Update Johnson Controls (JCI)

10/14/2009 8:30 am EST


Jim Jubak

Founder and Editor, JubakPicks.com

I'm actually surprised (and maybe a little disappointed since I'm still building my position in these shares) that Johnson Controls (JCI) fell only 2.4% after issuing disappointing guidance on October 13.

The company told Wall Street analysts that it will earn 40 to 42 cents for the fiscal fourth quarter that ended on September 30. Sales will come to $7.9 billion.  The earnings number was a scant one to three cents above analyst expectations.

But it was the guidance for fiscal 2010 that was most disappointing. The company said sales will climb just 9% to $31 billion and earnings to $1.45 a share. Analysts had been expecting  numbers only slightly below those figures at $30.2 billion and $1.44 a share.

Those numbers aren't what analysts who are expecting an economic turnaround in 2010 wanted to hear.

The problem seems to be in the company's automotive  interiors business. (Johnson Controls is the world's largest maker of automotive interiors.)The company said revenue there will climb 13% in fiscal 2010 but margins will be just 1.3% to 1.6% instead of the 3% to 4% expected.

My perspective?

First, the company is being very conservative on auto numbers in an effort not to over-promise. With the company's 40% share of the auto interiors market in China I think growth will be healthier than these estimates indicate.

Second, all the businesses that represent future growth for Johnson Controls are making good progress. Revenues for the power solutions unit--that's batteries--are projected to climb 17% in 2010. Sales in the building efficiency business--that's heating and cooling systems, controls, and management services--will be up just 3% but margins are climbing and the company expects to see customers gradually start to commit to new orders as the economy improves in 2010.

As of October 14, 2009 I'm tweaking my target price just a bit to $$32 a share by July 2010 from the prior $31 a share.

(Full disclosure: I own shares of Johnson Controls in my personal portfolio.)
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