Johnson Controls' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Johnson Controls (JCI)

Q2 2012 Earnings Call

April 20, 2012 11:00 am ET


Glen Ponczak -

Stephen A. Roell - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

R. Bruce McDonald - Chief Financial Officer and Executive Vice President


Emmanuel Rosner - Credit Agricole Securities (USA) Inc., Research Division

Rod Lache - Deutsche Bank AG, Research Division

Christopher J. Ceraso - Crédit Suisse AG, Research Division

Timothy J. Denoyer - Wolfe Trahan & Co.

Ravi Shanker - Morgan Stanley, Research Division

Brian Arthur Johnson - Barclays Capital, Research Division

Patrick Archambault - Goldman Sachs Group Inc., Research Division

Richard M. Kwas - Wells Fargo Securities, LLC, Research Division

Colin Langan - UBS Investment Bank, Research Division

John Lovallo - BofA Merrill Lynch, Research Division



Welcome, and thank you for standing by. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I'd like to go ahead and turn the call over to your host for today, to Mr. Glen Ponczak. Sir, you may begin.

Glen Ponczak

Well, good morning, everyone, and thank you for joining us. Before we begin, just want to remind you of our forward-looking statements. That Johnson Controls will make forward-looking statements in this presentation pertaining to financial results for fiscal 2012 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 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, 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.

In just a few moments here, Steve Roell, Chairman and Chief Executive Officer of Johnson Controls, will give an overview of our second quarter results and take a brief look at the balance of the year. He’ll be followed by Bruce McDonald, Executive Vice President and Chief Financial Officer, who will give a more detailed review of the business results by segment and a financial review. That will be followed by questions and answers, and we expect to conclude the call at the top of the hour.

And with that, Steve.

Stephen A. Roell

Okay. Thanks, Glen, and good morning, everyone. Our second quarter financial results were consistent with the guidance that we provided earlier to you this year. Before we comment on those results and provide you with our outlook, I'd like to take just a minute to thank the Johnson Controls employees who are listening for their continued contributions to our success. Well, let's start with the business environment for each of the 3 segments.

North American automotive production was stronger than we anticipated, and several of the U.S.-based automakers increased their output in response to higher sales. The benefit of this increase was partially offset by the continuing weakness in Europe. However, our sales in the region were not significantly different from the expectations we had coming into the period.

Industry production of passenger cars in China were 2% higher and again, in line with what we had planned. And I know that we've talked in the past that there's varying numbers coming out of China, and again, our number references specifically passenger cars, as opposed to the overall vehicle production.

Our Power Solutions business had overcome the mild weather conditions in North America, that I'm sure all of you are well aware off. As we discussed in January, the period just ended is dependent upon restocking by our aftermarket customers. And unlike the prior year or probably even the past 4 years, the lack of a winter did not allow that to occur. We were fortunate that European -- that Europe experienced a more normal weather pattern in January and February, and we did see demand recover quickly in that market.

We believe that the inventories in the aftermarket channel in the U.S. are lower than they were a year ago, and therefore, we would expect our shipments to normalize. And in fact, we could see some upside in late summer time period as a result of that.

Turning to Building Efficiency. The nonresidential markets remain mixed, while growth rates have slowed. And in China, we continue to see expansion of the Tier 2 and Tier 3 cities. The same really holds true in the Middle East across Saudi Arabia, Qatar and Turkey, and of course, those markets are driven by infrastructure projects.

In North America, the overall market is showing some signs of recovery, but at a very modest level. Some of you follow the American Institute of Architects Billing Index, which has shown slight growth in the past 5 months, after 4 years of decline. The most recent data from McGraw-Hill forecast also suggest that nonresidential institutional markets will not grow the remainder of 2012 and be fairly flattish.

But now, I guess I want to share with you what we're seeing in our own data, which is more optimistic given the bidding activity that we see, which we often refer to as our pipeline. In our systems business in North America, we're seeing good year-over-year activity at health care, higher ed. and K-12. And really, the only segment that we see that is soft or down from last year is really the state government activity, which, I think, we all could probably assume what that's attributed to.

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