JCI shares fall despite rise in quarterly sales

Thu Jan 23, 2014 1:58pm EST

The logo of the U.S. Johnson Controls company is seen in Nersac, southwestern France, January 31, 2008. REUTERS/Regis Duvignau

The logo of the U.S. Johnson Controls company is seen in Nersac, southwestern France, January 31, 2008.

Credit: Reuters/Regis Duvignau

(Reuters) - Johnson Controls Inc (JCI.N) shares were down 4 percent on Thursday afternoon after two of the company's three main business units failed to meet Wall Street analysts' expectations.

JCI's building efficiency and power solutions units fell short of expectations, while its automotive business surpassed them, lifted by a rise in global auto sales, said Ravi Shanker, an analyst with Morgan Stanley.

The company also provided an outlook for its fiscal second quarter that failed to meet Wall Street's expectations.]

JCI said it expects fiscal second-quarter earnings of 64 to 66 cents per share, while a Thomson Reuters I/B/E/S poll shows analysts' forecast at 67 cents per share.

The Milwaukee-based company's shares fell as much as 6.2 percent in Thursday morning trading on the New York Stock Exchange. JCI shares have not seen such a sharp move downward since an 8 percent drop in July 2012.

In Thursday afternoon trading on the New York Stock Exchange, JCI shares were down 4.1 percent at $49.43, while the benchmark S&P 500 index was down 1.23 percent on the day.

JCI, one of the world's biggest suppliers of auto parts, met Wall Street expectations as it reported a fiscal first-quarter profit of $469 million, or 69 cents per share, up from $359 million, or 52 cents per share, in the same quarter a year ago.

Its revenue rose 5 percent to $10.91 billion, beating expectations of analysts polled by Thomson Reuters I/B/E/S of $10.73 billion.

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

Overall revenue rose, but sales in JCI's building efficiency business fell 4 percent to $3.38 billion, as gains in Asia could not overcome lower demand in Europe, the Middle East and Latin America, the Milwaukee-based company said.

Profit in the building efficiency business of $146 million was down 15 percent from a year ago, and at 4.3 percent, it had weaker profit margins than expected, Shanker noted.

"While building efficiency revenues were lower than last year, there are early indications of improving global commercial buildings markets, which should positively impact the business later in the year," said Alex Molinaroli, the company's chief executive.

A larger part of JCI's revenue came from its automotive segment, where a rise in global auto sales helped boost revenue 10 percent from a year ago to $5.76 billion. Auto industry production in the quarter rose 10 percent in North America, 2 percent in Europe and 14 percent in China, JCI said.

Automotive revenue in China, which is centered on seating and generated through non-consolidated joint ventures, rose 33 percent in the quarter to $1.9 billion. Income from its automotive business rose 130 percent to $232 million, JCI said.

Earlier this month, JCI sold its automotive electronics business to Visteon Corp (VC.N) for $265 million in cash.

JCI's power solutions business sales increased 6 percent to $1.77 billion, and raised income by 12 percent to $308 million.

The company forecast profit between $3.15 and $3.30 per share for 2014 with free cash flow of $1.6 billion. A month ago, the company issued a forecast that disappointed Wall Street, which had expected 2014 earnings of $3.31 per share.

JCI said expects its fiscal second-quarter earnings of 64 to 66 cents per share, while Thomson Reuters I/B/E/S poll of analysts shows expectations of 67 cents per share.

In the fiscal first quarter, JCI increased its quarterly dividend by 16 percent and completed $1.2 billion in share repurchases.

Christian Mayes, an analyst with Edward Jones, said that the company exited the automotive electronics business, which increased sales by 7 percent in the quarter, because it does not want to invest heavily to keep up with new technology in automotive connectivity.

"JCI wants to lower capital spending to enable more share buybacks and higher dividends," said Mayes. "They will pay more dividends and share repurchases in the next three years than they are going to bring in free cash flow. So they don't want to be spending a lot on capital expenditure."

(Reporting by Bernie Woodall in Detroit; editing by G Crosse and Nick Zieminski)

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