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US: Johnson Controls loses $8m in fourth quarter

By Graeme Roberts | 1 November 2012

Johnson Controls booked a net loss of US$8m, or $0.01 per share, on $10.4bn in sales.

Excluding restructuring and non-recurring items in the 2012 and 2011 fiscal fourth quarters, revenues were down 4%, income from business segments down 2% to $726m and net income $526m versus $523m in Q4 2011 ($0.77 a share v $0.76), the supplier said, adding it "believes that using the adjusted numbers provides a more meaningful comparison of its underlying operating performance".

Q4 one-off charges included a $245m restructuring charge, a non-cash mark-to-market hit of $447m associated with an accounting change for pension and retiree medical benefits and a $35m tax charge related to discontinuing lead-processing operations at its Shanghai, China battery plant.

"While the macro-economic environment was challenging, in the fourth quarter we significantly improved profitability in [buildings, automotibve batteries and interiors]," said chairman and CEO Stephen Roell.

"European automotive and buildings markets continued to soften in the quarter, offsetting our gains elsewhere. In response to the challenges in some of our key markets, we recently announced restructuring actions. We believe these initiatives better align resources with our current strategies and will help us to increase profitability in what we expect will be a low-growth environment next year."

Automotive Experience [interiors] continued to be adversely affected by weakness in Europe. Sales in the quarter fell 2% to $5.0bn versus $5.1bn last year as higher production volumes in North America and Asia and new model launches were more than offset by a weaker euro and lower production volumes in Europe.

North American automotive revenues increased 13% to $2.2bn from $1.9bn last year, which is in line with the increase in overall industry production. European sales were down 15% to $2.2bn from $2.6bn in the fiscal 2011 fourth quarter.

Excluding the impact of foreign exchange, European sales were down 5% versus last year, compared with a 3% decline in industry production. Sales in Asia increased 2% (+4% excluding currency) to $663m from $650m in the fourth quarter of fiscal 2011. Total revenues in China, including non-consolidated joint ventures, rose 21% to $1.3bn compared with $1.1bn a year ago.

Automotive Experience reported segment income of $159m in the current quarter, down 34% from $240m the prior year. Significant improvement in North America and Asia was more than offset by lower European results. North America earnings improved significantly in the current quarter to $130m from $83m a year ago due primarily to the higher production levels and improved operational efficiencies.

Segment income in Asia was $97m, up 18% from the fiscal 2011 fourth quarter primarily due to higher revenues and stronger profitability in Japan and Korea. Automotive Europe reported a loss of $68m in the quarter compared to a profit of $75m last year as a result of the lower volumes, operational challenges and commercial negotiations.

Power Solutions [batteries] posted solid income gains in the quarter. Sales in the fourth quarter of 2012 were unchanged at $1.6bn. Unit shipments rose 4%, split evenly between global aftermarket and OEM. Solid growth with North American OEMs, increased market share gains in the European aftermarket, and strength in Asia were partially offset by continued soft aftermarket demand in North America and lower shipments to European OEMs.

Segment income rose 11% to $240m versus $216m in the fourth quarter of fiscal 2011. The company's South Carolina lead recycling facility became operational during the quarter. Despite higher year on year costs for battery cores used for recycling, segment margin rose 160 basis points to 15.4% versus the same period last year.

Fiscal 2013 outlook

JCI said softening end markets and negative foreign currency will limit its ability to grow revenues and earnings in the coming fiscal year. It also anticipates a higher effective tax rate of 20% in 2013 due to an increased percentage of total earnings coming from the US. The company expects first half profits to be significantly lower than the same period of 2012 with higher earnings in the second half.

Financial benefits of the restructuring announced in the current quarter will begin to accrue in the second half. Full year earnings are seen flat to slightly higher than 2012.

"As we look forward to fiscal 2013, we are expecting continued challenges in our end markets. We will benefit from our automotive and buildings backlogs, but we expect limited opportunity for top line growth in the coming year," said Roell.