Johnson Controls Reports First Quarter Earnings of $.87; Full-Year Outlook Confirmed
MILWAUKEE, Jan. 18, 2005 -- Johnson Controls, Inc. (JCI) today reported that net income rose 2% on a sales rise of 11% for the first quarter of fiscal 2005. The company also confirmed its previous outlook for the full year.
Chairman and Chief Executive Officer John M. Barth said, "We are pleased that our first quarter results were in line with our forecast for sales growth and solid operating results despite difficult market conditions. We believe that as the year progresses, our quality and cost improvement initiatives will enable us to achieve another year of record results."
First-Quarter Results
For the three months ended December 31, 2004, sales increased 11% to $7.0 billion from $6.3 billion last year, reflecting growth by both the automotive and controls businesses. The effect of foreign currency translation added approximately $240 million to sales in the current quarter.
As projected by the company in October 2004, operating income declined from the record level a year ago. Operating income was $245.4 million, 3% below the prior year's $253.8 million.
Miscellaneous-net expense declined nearly $20 million over the prior year primarily due to lower foreign currency losses. The base effective tax rate declined to 26.5% (including continuing and discontinued operations) from 29%. Additional one-time tax benefits were $11.5 million in the current quarter, down from $17.0 million a year ago.
Income from continuing operations increased to $160.5 million ($.83 per diluted share) compared with $159.2 million ($.83 per diluted share) for the prior year. Net income increased 2% to $168.4 million ($.87 per share) from $164.5 million ($.86 per share) reported for the first quarter of 2004.
On January 10, the company announced an agreement to sell its engine electronics business for approximately 330 million euro. The first-quarter earnings for this business have been reported separately as discontinued operations in the Consolidated Statement of Income.
Automotive Group sales for the first quarter of fiscal 2005 increased 11% over the prior year primarily due to new interior systems business, the benefit of foreign currency translation, and higher battery sales. Industry vehicle production was down 2.4% in North America and is estimated to be down 2% from the prior year in Europe. While operating income increased 2% from the prior year, operating margin declined as price reductions and higher raw material costs outweighed the benefits of the higher volume and operational improvements.
Controls Group sales to the nonresidential buildings market increased 9% over the prior year due to higher revenues associated with facility management contracts, the benefit of foreign currency translation, and stronger system installation and services sales. Operating income was $11.8 million below the prior year amount due to expenses associated with cost reduction and growth initiatives.
The backlog of uncompleted control system installation contracts at the end of the quarter was 10% higher than one year ago. The company achieved double-digit growth in orders in both North America and Europe reflecting an acceleration in demand in the domestic new construction market as well as success in penetrating the systems and technical services markets.
Capital expenditures in the current quarter of $144 million were down from $199 million last year. Total debt to total capitalization decreased to 33.3% from 33.9% at September 30, 2004.
Outlook
Johnson Controls confirmed its outlook for the full year of 2005, including sales growth of 8-10% and double-digit increases in operating and net income.
"As we indicated three months ago," Mr. Barth said, "our full-year outlook assumes that Johnson Controls will again outperform in its markets despite challenging conditions. Uncertainties continue in the automotive industry both with respect to vehicle sales and production schedules, as well as with markedly higher raw material costs. These issues remain as risks to our Automotive Group forecast for 8-10% sales growth and a slight improvement in operating margin. While some negative pressure on our second-quarter Automotive Group performance is likely, we believe that our focus on operational improvements and exceeding our customers' expectations will enable us to complete the year in line with our plans."
Mr. Barth added that "We are also maintaining our guidance for our Controls Group, with sales growth of 8-10% and a moderate decline in operating margin. We are encouraged by the growth in first-quarter orders, and we are confident that our strategies to improve our operational performance will produce significant increases in controls sales and operating income in the second half of this year."
Mr. Barth concluded, "We appreciate the support of our customers, employees, and suppliers as we work to become even stronger partners with each of them. Our commitment to their success should enable us to sustain our track record for achieving superior shareholder returns."
Fiscal 2005 Full-Year Financial Estimates (1)
(dollars in millions)
Forecasts for fiscal 2005 are unchanged from guidance issued October 8,
2004 except where noted.
Consolidated sales growth 8-10%
Consolidated operating income growth 10-12%
Interest expense,
net of interest income $115-120(2)
Base effective income tax rate 26.5%(3)
Minority interests in net earnings
of subsidiaries $80-90
Net income growth In excess of operating income
growth
Capital expenditures $725-775
Depreciation $650-665(4)
Total debt to total capitalization Below 30%
(1) Assumption for the relationship between the Euro and the U.S. Dollar
changed from $1.20 to $1.30.
(2) Decreased from $125-130 million.
(3) Base rate includes continuing and discontinued operations.
Incremental one-time benefits in near-term periods are possible due
to adjustments related to valuation reserves and audit settlements.
(4) Decreased from $685-705 million.
Johnson Controls is a global market leader in automotive systems and facility management and control. In the automotive market, it is a major supplier of integrated seating and interior systems, and batteries. For nonresidential facilities, Johnson Controls provides control systems and services including comfort, energy and security management. Johnson Controls , founded in 1885, has headquarters in Milwaukee, Wisconsin.
JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share data; unaudited)
Three Months
Ended December 31,
2004 2003
Net sales
Products and systems* $6,016.4 $5,428.8
Services* 959.1 864.1
6,975.5 6,292.9
Cost of sales
Products and systems 5,327.6 4,728.1
Services 805.1 720.7
6,132.7 5,448.8
Gross profit 842.8 844.1
Selling, general and administrative
expenses 597.4 590.3
Operating income 245.4 253.8
Interest income 4.4 1.9
Interest expense (30.9) (27.2)
Equity income 15.8 17.8
Miscellaneous - net (4.6) (24.6)
Other income (expense) (15.3) (32.1)
Income from continuing operations
before income taxes and minority
interests 230.1 221.7
Provision for income taxes 48.6 47.0
Minority interests in net earnings of
subsidiaries 21.0 15.5
Income from continuing operations 160.5 159.2
Income from discontinued operations,
net of income taxes 7.9 5.3
Net income $168.4 $164.5
Earnings available for common
shareholders $168.4 $162.7
Earnings per share from continuing
operations
Basic $0.84 $0.87
Diluted $0.83 $0.83
Earnings per share
Basic $0.88 $0.90
Diluted $0.87 $0.86
*Products and systems consist of Automotive Group products and systems
and Controls Group installed systems.
Services are Controls Group technical and facility management services.
JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in millions; unaudited)
December September December
31, 30, 31,
2004 2004 2003
ASSETS
Cash and cash equivalents $240.7 $169.5 $302.6
Accounts receivable - net 3,994.7 4,073.6 3,410.7
Costs and earnings in excess of
billings on uncompleted contracts 362.0 328.6 318.7
Inventories 949.8 887.2 810.7
Assets of discontinued operations 427.3 395.1 367.7
Other current assets 882.4 780.0 790.5
Current assets 6,856.9 6,634.0 6,000.9
Property, plant and equipment - net 3,614.1 3,473.3 3,079.5
Goodwill - net 3,756.3 3,609.1 3,143.7
Other intangible assets - net 298.2 290.3 267.1
Investments in partially-owned
affiliates 325.3 314.9 425.9
Other noncurrent assets 825.8 769.2 753.8
Total assets $15,676.6 $15,090.8 $13,670.9
LIABILITIES AND EQUITY
Short-term debt $901.9 $813.3 $717.6
Current portion of long-term debt 217.5 226.8 130.9
Accounts payable 3,528.6 3,670.6 3,177.6
Accrued compensation and benefits 603.5 639.2 472.4
Accrued income taxes 20.4 47.4 100.2
Billings in excess of costs and
earnings on uncompleted contracts 218.8 197.2 204.4
Liabilities of discontinued
operations 119.8 121.9 100.5
Other current liabilities 1,012.9 885.2 827.9
Current liabilities 6,623.4 6,601.6 5,731.5
Long-term debt 1,668.5 1,630.6 1,830.6
Postretirement health and other
benefits 163.6 164.1 167.1
Minority interests in equity of
subsidiaries 294.8 268.7 229.5
Other noncurrent liabilities 1,344.7 1,219.5 1,130.6
Shareholders' equity 5,581.6 5,206.3 4,581.6
Total liabilities and equity $15,676.6 $15,090.8 $13,670.9
JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions; unaudited)
Three Months
Ended December 31,
2004 2003
Operating Activities
Income from continuing operations $160.5 $159.2
Adjustments to reconcile income from
continuing operations to cash
provided by operating activities
Depreciation 158.7 140.1
Amortization of intangibles 6.8 5.7
Equity in earnings of partially-
owned affiliates, net of
dividends received (15.3) (4.4)
Minority interests in net
earnings of subsidiaries 21.0 15.5
Deferred income taxes (0.4) 7.2
Other (1.3) 2.7
Changes in working capital,
excluding acquisition of businesses
Receivables 263.0 176.7
Inventories (14.3) 10.7
Other current assets (41.4) 30.3
Accounts payable and accrued
liabilities (334.7) (375.5)
Accrued income taxes 16.8 43.8
Billings in excess of costs and
earnings on uncompleted contracts 15.1 13.6
Cash provided by operating
activities of continuing
operations 234.5 225.6
Cash provided by operating
activities of discontinued
operations 0.1 21.4
Cash provided by operating
activities 234.6 247.0
Investing Activities
Capital expenditures (143.6) (199.0)
Sale of property, plant and
equipment 4.2 8.9
Acquisition of businesses, net of
cash acquired (33.1) (36.6)
Recoverable customer engineering
expenditures (8.6) (49.1)
Changes in long-term investments (3.1) 4.6
Investing activities of discontinued
operations (2.0) (4.0)
Cash used by investing
activities (186.2) (275.2)
Financing Activities
Increase in short-term debt - net 86.6 584.7
Increase in long-term debt 3.4 49.9
Repayment of long-term obligations (76.7) (423.9)
Payment of cash dividends (3.6) (5.4)
Other 11.2 6.8
Financing activities of discontinued
operations 1.9 (17.4)
Cash provided by financing
activities 22.8 194.7
Increase in cash and cash
equivalents $71.2 $166.5
FOOTNOTES
1. Earnings Per Share
Basic earnings per share (EPS) are computed by dividing net income, after
deducting dividend requirements on the Series D Convertible Preferred
Stock, by the weighted average number of common shares outstanding.
Diluted earnings are computed by deducting from net income the after-tax
compensation expense which would arise from the assumed conversion of the
Series D Convertible Preferred Stock, which was $0 and $0.1 million for
the three months ended December 31, 2004 and 2003, respectively.
Effective December 31, 2003, the Company converted all the outstanding
Series D Convertible Preferred Stock and accordingly there was no
after-tax compensation expense for the three months ended December 31,
2004. Diluted weighted average shares assume the conversion of the
Series D Convertible Preferred Stock, if dilutive, plus the dilutive
effect of common stock equivalents which would arise from the exercise of
stock options.
Three Months
Ended December 31,
(in millions) (unaudited)
2004 2003
Weighted Average Shares
Basic 190.7 181.0
Diluted 193.6 191.8
Outstanding at period end 191.2 188.6
2. Discontinued Operations
On January 10, 2005, the Company announced that it will sell its engine
electronics business to Valeo for approximately 330 million euro, or
approximately $437 million. The transaction, which is subject to
regulatory approvals, is expected to be completed in the second quarter
of fiscal 2005. The engine electronics business generated revenues of
approximately $425 million in fiscal 2004. This non-core business was a
part of the Sagem SA automotive electronics business that was acquired in
fiscal 2002.
3. Segment Information
Three Months Ended
December 31,
(in millions) (unaudited)
2004 2003 %
Sales
Automotive Group $5,443.1 $4,886.0 11%
Controls Group 1,532.4 1,406.9 9%
Total $6,975.5 $6,292.9
Operating Income
Automotive Group $202.6 $199.2 2%
Controls Group 42.8 54.6 -22%
Total $245.4 $253.8