Ford’s new engine announcement shows direction of auto industry
Better gas mileage and enough power to keep customers happy.
You can see where the global auto industry is headed in Ford Motor’s (F) announcement that it will build its first three-cylinder engine.
The small engine—the smallest Ford has even used—will go into global car lines such as the Fiesta and Focus. By shrinking the size of the engine and using direct-fuel-injection technology Ford hopes to get up to a 20% improvement in gas mileage from these engines over its current smallest four-cylinder engines
And thanks to the addition of turbochargers, Ford thinks it will be able to get enough va-va-voom from its three cylinder engine to make up for their smaller displacement.
Ford hasn’t identified which auto supplier will provide the turbochargers for the three-cylinder engine. Read more
Update Johnson Controls (JCI)
After moving up 8% in the days before its third quarter earnings report, it would have taken something very special to keep shares of Johnson Controls (JCI) climbing on the actual news.
Didn’t happen. On July 20 the company merely reported record net sales of $10.4 billion, a 21% gain from the third quarter of 2010 and beat Wall Street projections of 54 cents a share by a meager 4 cents a share. And so the stock dropped 4.4% on the day.
Might not be a bad time to pick up shares of a company projected to grow earnings by 24% in fiscal 2011 (which ends in September 2011) and 35% in fiscal 2012 but that trades at just 17.7 times trailing 12-month earnings and 12 times projected earnings per share. The stock is a member of my Jubak’s Picks portfolio.
Johnson Controls had two problems with its earnings report. First, the company had to argue that supply chain disruptions from the Japanese earthquake and tsunami made adjusted numbers more accurate than the typical GAAP numbers. Johnson Controls figured that the disruptions cost it $400 million in sales. And second, the company guided fourth quarter earnings (after excluding one-time items) inline with Wall Street expectations of 80 cents a share. Of course that would be a nifty 38% increase in earnings per share from this quarter, but I guess that’s disappointing to any analyst who expects a company to always raise projections.
Anyway, the company’s growth was strong across all its segments. Automotive experience sales—what you and I might call auto interiors—grew by 21% in the quarter from the third quarter of 2010. Power solutions—batteries—sales rose 22%. Building efficiency—heating and cooling and building energy management systems—grew sales by 21%.
Boring, huh?
Not so boring was the Johnson Controls China story. The company already has a 45% share of the auto seating market in China right now and looks to be able to increase that share in upcoming quarters. In its conference call Johnson Controls said it will meet its goal of $4 billion in sales in China this year.
Projections of slower growth in the United States in the rest of 2011 suggest that Johnson Controls might take a little longer to meet my target price of $54 a share that I had projected for December. As of July 21 I’d calculate a target price of $55 by March 2012. The stock closed at $40 a share on July 21.
Full disclosure: I do not own shares of Johnson Controls in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of Johnson Controls as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/ A full list of the fund’s holdings as of the end of June will be posted this week.
Update Johnson Controls (JCI)
On paper Johnson Controls (JCI) looks like a cheap growth stock. Wall Street projects earnings growth of 24% in fiscal 2011 and 35% in fiscal 2012. Trading at just 17.7 times trailing 12-month earnings per share and at 16 times projected earnings per share, Johnson Controls sure looks reasonably priced.
But growth stocks are only cheap if projected growth is actually going to turn into real growth. And frankly on this front, the company’s decision, announced on May 18, to end its lithium-ion battery joint venture with Saft made me raise an eyebrow. Sure, Johnson Controls is the largest maker of batteries in North America and the company dominates the lead-acid battery market with a 36%, but that’s an old, established technology. What about the future? Show me the growth.
A month later, I’ve got a much better idea on why the company filed to terminate that joint venture and where it sees growth opportunities. (Johnson Controls has been a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ since September 2009.) Read more
Update Johnson Controls (JCI)
Johnson Controls (JCI) fell 2.8% yesterday, April 25, because I don’t think investors immediately understood the company’s results. The shares are up 2.7% today because now I think they get it.
The stock fell when the company lowered guidance for the third quarter. Fiscal second quarter earnings, Johnson Controls announced, were 56 cents a share, a penny better than Wall Street had expected, on revenue of $10.14 billion. That was a 22% increase in revenue from the second quarter of 2010 and well above the $9.37 billion in revenue analysts had projected. (Johnson Controls second quarter ends in March.)
No problems in those numbers.
But for the next quarter, the company expects earnings of just 51 cents to 53 cents instead of the 67 cents that Wall Street was projecting.
The problem, of course, is disruptions to production at Japanese auto companies (in Japan and overseas) as a result of the Japanese earthquake and tsunami.
In its conference call the company laid out the consequences of that disaster to its business in very specific detail. Based on the latest forecasts from customers, the company calculates that in its fiscal third quarter it will lose about $500 million in revenue in its auto business. That will reduce earnings by 16 cents to 18 cents a share. The company doesn’t anticipate any significant impact on revenue in the fourth quarter and said it will recover lost revenue and earnings from the third quarter in the first half of fiscal 2012. (Which, on the company’s calendar, is the period beginning with the quarter that starts in October 2011.)
Do some simple math and two things should pop out at you. Read more
Update Johnson Controls (JCI)
Let me use Johnson Controls (JCI), which reported quarterly earnings on January 20, as another concrete example of how to think your way through what to do about individual stocks when the U.S. market seems to be looking for a 5% pullback and overseas markets have the potential for a 20% correction.
Johnson Controls illustrates to me the importance in a potential slowdown of emerging market economies of looking at where a company’s growth, revenue, and earnings are coming from in terms of geography and industry.
The fiscal first quarter of 2011, the one the company just reported, is typically a seasonally weak quarter—which is what makes the results so positive. The company reported record net sales for the quarter of $9.5 billon, up 13% from the fiscal first quarter of 2010. Earnings of 55 cents a share beat the Wall Street consensus by a penny.
The stock got dinged because margins fell by 1.7 percentage points from the fourth quarter of fiscal 2010. But a drop in margins in this quarter is normal for the company and year-to-year margins climbed by 0.1 percentage points.
Six months ago Johnson Control’s extraordinary performance this quarter in China’s market for auto interiors would have been grounds of cheering. Sales in Asia climbed 49% and in China alone by 37% from the first quarter of fiscal 2010. The company now estimates that it holds a 45% share of the Chinese auto seating market. The company’s battery business in China grew at a double-digit rate and the company will begin construction on a third Chinese battery plant in February 2011.
Of course, what was good news then generates worry now. Read more
