nearly 70 percent. Johnson Controls currently supplies approximately 70 percent of the AGM original equipment batteries in Europe and supplies replacement batteries to the aftermarket under the VARTA Start-Stop brand.
Building Efficiency sales in the 2010 third quarter were $3.2 billion, up 2 percent compared with last year. Higher Global Workplace Solutions, Rest of World and residential HVAC sales more than offset declines in Europe and North America. Johnson Controls reported that its third quarter orders increased by 9 percent globally. Sequentially, the order rate was significantly higher than the 5 percent order increase reported for second quarter of 2010. The backlog of uncompleted contracts in the 2010 third quarter was up 1 percent to $4.4 billion. This represents the third sequential quarterly improvement in the backlog and the first positive year-over-year backlog number since March 2009.
Building Efficiency reported segment income of $190 million, level with the 2009 quarter. Strong double-digit income improvements in North America Systems, Rest of World, Global Workplace Solutions and residential HVAC segments were offset by lower results in Europe and North America Service. North America Service income declined 66 percent, due to the continued revenue softness in discretionary project work and the final costs associated with its NexGen service technology deployment.
