July 20, 2009 / 11:28 AM / 10 years ago

UPDATE 4-Johnson Controls earnings fall but beat estimates

* Q3 EPS 26 cents vs 73 cents a year ago

* Q3 ex-items 25 cents vs 19 cents consensus

* Auto production appears to be stabilizing globally

* Commercial, residential building markets may see bottom

* Shares up 5.4 percent (Adds analyst’s remarks)

By David Bailey

DETROIT, July 20 (Reuters) - Johnson Controls Inc (JCI.N) posted a 63 percent plunge in quarterly earnings as the weak economy pressured the diversified manufacturer’s auto parts and building controls businesses, but its shares rose more than 5 percent as the results beat Wall Street forecasts.

The company said economic conditions remained challenging in most of its markets. It benefited from cost cuts made earlier in the fiscal year, and it expects profits to increase in the current fourth quarter and into fiscal 2010.

“There are still many uncertainties in our industries, but there is better clarity than there was three months ago,” Chief Executive Steve Roell said in a statement.

“Automotive production globally remains at low levels, but appears to be stabilizing,” he said. “Analysts are beginning to see a bottom in the commercial buildings and residential ... markets in the next six to nine months.”

Net income fell to $163 million, or 26 cents per share, in the third quarter ended June 30 from $439 million, or 73 cents per share, a year earlier.

Excluding a tax benefit, Johnson Controls posted a profit of 25 cents per share. Analysts on average had expected 19 cents on that basis, according to Reuters Estimates.

Revenue fell to $6.99 billion from $9.87 billion, missing analysts’ estimates of $7.39 billion.

“They had a pretty good quarter considering the economy,” Morningstar analyst David Whiston said. “There are some good things going on there.”

One of the stronger auto parts makers, Johnson Controls said it would take over two seating and interiors programs from competitors in Europe and believes it can gain more market share from distressed companies.

Several large U.S. auto parts makers have fallen into bankruptcy in 2009 with the sector under severe cash constraints from massive production cuts by automakers.

THE DETAILS

Among the largest U.S. auto parts makers, seating and electronics producer Lear Corp LEARQ.PK filed for bankruptcy protection earlier in July, while Visteon Corp VSTN.PK sought Chapter 11 in May. Meanwhile, analysts see severe pressure among smaller parts companies, which are largely private.

“Long term, the bigger firms can just get bigger and possibly take market share,” Whiston said. “Seating is a prime example: Their main competitor is in bankruptcy court; who knows what is going to happen with that.”

U.S. auto sales have plunged below a 10 million unit annualized rate in 2009, the worst results in nearly three decades, and Johnson Controls’ fiscal second quarter also saw both General Motors and Chrysler pass through bankruptcy.

The company’s auto parts business posted a $14 million quarterly loss, compared with a year-earlier profit of $199 million. Sales fell 38 percent to $3 billion due to global auto industry production cuts, including 48 percent in North America and 27 percent in Europe.

Incentives to scrap older cars and buy new vehicles supported industry volume in some European countries, mostly for smaller, lower-cost models, Johnson Controls said.

Building controls’ sales, which include systems and service contracts, fell 14 percent to $3.2 billion. Results in North America and Western Europe suffered because of a slowdown in construction spending, lower equipment sales, and deferral of discretionary maintenance and other projects.

The building business’ order backlog fell 9 percent to $4.4 billion at the end of the quarter. The backlog in North America was comparable with year-earlier levels, while there was a double-digit decline in Europe and the Middle East.

Customers have delayed some projects to see whether funding could come from the U.S. stimulus package, Johnson Controls said, but the program should give a meaningful boost to its financial results in the second half of fiscal 2010.

Battery business income fell 27 percent to $106 million, mainly due to lower demand from automakers in North America and Europe. Johnson Controls expects battery income to improve to 2008 levels in its fiscal fourth quarter due to cost cuts.

Johnson Controls shares were up $1.21 or 5.6 percent at $22.73 near midday on the New York Stock Exchange. (Reporting by David Bailey, editing by Maureen Bavdek, Gerald E. McCormick)

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