Johnson Controls Earnings Increase 11% on Record Third-Quarter Sales

MILWAUKEE, July 17 -- Johnson Controls, Inc. (JCI) today reported record sales and earnings for the third quarter of fiscal 2008.

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Sales for the quarter ended June 30, 2008 increased to $9.9 billion, up 11% from $8.9 billion for the 2007 third quarter. Segment income was $645 million, a 13% increase over $573 million last year, with all three businesses reporting double-digit improvements. Net income increased 11% to $439 million compared with $396 million last year. Diluted earnings per share totaled $0.73, up 11% from $0.66 last year.

"Johnson Controls achieved record results despite the difficult conditions in the domestic automotive and residential construction markets which affect approximately 20% of our revenues," said Stephen A. Roell, chairman and chief executive officer. "We continue to grow due to our unique ability to help customers improve their competitiveness, especially in the areas of energy efficiency and sustainability. We also continue to benefit from our strong presence in emerging growth markets and our increasing shares in the large markets for buildings and batteries."

Building efficiency sales were $3.7 billion, up 13% compared with 2007 revenues of $3.2 billion. The increase reflects higher sales in all commercial building segments, with double-digit improvements in North America, Europe and Asia. High energy prices are a positive driver for the building efficiency business as customers increasingly turn to Johnson Controls solutions that reduce building operating costs while improving comfort, safety and sustainability. Global workplace solutions sales grew by 19% in the quarter as the result of new contracts and the expansion of existing projects. The company's residential HVAC business reported a 17% decline in sales compared to 2007.

Johnson Controls said that in the third quarter it received an order for 18 water-cooled chillers as part of a district cooling system under construction in the Middle East. The contract is the single largest HVAC equipment order in the company's history and is indicative of the significant growth opportunities in the region, where an estimated $1 trillion of commercial new construction is planned or under construction.

Building efficiency segment income increased 10% to $301 million from $274 million reflecting the higher volume, partially offset by higher commodity costs and a decrease in residential HVAC earnings. Excluding the residential business, segment income rose 21%. Margins on the non-residential systems and services business in the quarter increased 70 basis points, to 10.6%.

The backlog of uncompleted systems and services contracts at June 30, 2008 was $4.8 billion, an increase of 15% over the prior year amount, reflecting strong orders for systems and services in all geographic regions.

Automotive experience sales were $4.8 billion, up 3% from $4.6 billion in 2007. North American sales decreased 15%, in line with industry production. Sales in Europe and Asia increased at a double-digit rate, reflecting higher volume and favorable foreign exchange. Industry production in Europe is estimated to have been 2% lower than in the 2007 quarter. In China, where Johnson Controls has more than a 40% market share for complete seats, automotive production in the quarter increased an estimated 13%.

The company noted that during the 2008 third quarter it won significant new automotive interiors business and market share in Europe and Asia as it continued to offer innovative technologies and superior global capabilities.

Automotive segment income was $199 million, up 11% from $180 million last year. In North America, margins improved, however segment income was down 10% as the benefit of operational improvements was more than offset by the impact of lower production, a prolonged labor strike of a supplier to a North American automotive customer and higher commodity costs. Europe income was level with last year reflecting the cost of downsizing a western European manufacturing facility in the 2008 quarter. The company's earnings in Asia improved significantly as several new joint ventures in China moved from launch phase to full production of interior systems.

Power solutions sales increased 36% to $1.4 billion from $1 billion last year mainly due to higher unit prices resulting from increases in the cost of lead. Unit shipments were up slightly compared with the prior year. Segment income totaled $145 million, up 22% compared with the 2007 third-quarter's $119 million as a result of growth in overseas markets and improved operational efficiencies in all regions of the world, especially in Europe. During the third quarter, the company announced it had secured a contract with Ford Motor Company to supply lithium-ion battery systems for a demonstration fleet of plug-in hybrid vehicles.

2008 Fourth Quarter and Full-Year Outlook

For the fourth quarter of fiscal 2008, the company forecasts diluted earnings per share of $0.72 to $0.74, compared with $0.78 in the 2007 fourth quarter.

For the full year, the company expects earnings of $2.32 to $2.34, an increase of 10-11% over 2007, making 2008 the sixth consecutive year of double-digit earnings improvements.

The company said that its earnings over the next two quarters will be negatively impacted by the acquisition of Plastech Engineered Products on July 1, 2008 and higher commodity costs. In addition, the company is expected to be impacted by lower year-over-year levels of North American automotive production and continued weak residential construction.

Mr. Roell added, "We are investing in growth and executing our key strategies. In addition, we continue to evaluate our cost structure to respond to the changes in our markets and to improve long-term profitability. We recognize that conditions in the North American automotive and residential HVAC industries will remain challenging. We believe, however, that we can leverage our financial strength and global market leadership to take advantage of our multiple growth opportunities and improve returns to our shareholders."

The company said it expects fiscal 2008 will be the company's 62nd consecutive year of sales increases and 18th consecutive year of earnings increases.