Johnson Controls has reported record sales and earnings for the second quarter of fiscal 2011. The company also increased its estimate for full fiscal year 2011 revenues.

The company reported Q2 net sales of US$10.1bn vs. US$8.3 billion in Q2 2010, up 22%. Net income was US$354m or $0.51 per diluted share. Net income excluding non-recurring items was US$383 million, or US$0.56 per diluted share, versus net income of US$292 million, or $0.43 per diluted share, in the 2010 second quarter.

"The second quarter results show solid momentum across all three of our businesses, with each achieving significantly higher revenues and profitability," said Stephen A. Roell, Johnson Controls Chairman and Chief Executive Officer. 

"Power Solutions benefited from aftermarket battery demand that exceeded our expectations and Automotive Experience revenues outpaced industry production with the launch of 18 major new programs," he said

Automotive Experience sales in the quarter increased 25% to US$5.2 billion versus US$4.2 billion last year due to higher production levels and launches of new automotive seating and interior programs.  Revenues increased 22% in North America while European sales were up 26%.  Asia sales increased 37%, while revenues in China, which are mostly generated through non-consolidated joint ventures, increased 31% to US$979 million.  

Johnson Controls said that it completed 18 major launches in the quarter for Ford, Kia, VW, Tata, Daimler and Honda.   Seven of the launches were new seating programs, seven were interior programs and four were global electronics programs.

Automotive Experience reported segment income of US$247 million in the current quarter excluding acquisition-related costs, an increase of 31% compared with US$189 million last year.  The increase is due to higher volumes and improved operational efficiencies.

Segment income margin in Europe increased to 2.0% from break-even in the first fiscal quarter.   Johnson Controls said that European margins have been negatively impacted by containment costs associated with some of its recent new program launches.   Margins in the region also reflect engineering costs associated with the multi-billion dollar backlog of new business that will launch in the region over the next three years, the company said.

The acquisition of CR Hammerstein closed on February 1, 2011.   Non-recurring acquisition and integration costs for acquisitions in the quarter totalled US$0.05 per share.

Power Solutions sales in the second quarter of 2011 increased 19% to US$1.4 billion from US$1.2 billion last year reflecting higher shipments of both aftermarket and original equipment batteries.    Aftermarket demand in the Americas was stronger than expected, increasing 17%.  Original equipment and aftermarket unit sales in Asia increased 163% reflecting the volume associated with the consolidation of a Korean joint venture, market share gains and incremental production from the company's second manufacturing plant in China.

Johnson Controls said it expects to expand its battery manufacturing capacity in China from four million units today to 30 million units by 2015.   The company commenced construction of its third Chinese plant, in Chongqing, in January 2011.
Power Solutions segment income increased 33% to US$178 million versus US$134 million last year. The increase is primarily the result of the higher volumes and strong operational performance.

The company's new lead recycling facility in Mexico also contributed to the segment income growth in the quarter.  The company said construction was progressing as expected on its recycling facility in South Carolina, with completion scheduled for mid-2012.  Upon the completion of the South Carolina plant, Johnson Controls expects to be able to internally recycle approximately 50% of its North American lead requirements.

The company also announced it will be adding capacity to produce 6.8 million AGM lead-acid batteries in the United States by 2013.  Johnson Controls said that it had already received multi-year customer commitments for a substantial portion of U.S. AGM capacity.   Johnson Controls previously announced investments to significantly expand AGM battery manufacturing capacity in Europe.

Johnson Controls also updated its assumptions and earnings guidance for 2011. 2011 revenues are now forecast to increase 15% over 2010 to US$39.5 billion versus the previous forecast of US$38.5 billion. The increased guidance is due to higher growth expectations for Building Efficiency (now forecast to be 15% versus the earlier guidance of 8-10%) and a stronger Euro.  Higher Building  Efficiency revenues will be partially offset by a negative third quarter impact associated with Japan-related automotive production disruptions.

Revenue and earnings are expected to be affected by automotive production disruptions in Japan and at Japanese OE customers in North America and Europe. Based on the latest forecasts from    customers, the company anticipates the third quarter fiscal 2011 revenue impact will be approximately US$500 million, which will lower earnings per share by approximately US$0.16 - US$0.18.

The company said, including this impact, it expects to earn US$0.51 - US$0.53 per share in the third fiscal quarter. The company expects the impact in its fourth fiscal quarter to be neutral and estimates it will recover the third quarter lost revenues and earnings in the first half of fiscal 2012.

"We are on track for a record year for sales and earnings in 2011, outpacing the growth rates of our key markets by gaining share and improving profitability in each of our businesses," said Mr. Roell. 

"While there are some uncertainties ahead regarding auto production levels due to disruptions in the automotive supply chain, we expect the impact will be short-lived and recoverable.   Looking beyond the current year, we have solid strategies in place to take advantage of the growing market opportunities and to drive higher profitability.   We will continue to make significant investments in organic growth and strategic acquisitions to achieve long-term profitable growth for our shareholders."

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