Record sales and income in the most recent quarter for Johnson Controls are helping to ease the minds of investors, who, with unprecedently high oil prices in mind, have been wary of putting their money into automotive- and construction-related companies.
On Wednesday, the building and automotive systems maker reported a 27% jump in profit for its second fiscal quarter, which ended March 31. The Milwaukee-based company’s three business segments--building efficiency, automotive interiors and power solutions--all logged sales increases, beating analysts’ expectations.
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“We are executing on our growth strategies and improving our productivity and cost structure,” said Johnson Controls Chairman and Chief Executive
Calyon Securities analyst Mark B. Warnsman had anticipated weakness in automotive production, which makes up 51.6% of Johnson Controls' business, softness in commercial building and increased costs owing to rising commodity prices, particularly of lead, a key ingredient for its battery business. Warnsman conceded that these concerns “proved to be baseless with regards to earnings in the quarter.”
Johnson Controls logged a profit of $289.0 million, or 48 cents per diluted share, on sales of $9.4 billion, up substantially from the year-earlier quarter, when it posted a profit of $228 million, or 38 cents per diluted share, on sales of $8.5 billion.
Profit from its building efficiency unit, which makes HVAC equipment, refrigeration and fire and security systems, increased 29.2% to $177.0 million on higher global volume and improved margins. The general slowdown in overall construction activity, a result of the mortgage meltdown, led to concerns that Johnson Controls’ commercial building business would soften, said Briggs-Ficks Securities analyst John Collopy. But Warnsman explained that just 25% of the company's building controls business is related to new construction. Of that, one-third is overseas, where growth is still strong, and the other two-thirds is related to “institutional type buildings” which, from his experience, will be less affected by macroeconomic conditions.
Automotive profit rose 28.1%, to $155 million, with cost cutting and improved pricing making up for a tepid 2% rise in sales. Sales in this segment were down 7% in North America, the company reported, but rose 9% in Europe and 8% in Asia. "Domestic sales are down but not unexpectedly given the general malaise here," Collopy said. Johnson Controls added that "its backlog of new business continued to increase in the second quarter as it received new interiors orders from Dacia, First Auto Works, Ford, General Motors, Kia, Nissan and Volkswagen."
Power solutions earnings jumped 30.1%, to $121 million, on operational efficiencies and improved performance of joint ventures in Asia. Collopy observed that because of Johnson Controls' pricing profile it can “pass through raw material cost increases.”