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

U.S. automakers are back, baby.

And so are their stocks.

December vehicle sales in the U.S. climbed to a 12.5 million unit annual rate. That’s without help from “Cash for clunkers” or any other government subsidy program. And with relatively restrained incentives from the automakers themselves.

For the month General Motors saw sales climb by 8.5% from December 2009 and Ford saw sales grow by 6.8%. General Motors retained a leading 19.6% share of the U.S. market and Ford jumped over Toyota to take the No. 2 slot with a 16.6% share. For the full year General Motors saw a 6.7% climb in sales and Ford’s sales grew by 15.2%.

No wonder the price of Ford soared in 2010—up 67.9%. General Motors only emerged from bankruptcy this year. The company’s November 10 IPO (initial public offering) closed at $34.19 on its first day of trading. From that close to the close on January 6, the shares were up 13.8%

But looking ahead, if in 2011 you really want to leverage the recovery in auto sales, shares of General Motors and Ford aren’t the best stocks to own. To get the most mileage from the auto industry, to really turbo charge your returns, to … well, you get the idea, look to the shares of auto industry suppliers. Read more

Update Johnson Controls (JCI)

General Motors’ stock offering turned out to be so popular that it was massively oversubscribed and the company increased the share price for its initial public offering to $33 a share.

Doing some back of the envelope calculations and making assumptions that the company’s fourth quarter will be decent, the Financial Times calculated that GM shares at $33 a share the stock sold for 11.5 times projected 2010 earnings. At the $35 opening price, I calculate that the shares traded for 11.8 times projected 2010 earnings. That compares to 8.1 times for Ford.

The sudden enthusiasm for things auto has had me trawling through the space looking for companies that sell into the auto industry—but that don’t face the daunting task of figuring out some way to make money in a global car industry that’s awash in excess manufacturing capacity.

A auto industry supplier like Johnson Controls (JCI), with a 15% exposure to the U.S. Big Three (or whatever we call them these days) and a big and growing market share in China caught my eye yesterday because the company raised its dividend by 23% to 16 cents a share from 13 cents. That will only raise the yield on an annual basis to 1.7% but dividend increases, especially substantial dividend increases like this, are an indicator in my opinion that the company’s board of directors feels very positive about the medium-term trends in the company’s business. (Johnson Controls is a member of both my Jubak’s Picks http://jubakpicks.com/the-jubak-picks/ and Jubak Picks 50 http://jubakpicks.com/jubak-picks-50/ portfolios.)

And Johnson Controls, which isn’t just coming out of bankruptcy and doesn’t still have to sell a sizeable stake held by the U.S. government and that has a growing business in hybrid auto batteries, sells for just 14.9 times projected fiscal year 2011 earnings. (The company’s fiscal year ends in September 2011.)

As of November 18, I’m raising my target price for Johnson Controls to $42 by January 2011 from my previous target price of $39 a share by January 2011.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, 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 the September quarter. For a full list of the stocks in the fund as of the end of the most recent quarter see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/ )

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.

So why the big sell off?    Read more