Johnson Controls Reports Double-Digit Increase in Q3 2013 Earnings with Significant Improvements in its European Automotive Business


Johnson Controls

Sale of Automotive Electronics' HomeLink Product Line Announced

MILWAUKEE--July 18, 2013: For the third quarter of fiscal 2013, Johnson Controls reported net income of $571 million, up 32 percent over last year. Revenues increased by two percent, to $10.8 billion. Diluted earnings per share were $0.83 compared with $0.63 per share in the third quarter of fiscal 2012.

The 2013 quarter includes non-recurring tax benefits of $140 million which were partially offset by pre-tax restructuring charges of $143 million ($104 million after-tax) related primarily to severance costs and asset impairments, resulting in a net benefit of $0.05 per diluted share. The 2012 third quarter included pre-tax restructuring charges of $52 million, partially offset by non-recurring tax benefits of $22 million, resulting in a net charge of $0.03 per diluted share.

Excluding these non-recurring items, highlights for the company's third quarter of 2013 include:

Income from business segments of $764 million compared with $638 million a year ago, up 20 percent Net income of $535 million vs. $455 million in Q3 2012, up 18 percent Diluted earnings per share of $0.78 vs. $0.66 last year, up 18 percent

Johnson Controls said it believes that using the adjusted numbers provides a more meaningful comparison of its underlying operating performance.

Other highlights include:

Double-digit improvements in segment income in all three businesses Cash provided by operating activities of approximately $1.0 billion; net debt reduction of $556 million European automotive business profitable; continued improvements in automotive Metals performance Building Efficiency third quarter orders up two percent versus the 2012 quarter New Power Solutions business awards in North America

"We are pleased with the significant improvement in profitability of all three businesses in the third quarter. Our initiatives to reduce costs and improve operational efficiencies continue to gather momentum and deliver margin expansion," said Stephen A. Roell, Johnson Controls chairman and chief executive officer. "Despite a challenging production environment, our European automotive business generated a profit in the quarter and profitability improved in our automotive Metals business. Cash flow in the quarter was very strong, enabling us to reduce net debt by more than $550 million. I'd like to recognize the support of our 168,000 employees and thank them for a very good quarter."

Business segments, excluding non-recurring items

Building Efficiency continued to experience soft demand in its North American and European markets, impacting revenues in the third quarter. Sales were $3.7 billion, down two percent versus the third quarter of 2012. Revenues were lower across all Building Efficiency segments except Asia, which was slightly higher.

The company noted that third quarter orders increased two percent with slight improvements in all geographies while its pipeline of bidding activity continued to improve. The quarter-end backlog of unexecuted orders was $5.1 billion, five percent lower than last year.

Johnson Controls said that in the third quarter it was awarded a $70 million building technology contract for the new one-million-square-foot Veteran's Administration Hospital under construction in Denver, Colorado. The contract is in addition to a previous $5 million award to Johnson Controls for York® HVAC equipment and includes a Metasys® control system, fire alarm system, security system, advanced utility metering, nurse call and IT systems. The project is the largest single Systems contract ever won by Johnson Controls.

Despite the slightly lower revenue, Building Efficiency segment income margins were 8.5 percent, a 120 basis point improvement versus last year. Segment income was $314 million, 14% higher than $276 million in the 2012 quarter. The business continued to benefit from strong performance by its Service business, as well as pricing initiatives and cost reduction programs.

Power Solutions revenue rose eight percent, to $1.4 billion, compared to $1.3 billion last year. While the Company's global unit shipments were higher than the last-year period, Johnson Controls said that industry-wide aftermarket battery demand was weaker than expected in both North America and Europe. Power Solutions segment income was $171 million, 12 percent higher than $153 million in the same quarter last year due to the higher volumes, an improved product mix and the incremental contribution from the Company's battery recycling facility in South Carolina.

The Company said that in the third quarter, it was awarded new battery business in North America totaling approximately one million incremental units per year. Additionally, it also announced that on July 1, 2013, it implemented a 3 to 4 percent price increase on aftermarket batteries in North America to offset higher acquisition costs for spent battery cores, which are the key source of lead for recycling within its material supply chain.

Automotive Experience sales in the 2013 third quarter were $5.7 billion, up four percent compared to the 2012 third quarter, as higher auto production in North America and Asia was partially offset by lower volumes in Europe. Automotive industry production in the quarter increased six percent in North America and declined one percent in Europe. Revenues in China, which are primarily related to Seating and generated through non-consolidated joint ventures, increased 23 percent to $1.4 billion.

Automotive Experience segment income was $279 million, 33 percent higher than the same quarter last year with higher profitability in all three automotive segments. The company said third quarter income from its European automotive business was $11 million, a significant sequential quarterly improvement from the loss by the business in the second quarter of the year. The improved performance in Europe was attributable to its Metals operations and the benefit of restructuring actions. The Company noted that its third quarter segment income was positively impacted by a gain on sale of an asset, but that the benefit was substantially offset by other charges.

Johnson Controls said it believes the automotive production environment for the remainder of the year is positive with the Chinese market remaining strong, North American continuing to improve and Europe showing signs of stabilization.

Status of Automotive Electronics divestiture

Today the Company announced that it has signed a definitive agreement to sell its Automotive Electronics' HomeLink product line to Gentex Corporation of Zeeland, MI for approximately $700 million. The transaction is expected to close in late Q4 to early fiscal 2014. Johnson Controls said that the continuing process to sell the remainder of its Electronics business is progressing as planned and that it is targeting an announcement of a definitive agreement on or before its 2013 Q4 earnings release date. The Company said that separating HomeLink from the rest of the Electronics business is expected to maximize value as the individual businesses offer distinct advantages and synergies for different sets of strategic buyers.

Q4 and 2013 update

Johnson Controls said that it expects fiscal fourth quarter 2013 earnings to be $0.93 to $0.95, resulting in full fiscal year earnings of $2.64 to $2.66 per share.

The Company also said it expects strong free cash flow generation from operations to continue and anticipates that its fourth quarter net debt reduction will be approximately $600 to $650 million, excluding divestiture proceeds.

"Earlier this fiscal year, we said that our second half performance would be positively impacted by our restructuring initiatives, sequential improvements in Automotive Experience European and South American businesses, and profitability initiatives in Building Efficiency. We expect the benefits of these actions to deliver further improvements in our fourth fiscal quarter," said Mr. Roell. "We are confident in our ability to increase our earnings, strengthen our balance sheet and deliver shareholder value."

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