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Johnson Controls Shifts From Autos to Buildings

Stocks in this article: JCI

NEW YORK (TheStreet) -- Thanks to a new joint venture, Johnson Controls (JCI) is going to change its focus from automotive to concentrate on buildings and air conditioning.

Johnson Controls' automotive joint venture with Yanfeng Automotive creates the world's largest automotive interiors supplier. The new company is expected to have annual growth in a range of 6 to 8% with estimated margins of 5% to 6%. The joint venture should also have a 15% global market share, including a 25% share in the Chinese market.

YF Automotive has seen its revenue grow tenfold in the last 10 years. In 2013, JCI Interiors saw revenue of $4.2 billion. The deal unites complementary businesses and will now compete in a market for automotive items including door panels, cockpit systems, interior trims, instrument panels, and floor consoles. The new joint venture will be 30% owned by Johnson Controls.

Thanks to that joint venture behind it, Johnson Controls can now focus on its high-profit Building Efficiencies business. In 2013, the building division saw sales of $14.6 billion, compared to $21.8 billion for all of Johnson's automotive segments. In the second quarter, building efficiencies sales were down 5% to $3.3 billion. Middle East sales dropped 31% in the segment, while sales in Asia rose 5%. Building backlog remains high at $4.8 billion.

Earlier in April, Johnson Controls acquired Air Distribution Technologies for $1.6 billion. The highly complementary deal gives Johnson Controls increased sales in the buildings space and a perfect pair to its strong HVAC business. Air Distribution brands include Ruskin, Titus, Hart & Coley, Krueger, PennBarry, and Tuttle & Bailey.

In December, Johnson Controls entered a joint venture with Hitachi Appliances. The new company, which is 60% owned by Johnson Controls (excluding Japan), combines the huge global reach of JCI with Hitachi's technology expertise. The new deal makes Johnson Controls the world's largest commercial air conditioner provider. The joint venture will help Johnson Controls expand into key international markets using the Hitachi name and brands, focusing on both commercial and residential markets.

Johnson Controls divested its Automotive Electronics business to Visteon and its HomeLink business to Gentex. The company's decision to drop low performing items and focus on strong complimentary acquisitions and joint ventures is a huge step in the right direction for this large company.

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