UPDATE 2-Johnson Controls profit up, to sell electronics unit

Thu Jul 18, 2013 9:14am EDT

DETROIT, July 18 (Reuters) - Johnson Controls Inc posted a stronger-than-expected quarterly profit on Thursday and said it would sell part of its auto electronics business for about $700 million, sending its shares up 3.1 percent in premarket trading.

The sale of the HomeLink product line to Gentex Corp is expected to close around the end of September. Johnson Controls said it expects to announce the sale of the rest of the electronics business before its next earnings report.

Morgan Stanley analyst Ravi Shanker called the deal "a nice cherry on top of the quarter." Since HomeLink accounts for about half the electronics unit's total sales, the price on the deal is a good sign, given speculation that the entire unit would fetch $1 billion, he said.

Johnson Controls, the largest U.S. auto parts maker, said it separated HomeLink from the rest of the electronics business to get the best possible deal.

HomeLink, a vehicle-based system that allows drivers to remotely activate garage door openers, entry door locks, home lighting, security systems and other products, has been integrated into Gentex products for more than a decade.

Gentex, which makes automatic-dimming rearview mirrors and camera-based lighting and driver-assist systems, said the deal would boost its annual revenue by $125 million to $150 million.

In April, Johnson Controls said the potential sale of its auto electronics business was in the early stages. In March, it hired JPMorgan Chase & Co to run the sale process.

People familiar with the process said last month that Johnson Controls was speaking with private equity firms about the business after interest from rival auto parts suppliers faltered.

Johnson Controls also makes car interiors and batteries, and heating, cooling and ventilation systems for buildings.

The company said net income rose 38 percent to $594 million, or 83 cents a share, in the fiscal third quarter ended June 30, from $431 million, or 63 cents a share, a year earlier.

The company cited double-digit improvement in all its businesses and said its European auto business was profitable after a loss in the previous quarter. Auto sales in Europe have hit 20-year lows, causing many companies in the sector to post losses, close plants and cut jobs.

Excluding one-time gains, Johnson Controls earned 78 cents a share in the latest quarter, 3 cents above the average estimate of analysts polled by Thomson Reuters I/B/E/S.

Revenue rose 2.4 percent to $10.83 billion. Analysts had expected $11 billion.

Sales in the building efficiency business fell 2 percent amid soft demand in North America and Europe, the company said.

The auto unit, Johnson Controls' largest business, had a sales rise of 4 percent thanks to higher vehicle production in North America and Asia, partly offset by lower volumes in Europe. For the rest of the year, the company expects auto production to remain strong in China, improve in North America and show signs of stability in Europe.

Sales in the battery business rose 8 percent, but Johnson Controls said demand in the replacement market was weaker than expected in North America and Europe.

The company narrowed the range of its full-year profit forecast, but the mid-point of the range remained unchanged. It sees earnings of $2.64 to $2.66 a share, compared with a previous forecast of $2.60 to $2.70.

It expects fourth-quarter earnings of 93 to 95 cents a share.

Shanker said the full-year and fourth-quarter outlooks remained above average Wall Street estimates.