Johnson Controls Q3 2011 Revenues Increase 21% to Record $10.4 Billion With Higher Segment Income

MILWAUKEE, July 20, 2011 /PRNewswire-FirstCall/ -- For the third quarter of fiscal 2011, Johnson Controls reported a 21% increase in revenues with double-digit sales increases in each of its three businesses. Income from business segments was $512 million while net income was $357 million. Diluted earnings per share were $0.52.

The 2011 quarter includes non-recurring pre-tax charges of $29 million, or $0.04 per share, associated with recent acquisitions and related costs. The 2010 quarter included a non-cash tax benefit of $51 million, or $0.07 per share.

Excluding non-recurring items, highlights for the company's third quarter of 2011 include:

• Record net sales of $10.4 billion vs. $8.5 billion in Q3 2010, up 21%
• Income from business segments of $541 million compared with $496 million a year ago, up 9%
• Net income of $383 million vs. $367 million in Q3 2010, up 4%
• Diluted earnings per share of $0.56 vs. $0.54 last year    

Johnson Controls said it believes that using the adjusted numbers provide a more meaningful comparison of its underlying operating performance.

The company said sales in the 2011 quarter were negatively impacted by approximately $400 million due to disruptions in automotive production resulting from the March 2011 earthquake in Japan.

"These record revenues mark our seventh consecutive quarter of double-digit growth. All of our businesses are continuing to grow faster than their underlying industries as a result of share gains and our strong position in the emerging markets," said Stephen A. Roell, Johnson Controls Chairman and Chief Executive Officer. "Automotive Experience in particular exceeded the expectations set as we entered the third quarter due to faster-than-expected market recovery following the Japan earthquake and higher production levels in some markets."  

Mr. Roell continued, "We continue to benefit from our investments in growth. Backlog in our Building Efficiency business increased at a double-digit pace as we continue to gain share, especially across our HVAC equipment offerings. We have completed the acquisitions of Keiper/Recaro in our automotive business and EnergyConnect in Building Efficiency. We are confident that the expanded capabilities from these acquisitions will drive accelerated growth and profitability in the coming years."

Business Segments

Automotive Experience sales in the quarter increased 21% to $5.1 billion versus $4.2 billion last year due primarily to higher production volumes, new program launches and incremental sales from recent acquisitions. The higher global volumes were partially offset by lower production by Japanese automakers due to disruptions from the March 2011 earthquake.

North American revenues increased to $1.8 billion from $1.7 billion last year as the significant reduction in domestic vehicle production by its Japanese customers offset higher sales to other automakers. European sales were up 38% to $2.8 billion from $2.0 billion in the 2010 quarter due to higher production levels, the launch of new seating and interiors programs and the incremental sales from recent acquisitions. Excluding the impact of foreign exchange, revenues increased 24%. Sales in Asia increased 24% to $546 million from $440 million in 2010. China revenues, which are mostly generated through unconsolidated joint ventures, rose 20% to $936 million compared with $780 million a year ago. Johnson Controls has a 45% share of the Chinese automotive seating market and is launching multiple new interiors programs over the next three years.

The company noted that it completed its acquisition of seating metals and mechanism component maker Keiper / Recaro on June 20, 2011. Johnson Controls expects this acquisition will drive accelerated growth and profitability in the Automotive Experience segment.

Excluding non-recurring items, Automotive Experience reported segment income of $171 million in the current quarter. This was comparable with the prior year quarter as North American and Asia profitability in the 2011 quarter was negatively impacted by Japanese OE production disruptions. Asia segment income doubled versus last year to $51 million, as growth in China and Korea more than offset the production disruptions. Europe segment income increased 8% to $53 million, compared with $49 million last year, as the company continued efforts to improve operational efficiencies related to certain recent program launches.

Power Solutions sales in the third quarter of 2011 increased 22% to $1.4 billion from $1.1 billion last year reflecting higher volumes in Asia, the incremental volume associated with the consolidation of its Korean joint venture at the end of last year and higher lead prices. Aftermarket unit shipments increased 10%. Higher global automotive production and market share gains resulted in an 8% increase in original equipment battery shipments.

Power Solutions segment income was up 21% to $163 million versus $135 million in the third quarter of 2010. The higher income is primarily the result of the higher volumes. Excluding the impact of lead, segment income margin in the current quarter increased 60 basis points versus the third quarter of 2010.

In June, Johnson Controls announced plans to invest $138.5 million to convert its battery plant near Toledo, Ohio into an Absorbent Glass Mat (AGM) battery facility for Start-Stop and other high efficiency vehicles. The facility will be the company's first dedicated AGM plant in the United States and will add 6 million units in AGM battery capacity by 2013. Johnson Controls has previously announced that it was expanding AGM manufacturing capacity in Europe to 11.2 million units by 2015. Start-Stop vehicle technology is emerging globally as one of the most affordable options for consumers who want to buy a more sustainable and fuel-efficient car for a small cost premium. Johnson Controls believes the market for AGM batteries will grow to 35 million batteries globally by 2015.

Building Efficiency sales in the 2011 third quarter were $3.9 billion, up 21% compared with $3.2 billion last year. All five segments of Building Efficiency increased revenues at a double-digit rate led by Asia, which increased 43% and Global Workplace Solutions, which increased 33%. Building Efficiency third quarter orders increased by 12% globally, with the largest growth in Asia and Europe. The backlog of uncompleted contracts in the 2011 third quarter was up 16% to $5.1 billion led by strong demand in the Middle East and Asia. Market share gains led to a 33% increase in shipments of small and large tonnage chillers globally, reflecting double-digit increases in all regions of the world.

Building Efficiency segment income was $207 million, up 9% from the 2010 quarter, with increases in North America systems and services, Global Workplace Solutions and Asia, where segment income margins improved by 40 basis points over the prior year quarter. The company recorded a net $20 million charge in Q3 2011 related to South American indirect taxes, commercial settlements and the release of a warranty reserve.

Johnson Controls said that while its North America service business grew in the current quarter, its results were lower than anticipated due to a late start of the summer cooling season.

Q4 Guidance update

Johnson Controls said it expects to earn $0.75 per diluted share (GAAP) in its fourth fiscal quarter. The Q4 estimate includes charges of up to $0.03/share for acquisition and related costs and up to $0.02/share related to Japanese automotive OE production disruptions.

The company will provide a detailed review of its fiscal year 2012 market expectations and growth strategies at its annual analyst day in New York on October 12, 2011.

"As we enter the final quarter of our fiscal year, we remain on track to generate record sales and earnings in 2011. We expect to see higher European automotive margins in our fourth quarter as the recent acquisitions become more accretive and as operational efficiencies improve," said Mr. Roell. "We will continue to make strategic investments that will help us create new competitive advantages and further outpace the growth rates of our markets. Our strong backlogs and continued market share gains should provide good momentum as we enter 2012. We believe we are positioned to deliver sustainable, profitable growth."  

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.

Johnson Controls

Johnson Controls is a global diversified technology and industrial leader serving customers in more than 150 countries. The company's 142,000 employees create quality products, services and solutions to optimize energy and operational efficiencies of buildings; lead-acid automotive batteries and advanced batteries for hybrid and electric vehicles; and interior systems for automobiles. Johnson Controls' commitment to sustainability dates back to its roots in 1885, with the invention of the first electric room thermostat. Through its growth strategies and by increasing market share, Johnson Controls is committed to delivering value to shareholders and making its customers successful. In 2011, Corporate Responsibility Magazine recognized Johnson Controls as the #1 company in its annual "100 Best Corporate Citizens" list. For additional information, please visit http://www.johnsoncontrols.com .

(1) Management evaluates the performance of the segments based primarily on segment income, which represents income from continuing operations before income taxes and noncontrolling interests, excluding net financing charges.

Building efficiency - Provides facility systems and services including comfort, energy and security management for the non-residential buildings market and provides heating, ventilating, and air conditioning products and services for the residential and non-residential building markets.

Automotive experience - Designs and manufactures interior systems and products for passenger cars and light trucks, including vans, pick-up trucks and sport/crossover utility vehicles.

Power solutions -  Services both automotive original equipment manufacturers and the battery aftermarket by providing advanced battery technology, coupled with systems engineering, marketing and service expertise.

2. Acquisitions

In the third quarter of fiscal 2011, the Company completed its acquisition of Keiper and Recaro Automotive, a leader in recliner system technology with engineering and manufacturing expertise in metals and mechanisms for automobile seats, based in Kaiserslautern, Germany. The Company paid approximately $496 million (excluding cash acquired of $46 million).

In the second quarter of fiscal 2011, the Company acquired the C. Rob. Hammerstein Group, a leading global supplier of high-quality metal seat structures, components and mechanisms based in Solingen, Germany. The Company paid approximately $581 million (excluding cash acquired of $52 million). 

As a result of acquisitions, in the second and third quarter of fiscal 2011 the Company recorded non-recurring acquisition and related costs of $36 million and $29 million, respectively.

3. Debt and Financing Arrangements

In the second quarter of fiscal 2011, the Company replaced its $2.05 billion committed five-year credit facility, scheduled to mature in December 2011, with a $2.50 billion committed four-year credit facility scheduled to mature in February 2015. The facility is used to support the Company's outstanding commercial paper.

Also in the second quarter of fiscal 2011, the Company issued $350 million aggregate principal amount of floating rate senior unsecured notes due in fiscal 2014, $450 million aggregate principal amount of 1.75% senior unsecured fixed rate notes due in fiscal 2014, $500 million aggregate principal amount of 4.25% senior unsecured fixed rate notes due in fiscal 2021 and $300 million aggregate principal amount of 5.70% senior unsecured fixed rate notes due in fiscal 2041. Net proceeds of $1.6 billion from the issue were used for general corporate purposes including the retirement of short-term debt.

4. Income Taxes

The Company's annual estimated effective tax rate for the year ending September 30, 2011 is 19.0 percent. There have been no discrete tax items recorded during fiscal 2011. The Company's effective tax rate before consideration of discrete tax items for the third quarter ending June 30, 2010  was 18.0 percent. The effective tax rate inclusive of discrete tax items for the third quarter ending June 30, 2010 was 6.8 percent. The third quarter of fiscal 2010 reflects a $51 million tax benefit related to the resolution of tax audits and a valuation allowance release.

5. Earnings per Share

The following table reconciles the numerators and denominators used to calculate basic and diluted earning per share (in millions):

SOURCE Johnson Controls