The key driver for supply company Johnson Controls
For the quarter, building efficiency sales grew an impressive 62% to $2.9 billion, while sales in power solutions grew a respectable 10% to $1.1 billion. Automotive sales fell 11% to $4.2 billion, yet the segment still accounted for more than half of total sales. That's down from 57% for all of fiscal 2006, but it shows that auto sales will continue to drive the fortunes at Johnson Controls for the foreseeable future.
The company is also relying less on the Big Three -- General Motors
In any case, Johnson's top-line expansion hinges on its non-automotive businesses. Overall, the company is holding up as well as any auto supplier, including Lear
The one drawback I see is that Johnson Controls operates in capital-intensive industries that eat up a good portion of the operating cash flow produced every year. Its debt levels are moderate, but it has to continuously spend to maintain operations, and it will have to pursue acquisitions to enhance organic growth in its building efficiency and power solutions businesses.
Johnson Controls' management has proven quite adept at managing uncertainty, but there's more of it as the automotive business struggles and the firm enters newer markets (such as its acquisition of York International in 2005). It's a close call -- the company has a reputation for conservative growth, but the stock is bumping up against its 52-week highs amid an overall market run-up. I'd be more intrigued with any pullback, so for now, I'll keep the company on my watch list.
For related Foolishness:
- Johnson Controls Its Way Out of Auto: Fool by Numbers
- Foolish Forecast: Can Johnson Control Its Numbers?
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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. The Fool has an ironclad disclosure policy. Feel free to email Ryan with feedback or to discuss any companies mentioned further.