Fusion Corporate Partners

For the first quarter of fiscal 2012, Johnson Controls reported record revenues and earnings. Highlights of the company’s first quarter of 2012 include:

“Our first quarter results were in line with the expectations we announced at the beginning of the year. The automotive and buildings markets were stable in the quarter and we benefitted from our record backlogs in both businesses,” said Stephen A. Roell, Johnson Controls Chairman and Chief Executive Officer. “Automotive Experience revenues grew at a double-digit pace across all geographic regions and Building Efficiency commercial revenues and backlog were higher in a challenged global market. Power Solutions improved sales and income despite the soft demand for aftermarket batteries resulting from unseasonably warm winter temperatures globally.”

Business results

Automotive Experience sales in the 2012 quarter increased 15% to $5.3 billion versus $4.6 billion last year due primarily to the incremental revenues associated with the 2011 acquisitions as well as launches of new automotive seating and interior programs. Revenues increased 15% in each geographic market. Automotive industry production in the quarter increased 16% in North America, declined 4% in Europe and was level with the 2011 period in Asia. Revenues in China, which are mostly generated through non-consolidated joint ventures, increased 10% to $1.1 billion. Johnson Controls has 28 joint ventures in China operating 47 manufacturing plants. It holds a 45% share of the Chinese auto seating market.

Automotive Experience reported segment income of $194 million in the current quarter, up 10% due to significant increases in Europe and Asia. European segment income benefitted from the positive impact of the 2011 acquisitions, improving to $21 million versus break-even performance last year. In Asia, the higher profitability of the company’s joint ventures resulted in a segment income increase of 69%, to $103 million, compared to $61 million last year.

North America first quarter earnings were negatively impacted by costs associated with a new metals plant as well as higher engineering and launch costs associated with new business wins.

The company has increased resources dedicated to improving its launch efficiencies and quality, including adding management capacity in its automotive metals business and the hiring of more than 300 Six Sigma Blackbelts and quality experts. Johnson Controls said it believes these actions will make an increasingly positive impact on earnings starting in the second half of fiscal 2012.

Building Efficiency sales in the 2012 first quarter were $3.5 billion, up 4% compared with last year, led by a 13% revenue increase in Asia and 10% increase in Global Workplace Solutions. Sales in Europe and residential HVAC declined in the quarter. First quarter backlog increased 8% to a record $5.3 billion versus $4.9 billion in the year-ago quarter, with gains in all geographic regions. Orders in the quarter were slightly up compared with last year.

Segment income of $133 million was down 4% compared with last year, consistent with the company’s expectations. Higher income in North America Systems was offset by lower results in North America Service, Asia and Global Workplace Solutions. The company said the return on sales in the current quarter was depressed by unusually high profitability in Asia last year as well as increased investments in growth initiatives.

Johnson Controls said it has launched its new Panoptix offering. The Panoptix solution is an industry-first technology combining software, services and expertise to help customers optimize building performance.

Power Solutions sales in the first quarter of 2012 increased 4% to $1.6 billion due to a favorable product mix. Unit shipments were lower than expected. The company attributed the soft demand to unseasonably warm winter temperatures which negatively impacted shipments starting in December and are expected to further impact Q2 results.

Power Solutions segment income was $271 million, up 25% versus $217 million in the first quarter of 2011 as a result of a favorable product mix, the benefits of increased vertical integration and a non-recurring equity income benefit. The increases were partially offset by costs associated with the shutdown of the company’s Shanghai battery plant and the incremental costs associated with the consolidation of its hybrid battery joint venture.

Johnson Controls said that the construction of its recycling facility in South Carolina and of its third Chinese battery plant are proceeding on schedule. Demand continues to grow as expected for the company’s higher-margin AGM lead-acid batteries and plans to increase capacity are is progressing as expected.

Revised sales, earnings guidance for 2012

Johnson Controls also announced it was lowering its earnings expectations for fiscal 2012 to due to several factors:

• Euro assumption lowered to $1.30 from original forecast of $1.35
• Lower automotive production in Europe (now 19.6 million units, down 3.5% versus original assumption of 20.1 million, up 1.5%)
• Weather-related softness in Q2 aftermarket battery demand
• Assumes indefinite shut-down of Shanghai, China battery plant (discussions with the Chinese government are continuing)
• Automotive North America metals start-up costs impact extending into Q2
• Lower residential HVAC demand

As a result of these changes, the company said it believes its second quarter 2012 earnings will be approximately $0.52 – $0.54. For the full year, the earnings expectation is revised to a range of $2.70 – $2.85 (up 13% – 19%) versus earlier guidance of $2.85 – $3.00.

Johnson Controls said it was confident in its second half of 2012 outlook, noting that the 2011 second half earnings were significantly impacted by the Japan tsunami-related automotive disruption. In addition, the company’s second half 2012 earnings will benefit from the full-year impact of the automotive acquisitions, cost reduction initiatives and investments in Power Solutions .

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