Johnson Controls, Inc. (JCI)
F2Q10 (Qtr End 03/31/10) Earnings Call Transcript
April 23, 2010 11:00 am ET
Glen Ponczak, Executive Director, IR
Steve Roell – Chairman, President & CEO
Bruce McDonald – EVP & CFO
Rod Lache – Deutsche Bank
John Murphy – Bank of America/Merrill Lynch
David Leiker – Robert Baird
Brett Hoselton – KeyBanc
Himanshu Patel – JPMorgan
Rich Kwas – Wells Fargo Securities
Colin Langan – UBS
Chris Ceraso – Credit Suisse
Brian Johnson – Barclays Capital
Ravi Shanker – Morgan Stanley
Ethai Nicoli [ph]
Nankent Newkem [ph] – Wells Fargo Advisors
Tim Denoyer – Wolfe Trahan
Previous Statements by JCI
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Welcome and thank you for standing by. At this time, all participants will be in a listen-only mode until the question-and-answer session. Today’s conference is being recorded. If you have any objections you may disconnect at this time. With that it is my pleasure to turn over today’s call to Mr. Glen Ponczak. You may begin.
Good morning everyone. Thank you for joining us and happy Friday. Before we begin, I’d like to remind you of our forward-looking statements. Johnson Controls will make forward-looking statements in this presentation pertaining to its financial results for fiscal 2010 and beyond that are based on preliminary data and are subject to risks and uncertainties. All statements other than statements of historical fact are statements that are or could be deemed forward-looking statements and include terms such as outlook, expectations, estimates or forecasts.
For those statements, the Company cautions that numerous important factors, such as automotive vehicle production levels, mix, and schedules, financial distress of key customers, energy prices, the strength of the U.S. or other economies, currency exchange rates, cancellation of, or changes to commercial contracts, liquidity, changes in the levels or timing of investments in commercial buildings, the ability to execute on restructuring actions according to anticipated time lines and costs, as well as other factors discussed in Item 1A of Part 1 of the Company’s Form 10-K filing, which was filed on November 24th, 2009, that could affect the Company’s actual results, and could cause its actual consolidated results to differ materially from those expressed in any forward-looking statement made by, or on behalf of the Company.
Joined this morning with – by Steve Roell, Chairman and Chief Executive Officer of Johnson Controls, who will provide an overview of our second quarter 2010. And he will be followed by Bruce McDonald, Executive Vice President and Chief Financial Officer, who will give a more in depth look of business results as well as a financial performance. And that will be then followed by questions and answers.
And with that, I’ll turn it over to Steve.
Thank you, Glen. Well, good morning and thank you for joining us. I guess I am going to start by just highlighting the two primary themes in our earning release, certainly the fact that we are benefiting from the recovery of the North American and European auto industry is a major driver of our results in the quarter. And I think the other theme is the fact that we are starting to see signs of – that are surfacing at the non-residential market, the building market is beginning to recover as well, and we’ll highlight some of those indicators for you.
In terms of the second quarter itself, both Power Solutions and Automotive Experience benefited from the strong automotive production levels, North America and Europe. And we’ll talk a little bit later about the fact that we now are convinced that those trends will continue into the second half of the year.
Emerging markets, demand continues to be good for all of our businesses. If you look at the Building Efficiency side, China, we continue to benefit both from an order and a sales standpoint. South America is strong force and in the Middle East while sales were negative in the quarter, down slightly from a year ago, the orders and the pipeline of activity in the Middle East is trying to pick up for us significantly.
Coming into the fiscal year one of the key elements of our projections was that we would covert on the higher automotive volumes in both Automotive and Power. And we continue to perform very well against that metric; the conversion has been strong at the high end of the range as we originally projected.
We looked across our businesses and believe that we are gaining share whether that be in the Automotive group (inaudible) sales growth compared to the industry build. We see gains obviously in the Power Solutions business and we believe we are taking share in the equipment side and security solutions side clearly in our Building Efficiency.
We ended the quarter with a strong balance sheet. During the quarter we did get past our outlook provisions for both S&P and Moody’s and our cash flows remain strong and as a result of that as we note here we will be accelerating some of our investments in growth. That’s primarily in the Power Solutions business when we talk about capital but we will be investing also in the increased sales forces in our Building Efficiency group.
In terms of the absolute numbers for the second quarter our sales of $8.3 billion were up 32% from a year ago. Our segment income was $427 million. Our net income of $292 million was a record for any second quarter. So, we wanted to highlight that. We did not highlight that in our press release, but it did beat the 2008 fiscal year second quarter, which was a record for that period of time.
Our EPS $0.43 compares of course to a loss last year of $0.16. We did call out the one item, the $0.03 charge; I think most of you are probably familiar with this by now. We had an $18 million charge from a tax standpoint related to the Medicare subsidy law change that took place. And so that’s the one single item in the quarter we call out relative to our earnings per share.
I should also note, Bruce in the past has talked about a – factored in the second half we’ll have roughly a $50 million to $100 million benefit of tax benefits. We still expect that to happen. We want to make sure that you understand that that’s not included in our earnings per share guidance for the fiscal year.
Turning to Power Solutions, just a couple of quick items for you. Our vertical integration strategies are on track. The Mexican lead recycling facility is now scheduled to start up in October of 2010. What you see in the – those of you that are looking at the Power Point, the illustration in the far right is an actual image from that site. And we also received the final permit we need to start construction in South Carolina with our another lead recycling facility. When both of those plants are complete, our in-house recycling capacity will represent about 50% of our needs. And as we’ve highlighted in the past we expect about 200 to 250 basis point margin improvement as a result of those investments.