Hmm. Which metaphor to use: the automotive business skidding and crashing into a brick wall, or the construction industry collapsing atop a shifting foundation? In either case, Johnson Controls (NYSE:JCI) bore the brunt of both impacts, and suffered its first loss in 16 years.
Revenue for the auto and construction parts business fell 23% to $7.3 billion, while adjusted earnings plummeted to a $0.14-per-share loss in the first quarter. The company badly missed analyst estimates, which, at worst, had predicted sales to come in north of $8 billion and earnings to be a loss of $0.08 a share.
Crash-test dummies
The auto business was pretty much a wreck. General Motors (NYSE:GM) and Chrysler both needed a government bailout to stay afloat. Even Toyota (NYSE:TM) reported its first operating loss in 70 years, so it's not so surprising that Johnson Controls' segment sales spun out of control as well. Losses amounted to $329 million on revenue that was down 32%, to $3.1 billion.
Don't expect the next quarter to be any better. North American production levels are expected to be some 46% below last year's numbers, while its European business has put Johnson Controls on notice to expect lower sales as well. Management says things haven't been this bad in 25 years.
Deconstructing construction
The building efficiency segment didn't look too solid either. While first-quarter sales were down just 5%, the segment's income collapsed 20% from the prior year, to $131 million. It may be surprising to learn that Johnson Controls did see some higher sales in North America efficiency systems, but not nearly enough to offset declines in the North American residential business and in Europe.
We probably shouldn't expect much better then from rivals such as United Technologies (NYSE:UTX), which reports tomorrow, or Honeywell (NYSE:HON), which reports later this month. Housing starts were down 47% in the quarter, and residential demand was down 18% quarter over quarter.
There's no getting around the fact that things are bad and are going to get worse before we see a turnaround, but there is hope that better days are coming. At the International Auto Show in Detroit last week, for example, Johnson Controls highlighted a concept car using its next-generation hybrid car batteries. While GM opted to go with LG Chem for its Chevy Volt power supply, Ford (NYSE:F) is using Johnson Controls' lithium-ion batteries in a fleet of Escapes, the same sort of batteries it makes for Mercedes.
There may also be a bit of a silver lining hanging over the construction business. Backlog for building efficiency systems rose 7%, compared to the same period last year. More promising still, Johnson Controls was included in an $80 billion Energy Department program to make federal buildings more efficient.
Shifting gears
At $16 a share, however, JCI still isn't offering investors much, if any, discount. With more than half its revenue exposed to the auto industry, the company is trading at more than 14 times 2009 estimated earnings. And while analysts factor in declines in both sales and earnings, they continue to project 12% long-term growth. Thus, I'd find such guesses to be just that, and until Johnson Controls gains control of the wheel again, investors might do well to steer clear.
