USA: Johnson Controls enjoys a record second quarter
Johnson Controls has reported record results for the second quarter of fiscal 2005.
The company also confirmed its outlook for double-digit earnings growth in 2005 and raised guidance for sales growth to 10 - 12% from 8 - 10%.
Sales increased 13%, to $US7.1 billion, from $6.3 billion in the 2004 second quarter, reflecting strong sales growth by each of the parts supplier's businesses. The effect of foreign currency translation added approximately $168 million to sales in the current quarter.
Johnson Controls recorded a pre-tax restructuring charge of $210 million in the 2005 quarter, reflecting an acceleration of the company's cost reduction strategies, primarily relating to severance costs and facility consolidations.
In the second quarter of 2004, the company reported a before- tax gain of $84 million related to a Japanese pension plan and a restructuring charge of $82 million, pretax.
In the current quarter, the company recorded an income tax benefit of $32 million compared with last year's $66 million tax provision. The benefit relates primarily to a one-time tax credit associated with a capital loss transaction in Europe. The company said that the after-tax gain on the sale of its discontinued operations totalled $145 million, and that the cash proceeds were used to repay short-term debt.
Net income was $203 million, or $1.04 per diluted share, compared with $158 million, or $0.82 per diluted share, last year.
Capital expenditures decreased to $150 million from $211 million the prior year. The company's total debt to total capitalisation decreased to 28.5% from 35.1% a year ago.
Operating income increased 11% to $270 million, from $243 million in 2004. The operating income increase reflects a decline in the gross margin percentage and lower selling, general and administrative expenses as a percentage of sales. Income from continuing operations was $165 million, or $0.85 per diluted share, in 2005, up 13% from $146 million, or $0.76 per diluted share, in the 2004 quarter.
Automotive Group sales in the quarter increased 14%, to $5.7 billion, from $5.0 billion, reflecting higher interiors and battery volumes and the benefit of foreign currency translation. Industry vehicle production in North America and Western Europe was down an estimated 4% and 2%, respectively, from the prior year.
Operating income rose 10% to $219 million from $199 million due to the higher volume and operational improvements; however, the operating margin declined slightly reflecting price reductions and higher raw material costs.
Johnson Controls increased its full year guidance for consolidated sales growth to 10-12% from 8-10%. The automotive and controls groups are each expected to achieve revenue growth in the same 10-12% range.
Full year operating income before special items is projected to rise 10-12% to a range of $1.3 - $1.4 billion. Including the $210 million restructuring charge, operating income is projected to be $1.1-$1.2 billion.
Operating margins for each of the business groups are projected to approximate the prior year levels. The benefit of volume growth and cost reductions are estimated to be offset by the negative effect of a stronger euro, lower customer pricing and higher commodity costs.
During the second quarter, Johnson Controls signed a letter of intent to acquire Delphi Corporation's global automotive battery business for $212.5 million, subject to adjustments. The acquisition is expected to close, subject to regulatory approvals, in the summer of 2005 and is not expected to have a material impact on fiscal 2005 results.