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Johnson Controls Reports Record Results for Q2 2011

MILWAUKEE – For the second quarter of fiscal 2011, Johnson Controls reported record sales and earnings with double-digit improvements by all three business segments. The company also increased its estimate for full fiscal year 2011 revenues.

Highlights of the company’s record second quarter include:

  • Net sales of $10.1 billion vs. $8.3 billion in Q2 2010, up 22%.
  • Income from business segments of $521 million. Excluding non-recurring costs associated with Automotive Experience acquisitions, income from business segments was $557 million, up 30% compared with the prior year.
  • Net income was $354 million or $0.51 per diluted share. Net income excluding non-recurring items was $383 million, or $0.56 per diluted share, versus net income of $292 million, or $0.43 per diluted share, in the 2010 second quarter.

“The second quarter results show solid momentum across all three of our businesses, with each achieving significantly higher revenues and profitability,” said Stephen A. Roell, Johnson Controls Chairman and Chief Executive Officer. “The backlog in Building Efficiency grew to record levels as a result of continued market share gains and our strong position in the emerging markets. Power Solutions benefited from aftermarket battery demand that exceeded our expectations and Automotive Experience revenues outpaced industry production with the launch of 18 major new programs.”

Business results

Automotive Experience sales in the quarter increased 25% to $5.2 billion versus $4.2 billion last year due to higher production levels and launches of new automotive seating and interior programs. Revenues increased 22% in North America while European sales were up 26%. Asia sales increased 37%, while revenues in China, which are mostly generated through non-consolidated joint ventures, increased 31% to $979 million. Johnson Controls completed 18 major launches in the quarter for Ford, Kia, VW, Tata, Daimler and Honda. Seven of the launches were new seating programs, seven were interior programs and four were global electronics programs.

Automotive Experience reported segment income of $247 million in the current quarter excluding acquisition-related costs, an increase of 31% compared with $189 million last year. The increase is due to higher volumes and improved operational efficiencies.

Segment income margin in Europe increased to 2.0% from break-even in the first fiscal quarter. European margins have been negatively impacted by containment costs associated with some of its recent new program launches. Margins in the region also reflect engineering costs associated with the multi-billion dollar backlog of new business that will launch in the region over the next three years.

The acquisition of CR Hammerstein closed on February 1, 2011. Non-recurring acquisition and integration costs for acquisitions in the quarter totaled $0.05 per share.

Power Solutions sales in the second quarter of 2011 increased 19% to $1.4 billion from $1.2 billion last year reflecting higher shipments of both aftermarket and original equipment batteries. Aftermarket demand in the Americas was stronger than expected, increasing 17%. Original equipment and aftermarket unit sales in Asia increased 163% reflecting the volume associated with the consolidation of a Korean joint venture, market share gains and incremental production from the company’s second manufacturing plant in China.

Johnson Controls said it expects to expand its battery manufacturing capacity in China from four million units today to 30 million units by 2015. The company commenced construction of its third Chinese plant, in Chongqing, in January 2011.

Power Solutions segment income increased 33% to $178 million versus $134 million last year. The increase is primarily the result of the higher volumes and strong operational performance.

The company’s new lead recycling facility in Mexico also contributed to the segment income growth in the quarter. The company said construction was progressing as expected on its recycling facility in South Carolina, with completion scheduled for mid-2012. Upon the completion of the South Carolina plant, Johnson Controls expects to be able to internally recycle approximately 50% of its North American lead requirements.

The company announced it will be adding capacity to produce 6.8 million AGM lead-acid batteries in the United States by 2013. Johnson Controls said that it had already received multi-year customer commitments for a substantial portion of U.S. AGM capacity. Johnson Controls previously announced investments to significantly expand AGM battery manufacturing capacity in Europe.

Building Efficiency sales in the 2011 second quarter were $3.5 billion, up 18% from $3.0 billion last year. Sales were higher across all segments, led by a 31% increase in Asia and a 27% increase in Global Workplace Solutions.

Johnson Controls reported that its backlog at March 31, 2011 was a record $5.1 billion, an increase of 18% over the prior year. The company noted that the backlog reflected double-digit increases across all regions of the world. Orders received in the current quarter increased 21% versus last year. In North America, there was particularly strong demand in the education, healthcare and local/state government vertical markets.

Building Efficiency segment income was $132 million, up 27% compared to $104 million in 2010 as a result of the higher volumes.

FY2011 guidance update

Johnson Controls updated its assumptions and earnings guidance for 2011:

  • 2011 revenues are now forecast to increase 15% over 2010 to $39.5 billion versus the previous forecast of $38.5 billion. The increased guidance is due to higher growth expectations for Building Efficiency (now forecast to be 15% versus the earlier guidance of 8-10%) and a stronger Euro. Higher Building Efficiency revenues will be partially offset by a negative third quarter impact associated with Japan-related automotive production disruptions.
  • Revenue and earnings are expected to be affected by automotive production disruptions in Japan and at Japanese OE customers in North America and Europe. Based on the latest forecasts from customers, the company anticipates the third quarter fiscal 2011 revenue impact will be approximately $500 million, which will lower earnings per share by approximately $0.16 – $0.18. The company said, including this impact, it expects to earn $0.51 – $0.53 per share in the third fiscal quarter.

The company expects the impact in its fourth fiscal quarter to be neutral and estimates it will recover the third quarter lost revenues and earnings in the first half of fiscal 2012.

“We are on track for a record year for sales and earnings in 2011, outpacing the growth rates of our key markets by gaining share and improving profitability in each of our businesses,” said Mr. Roell. “While there are some uncertainties ahead regarding auto production levels due to disruptions in the automotive supply chain, we expect the impact will be short-lived and recoverable. Looking beyond the current year, we have solid strategies in place to take advantage of the growing market opportunities and to drive higher profitability. We will continue to make significant investments in organic growth and strategic acquisitions to achieve long-term profitable growth for our shareholders.”

FORWARD-LOOKING STATEMENT

Johnson Controls, Inc. has made forward-looking statements in this document pertaining to its financial results for fiscal 2011 and beyond that are based on preliminary data and are subject to risks and uncertainties. All statements, other than statements of historical fact, are statements that are, or could be, deemed “forward-looking” statements and include terms such as “outlook,” “expectations,” “estimates” or “forecasts.” For those statements, the Company cautions that numerous important factors, such as automotive vehicle production levels, mix and schedules, customer or supplier disruptions, energy and commodity prices, the strength of the U.S. or other economies, currency exchange rates, cancellation of or changes to commercial contracts as well as other factors discussed in Item 1A of Part I of the Company’s most recent Form 10-k filing (filed November 23, 2010) could affect the Company’s actual results and could cause its actual consolidated results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company.

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