Johnson Controls has reported a second quarter fiscal 2003 net profit, boosted by a lower effective income tax rate, up 15% to $US132.2 million from $114.8 million for the second quarter of fiscal 2002.
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Diluted earnings per share increased 16% to $1.40 from $1.21 for the second quarter of fiscal 2002; and sales increased 14% to $5.5 billion from $4.8 billion last year.
The sales increase for the second quarter reflects a 16% increase in automotive sales and an 11% increase in controls sales. Operating income for the current quarter increased 9%, with increases by both automotive and controls groups, to $237.3 million compared with the prior year’s $218.7 million.
Gross profit increased 18% while selling, general and administrative expenses (SG&A) were 23% higher than last year’s second quarter. The increase in SG&A resulted from the effect of foreign currency translation, the inclusion of the automotive battery business of Varta, which was acquired on October 31, 2002, and higher automotive engineering expenditures in Europe.
The euro was 22% stronger than the US dollar in the 2003 quarter compared with last year.
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By GlobalDataNet interest expense was approximately level with the second quarter last year as the benefit of lower rates offset the effect of a higher debt level. Equity income was slightly higher than the prior year primarily due to higher volumes at an automotive joint venture in China.
Miscellaneous-net expense increased, reflecting higher currency losses.
Free cash flow in the quarter of $135 million compares with $108 million last year. Total debt to total capitalization decreased to 38% from 40% at December 31, 2002.
Johnson Controls president and chief executive officer John Barth said, “We are pleased to report record results for the second quarter. Our consolidated results were on plan, and both of our businesses achieved record sales and operating income. While we remain cautious regarding the business environment and consumer demand, we expect to achieve solid results for the balance of the year.”
Automotive systems group sales increased 16% over the same period of 2002 primarily reflecting stronger sales in Europe. Excluding the positive effect on sales of foreign currency and the European battery acquisition, worldwide sales increased 3%.
Operating income for the group increased 8% as a result of improved performances by North American interiors and battery operations. Operating margin, excluding currency effect, was approximately level with the prior year.
Sales of interior systems and batteries were 2% higher than the prior year. North American interior system sales were 1% above the prior year as higher sales associated with new business and increases in production of some vehicles with Johnson Controls content were offset by the deconsolidation of a joint venture (effective April 1, 2002) and lower production levels of certain vehicles.
Domestic industry light vehicle production is estimated to have increased 2% in the quarter versus one year ago. Battery sales were 10% higher because of an increased level of unit shipments reflecting stronger retail demand induced by cold temperatures. North American operating income and operating margin were up over the prior year due to operational efficiencies at both interiors and battery operations.
Sales in Europe of interior systems and batteries were 44% higher than in the prior year. The increase was due to favourable currency translation, revenues resulting from the battery acquisition, and new interiors business. The strengthened euro contributed $292 million to the current quarter’s sales. Interiors sales rose 6%, excluding currency impact, while industry vehicle production is estimated to have declined 2-3%.
Battery sales in the quarter, most of which relate to the recent acquisition, were in line with the company’s expectations. European operating income decreased due to higher costs associated with the launch of numerous new interior system awards and engineering. This decline more than offset the inclusion of income associated with the recently acquired battery business. While interiors operations continued to be below prior year, results were significantly better than for the first quarter of fiscal 2003.
Sales in Asia, Japan and South America, which represent less than 10% of the company’s automotive revenues worldwide, were comparable to the prior year. Operating income was also relatively unchanged.
Johnson Controls expects to begin supplying all of the seating for the Ford Focus, Expedition and Mustang and Lincoln Navigator and Town Car during the third fiscal quarter. The incremental, annualised sales associated with supporting these five platforms is estimated at $420 million.
Year-to-date, Johnson Controls sales were $10.7 billion or 11% above the same period of 2002. Net income for the first six months of fiscal 2003 increased 16% to $273 million ($2.88 per diluted share) up from $235 million ($2.48 per diluted share.)
Johnson Controls confirmed its fiscal 2003 guidance for consolidated sales growth of 5-10% and the achievement of record levels of operating income and diluted earnings per share.
Automotive systems group sales growth of 5-10% is anticipated, assuming North American light vehicle production of approximately 16.0-16.1 million units, slightly lower year-over-year European production, and a positive effect of currency translation.
The level of European automotive profitability is expected to continue to improve through the balance of 2003 consistent with the operating plan established earlier this year. However, the lower than anticipated results from that region year-to-date, coupled with the currency effect on sales, has resulted in the company now forecasting a slight decline in automotive operating margin.
