December 19, 2012 / 5:41 PM / 5 years ago

Johnson Controls sees cost savings in Europe boosting FY profit

(Reuters) - Johnson Controls Inc (JCI.N), the largest U.S. auto parts supplier, forecast a higher-than-expected profit for the fiscal year ending September 2013, banking on its ongoing restructuring and plans for a steep cut in the supplier base for its car seating business in Europe.

The company will reduce its total metal raw material suppliers for its automotive seating business by about 70 percent in two years, Beda Bolzenius, head of the company’s ‘Automotive Experience’ unit told Reuters.

The auto parts maker is also planning to shift about half of its supply base for metals and other raw materials like foam and small auto parts to Eastern Europe from western Europe by fiscal year 2014.

“Program profitability and plant effectiveness, supply base and overhead structures would drive the restructuring in Europe”, said William Jackson, executive vice president in charge of operations and innovation.

The company, which makes car interiors and batteries, expects to post earnings of between $2.60 and $2.70 per share on consolidated net sales of about $43.5 billion.

Analysts on average were expecting a profit of $2.59 per share on sales of $42.27 billion, according to Thomson Reuters I/B/E/S.

Johnson Controls expects margins in its seating business, its largest, to expand by 30 to 40 basis points during the current fiscal year. It also expects a slight increase in automotive production in North America and China to blunt the impact of lower demand in Europe.

European car production, excluding Russia, is likely to drop by 12 to 13 percent in the first half of the current fiscal, it added.

    The company in October said weaker business in Europe would reduce first half of 2013 fiscal year earnings.

    Johnson Controls expects sales at its power systems business to increase about 10 to 12 percent during the period on strong demand for car batteries across all regions, led by China.

    Growth in its auto parts business will remain under pressure on weaker sales in Europe, though demand in North America and Asia is expected to help grow sales at its auto segments - seating and electronics & interiors - by about 2 percent.

    Jefferies & Co analysts said in a research note on Wednesday that the last few months confirmed an accelerated worsening of the European automotive market.

    Sales in the building efficiency business, which provides heating, air conditioning and safety systems for commercial buildings, are expected to increase 2 to 4 percent due to growth in emerging markets and a moderate recovery in North America.

    Shares of Johnson Controls, which has a market capitalization of about $20 billion, closed at $29.76, up 2 percent, on the New York Stock Exchange on Wednesday.

    Reporting by Ritika Rai in Bangalore; Editing by Sreejiraj Eluvangal

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