Update Johnson Controls (JCI)
Forget about the penny miss in quarterly earnings. Put a failure to increase guidance for the full year on the back burner.
Wall Street seems to be nervous about the long-term direction of Johnson Controls (JCI). At a time when exposure to China is a worry rather than a growth opportunity, Johnson Controls is committed to growing its business there. Today’s miss and lukewarm guidance are really just an excuse for short-term thinkers to jump ship. And jump they have today. The stock is down 6.7% for the day as of 11:30 a.m. ET on July 23.
Before the New York markets opened on July 23, Johnson Controls reported earnings for the third quarter of its fiscal year of 54 cents a share. That was a penny worse than Wall Street had expected, but still represents earnings growth of 116% from the third quarter of fiscal 2009. Revenue climbed by 22% from the third quart of fiscal 2009, edging just above consensus.
The company’s guidance for the fiscal year came in a little short of Wall Street projections too. The company said it expects full year earnings of $1.95. That’s up slightly from earlier guidance of $1.90 to $1.95 a share, but it is a bit below Wall Street estimates of $1.98. In the full 2009 fiscal year Johnson Controls lost 31 cents a share so even the horribly disappointing $1.95 a share represents quite a turn around.
Can China’s auto market save GM? Do pigs fly?
So what do you do if you’re a car maker with a home market that’s not buying as many cars as it used to?
If you’re General Motors (GM), you invest as fast as you can in making and selling cars in China.
Great plan.
So great that Toyota (TM), and Nissan, and Volkswagen (VLKAY), and BMW (BAMXF), and Honda (HMC) and Hyundai (HYMLY) have all adopted the same plan.
The result is a capital spending spree so large, and resulting new manufacturing capacity so great, that it could be the cause of the next collapse and shake out in the global auto industry. And the best guess is that this shakeout could arrive as early as 2015. That’s long before companies such as General Motors that are still working to emerge from bankruptcy or companies such as Toyota that are struggling to rebuild profitability have put away cash for a rainy day.
The collapse is likely to be even more brutal than that of the U.S. car industry in the recent recession. (The auto industry story is just an extreme version of what I’ve called the danger of a profitless economic recovery. For more on what that means across the global economy, see my post http://jubakpicks.com/2010/01/19/get-your-portfolio-ready-for-the-profitless-global-economic-recovery/ )
I don’t think there’s any way that the auto industry can avoid this collapse. The logic behind expanding in China is just too irresistible.
What GM’s ads don’t say: Taxpayers will take a loss on this bailout
So what about the rest of our money?
Today General Motors is running ads patting itself on the back for repaying its taxpayer loans.
“We’re proud to announce: We’ve repaid our government loan. In full. With interest. Five years ahead of the original schedule.”
Update Johnson Controls (JCI)
Before the stock market opened in New York on Friday, April 23, Johnson Controls (JCI) announced earnings of 43 cents a share (excluding one-time items.) That was four cents a share above Wall Street estimates for the company’s second quarter of fiscal 2010.
Including special items—since last year’s second quarter included so many of them–earnings per share climbed to a profit of 40 cents a share from a loss of 33 cents a share in the second quarter of fiscal 2009.
Revenue increased by 32% to $8.32 billion. Wall Street analysts had projected $7.92 billion.
And, best yet, the company raised guidance for the full 2010 fiscal year.
February auto sales disappoint but no reason for panic
You can come up with lots of reasons why investors shouldn’t panic at the slide in February U.S. auto sales to a seasonally adjusted annual rate of 10.4 million. That was down from the seasonally adjusted 10.8 million sales rate in January 2010 although up from the 9.2 million rate of February 2009.
Snow storms. Troubles and more troubles at Toyota. A big drop in sales from brands such as Saturn, Pontiac, Hummer, and Saab that General Motors (GM) has decided to discontinue.
All those cut in February sales and make hard to argue that the recovery in the auto industry has stalled.
But the numbers aren’t a rousing endorsement of pedal to the metal growth either.
