Johnson Controls, Inc. (JCI - Analyst Report) reported adjusted earnings of 79 cents per share in first-quarter fiscal 2015 (ended Dec 31, 2014), surpassing the Zacks Consensus Estimate of 77 cents. Earnings also increased 20% year over year due to increased volumes and continued focus on execution improvements. Notably, the financial details of last year have been revised as the company classified its Automotive Electronics business as a discontinued operation.

Johnson Controls Inc. - Earnings Surprise | FindTheBest

Including transaction and integration-related costs, Johnson Controls’ net income in first-quarter fiscal 2015 amounted to $507 million or 76 cents per share, compared with $451 million or 66 cents per share in the year-ago comparable quarter.

Operational Update

Revenues in the reported quarter went up 1% year over year to $10.67 billion, lagging the Zacks Consensus Estimate of $10.79 billion. Excluding the effect of currency translation, sales increased 5%.

Cost of sales decreased year over year to $8.99 billion from $9 billion in the year-ago period. Gross profit increased 6.6% year over year to $1.7 billion.

Selling, general and administrative expenses in the first quarter totaled $1.03 billion, almost in line with the prior-year quarter figure. The company reported business segment income of $768 million, up 18% year over year.

Segment Results

Automotive Experience: Revenues in this segment declined 3% year over year to $5.3 billion on the back of a strengthening U.S. dollar versus the euro. Excluding the impact of foreign exchange, revenues increased 2%. Production in North America improved 5% while it declined 2% in Europe. Revenues from China improved 15% to $2.1 billion, driven by a 6% rise in industry production.

Adjusted segment income surged 26% to $249 million from $197 million in the year-ago period, mainly due to higher profit from both its Seating and Interiors business. The segment results also benefited from higher Chinese joint venture income and higher volumes.

Building Efficiency: In this segment, revenues increased 5% year over year to $3.5 billion due to higher revenues in North America, partially offset by lower revenues in Latin America and in the Global Work Place Solutions business. The quarter-end backlog decreased 4% to $4.6 billion.

Orders were flat year over year. Adjusted segmental income increased 38% in the reported quarter to $201 million from $146 million in the comparable quarter last year, with significant improvements in North America, Europe and Global Workplace Solutions. This was partially offset by slightly lower results in Asia. The segment also benefited from the acquisition of Air Distribution Technologies (“ADT”) in the third quarter of fiscal 2014.

Power Solutions: Revenues in the Power Solutions segment increased 4% to $1.84 billion from $1.77 billion a year ago. Adjusted segment income was $318 million, up 4% from $307 million in the year-ago period.

Financial Position

Johnson Controls had cash and cash equivalents of $168 million as of Dec 31, 2014, indicating a decrease from $245 million as of Dec 31, 2013. Total debt rose to $7.54 billion as of Dec 31, 2014 from $6.67 billion as of Dec 31, 2013. Consequently, the debt-to-capitalization ratio stood at 41% as of Dec 31, 2014 versus 36.6% as of Dec 31, 2013.

In the first quarter of fiscal 2015, Johnson Controls’ operating cash outflow was $142 million as against $281 million in the year-ago period. Meanwhile, capital expenditures decreased to $280 million from $345 million in the prior-year period.

Joint Venture

On Jan 21, 2015, Johnson Controls, Hitachi, Ltd. and Hitachi Appliances, Inc. signed an agreement to form a global joint venture. The joint venture will be producing the variable refrigerant flow (VRF) technology, room air conditioners and absorption chillers to satisfy the rising demand for energy-efficient air conditioners. This joint venture is expected to record sales of $3 billion in 2016.

Johnson Controls will obtain 60% ownership in Hitachi Appliances' global air conditioning business. With this new joint venture, the company expects to have the most solid technology portfolio in the heating, ventilation, air conditioning and refrigeration industry.

Outlook

For fiscal 2015, Johnson Controls expects better results than fiscal 2014 based on higher profitability in all three businesses. The company believes that its strategic and financial plans will lead to better performance and higher operating margins. Johnson Controls expects earnings per share in the second quarter to be in the range of 74–76 cents and in the band of $3.55–$3.70.for fiscal 2015.

Further, Johnson Controls anticipates significant growth opportunities in China, which generated more than $8 billion of annual revenues in fiscal 2014. As a result, the company will be investing in the Chinese market this year. Johnson Controls has also started the construction of a new Asia Pacific headquarters building in Shanghai.  

Johnson Controls is a supplier of automotive interiors, batteries and other control equipment. It currently carries a Zacks Rank #3 (Hold).

Better-ranked auto stocks include Meritor, Inc. (MTOR - Analyst Report), Lear Corp. (LEA - Snapshot Report) and Magna International Inc. (MGA - Analyst Report). All these stocks carry a Zacks Rank #2 (Buy).

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