Johnson Controls Q4 2010 Earnings Call Transcript

Johnson Controls Q4 2010 Earnings Call Transcript
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Johnson Controls (JCI)

Q4 2010 Earnings Call

October 26, 2010 11:00 am ET

Executives

Glen Ponczak - Director of IR

Stephen Roell - Chairman of the Board, Chief Executive Officer, President and Chairman of Executive Committee

R. McDonald - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Richard Kwas - Wells Fargo Securities, LLC

Rod Lache - Deutsche Bank AG

Patrick Archambault - Goldman Sachs Group Inc.

Colin Rusch - ThinkEquity LLC

Brian Johnson - Barclays Capital

Timothy Denoyer

Christopher Ceraso - Crédit Suisse AG

Ravi Shanker - Morgan Stanley

Himanshu Patel - JP Morgan Chase & Co

Michael Coleman - Sterne Agee & Leach Inc.

Presentation

Operator

Welcome, and thank you for standing by. [Operator Instructions] Now I will turn the meeting over to Mr. Glen Ponczak. Sir, you may begin.

Glen Ponczak

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Good morning, everybody. Thank you for joining us. before we start here this morning, I want to remind you of our forward-looking statement. Johnson Controls incorporated will make forward-looking statements in this presentation pertaining to its financial results for fiscal 2011 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, energy and commodity prices, the strength of the U.S. or other economies, currency exchange rates, cancellation of or changes to commercial contracts, changes in the levels or timing of investments in commercial buildings, as well as other factors discussed in Item 1A of Part 1 of the company's most recent Form 10-K filing, which was filed November 24, 2009, 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.

This morning, we'll start with Steve Roell, Chairman and Chief Executive Officer of Johnson Controls giving an overview of the quarter and of fiscal 2010 results. After that, Chris McDonald, Executive Vice President and Chief Financial Officer, will review the business individually and give a financial review. That will be followed by questions and answers. And with that, I'll turn it over to Steve.

Stephen Roell

Thanks, Glen. Well, good morning, everyone. Before discussing the results, just a reminder that two weeks ago, the management team was in New York. We had our Analyst Day on October 12 where we provided our outlook for fiscal 2011. The slides, the transcript and the audio of those presentations are available to you on the Investors section of johnsoncontrols.com. If you didn't have a chance to join us, if you'd like to refer to that data.

Turning to the quarter itself. We're very pleased with our fiscal fourth quarter results, slightly ahead of the guidance that we have provided to you. Our sales at $9 billion versus $79 billion in 2009 were up 15%. Excluding foreign exchange, they were up 18%, and we were pleased to note that all three of our businesses reported double-digit growth in the quarter year-over-year.

Segment income of $586 million was up 14% over fiscal 2009's similar quarter. Our net income grew 21% from $339 million to $409 million in the fiscal quarter. Earnings per share of $0.60 per diluted share versus $0.52 of Q4 '09. I know the GAAP data was actually an increase from $0.47 to $0.66, but we've adjusted for all the onetime and we think it's more appropriate when you look at it going from $0.52 to $0.60. From a balance sheet standpoint, good cash flow. Our net debt-to-total capitalization, as you may notice, is down to 21.9%. And that was after a voluntary pension contribution of approximately $440 million, which was made in the quarter. We'll talk about that more further as Bruce gets into his balance sheet detail.

For a full year standpoint, I'm not going to spend a great deal of time comparing '09. I would just note that our fiscal 2010 results was the second strongest profitable year in the history of the company despite the fact that, as most of you know, the industry data and industry background was far below what it had been for sometime. We outperformed, we believe, our underlying markets. We have market share gains, we believe, across all three of our businesses as evidenced by our sales growth and the backlogs that we have coming into 2011.

We benefited earlier in the year from the cost reductions initiatives that we took in both 2008 and 2009, and those gave us some year-over-year comparisons earlier in the year. As I've mentioned, we had good cash flow generation that resulted in a strong liquidity position. And as we noted when we were in New York, we have accelerated our investments. We did sell -- starting in mid-2010, our capital spending was $777 million. That was up from $647 million a year ago. We noted that we continue to add sales force capacity and we began to do that again in mid-2010.

Turning to the 2011. As we indicated to you, we have good momentum coming into the year. We had solid growth in our backlog as evidenced by those market share gains. Automotive backlog, again this is a three-year outlook. Last year, when we looked at 2010 through '12, we had $2.5 billion of new business that we were to launch in that timeframe. It should be noted that in the forward-looking three years, 2011 through 2013, that backlog had grown to $4 billion.

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