Johnson Controls: An Update

Milwaukee-based Johnson Controls (NYSE: JCI  ) has been around for over 100 years. While it's had several major lines of business during that time, these days most casual observers think of it as a big-league supplier to automakers. Nearly all of the big names, from Ford (NYSE: F  ) to Toyota (NYSE: TM  ) to Mercedes-Benz parent Daimler (NASDAQOTH: DDAIF  ) , look to Johnson Controls for parts ranging from batteries to interior components.

In truth, though, Johnson Controls is really three businesses in one. In addition to its status as a Tier One auto supplier with its Automotive Experience unit, the company's Power Solutions unit is the world's largest maker of conventional lead-acid car batteries. And its Building Efficiency unit still has a sizable share of Johnson Controls' original market: climate-control systems for large buildings.

It's an interesting, well-run company that has significant scale in three different businesses -- and good presence in places such as China that represent growth markets for all three. But does it add up to an investment?

 To help investors answer that question, last fall I created a premium report on Johnson Controls that looks at the company's business and prospects for growth. That report has just been updated, and what follows is an excerpt, looking at recent results for each of Johnson Controls' three divisions. We hope you enjoy it.

The latest results for Johnson Controls
While the Building Efficiency unit is well-positioned to capture business in China (and indeed throughout Asia), growth in China has slowed dramatically in recent quarters. Revenues in Asia were up 7% in the most recent quarter (ended Dec. 31, 2012) -- but that was offset by declines in North America and Europe that left sales flat and orders down 9% vs. year-ago totals. Net sales were flat vs. year-ago totals at $3.5 billion, though income increased by 19% to $172 million

Automotive Experience, which represents about half of JCI's revenue, has been a mixed  bag in recent quarters. On the upside, rising auto sales in the U.S. led to an 11% increase in production in the region during the most recent quarter. Sales in China were up 21% vs. the year-ago quarter -- a strong result that builds on solid gains in the prior quarter. But despite these gains, weakness in Europe drove net sales down slightly in the quarter, to $5.2 billion vs. $5.3 billion a year ago, and net income fell hard: by about half, to $101 million.

Europe, which represents about half of the division's sales, is a big trouble spot -- as it is for just about every auto-related business operating in the region. New-car sales fell to a near-two-decade low in 2012, and sales are expected to continue to slip throughout 2013. Big players such as Ford, General Motors (NYSE: GM  ) , and PSA Peugeot Citroen have all announced plant closures and other restructuring moves amid big ongoing losses.

JCI hasn't been spared. In the quarter ended Dec. 31, 2012, the Automotive Experience unit saw a 9% decline in production vs. year-ago numbers. Those volumes aren't expected to recover any time soon, as the economic problems troubling Europe are protracted and unlikely to resolve for several years. The auto industry as a whole is taking some long-overdue steps toward a major restructuring that should result in significantly lower production capacity once it is completed -- but even the most hopeful forecasts don't see major players such as Ford and GM's Opel unit breaking even until mid-decade.

Put simply, prospects for significant growth in this region -- which, again, accounted for about half of the unit's revenues last year, or about a quarter of the company's -- are likely to be dim for at least several more quarters.

In contrast, Power Solutions posted a 4% increase in net sales, to $1.7 billion for the quarter, though income of $268 million represented a small drop due to one-time items in the year-ago quarter. Total unit shipments were up 3%, as higher demand from automakers in North America and an increase in European market share were offset somewhat by a drop in aftermarket demand in the U.S.

Looking for more guidance?
That was just a sample of the new edition of The Motley Fool's premium report on Johnson Controls. If you're weighing whether the company is a buy or sell, the report is an essential resource for investors seeking more information on the company. Not only that but the report comes with updated quarterly guidance and dives into upcoming catalysts on the horizon. Just click here now to get started.


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