Johnson Controls announced today that it plans to pursue a tax-free spin-off of its Automotive Experience business. Following the separation, which is expected to close in approximately 12 months, the Automotive Experience business will operate as an independent, publicly traded company.
Once the transaction is completed, Bruce McDonald, Johnson Controls vice chairman and executive vice president, will serve as the chairman and CEO of the new company. Beda Bolzenius will serve as president and chief operating officer.
The new automotive company will benefit from strong existing relationships with customers, well-established positions in growth markets including China, and will generate strong cash flow. Automotive Experience reported $22 billion in revenue in 2014.
As part of the spin-off preparation, Johnson Controls is initiating a comprehensive cost savings program. Additional details of the transaction will be provided as the separation process develops.
"This is a great opportunity for our Automotive Experience business to further its position as the global leader in automotive seating and interiors," said Alex Molinaroli, chairman and CEO of Johnson Controls. "At the same time, Johnson Controls will move forward with our multi-industrial strategies and make investments in our core growth platforms around buildings and energy storage."
Johnson Controls noted that on July 2, 2015, it completed the transaction to form a joint venture related to its automotive interiors business. The Yanfeng Automotive Interiors joint venture is the largest automotive interiors company in the world with annual revenues of approximately $8.5 billion. Beginning in the fiscal 2015 fourth quarter, the company will no longer consolidate the majority of the Automotive Interiors business and will report its share of the profits from the new joint venture as equity income.
The company also said it continues to expect the sale of its GWS business to CBRE to close in the fiscal 2015 fourth quarter, subject to final regulatory approvals. Completion of the HVAC joint venture with Hitachi is now expected in the fiscal 2016 first quarter.
"We are making significant changes to our multi-industry portfolio to drive future growth and increased shareholder value. We see considerable opportunities for growth in our buildings and energy storage businesses, and expect increasing bottom-line benefits from the Johnson Controls Operating System as we leverage our scale and expertise across the businesses," said Molinaroli. "Even in this time of change, however, our top priority remains operational excellence and consistent execution with a strong focus on our customers. We expect to complete fiscal 2015 with record results, providing strong momentum as we enter fiscal 2016."
Third quarter results
For the third quarter of fiscal 2015, Johnson Controls, Inc., (NYSE: JCI) a global multi-industrial company, reported net income from continuing operations of $503 million, or $0.76 per share, on $9.6 billion in revenues. Adjusted non-GAAP diluted earnings per share from continuing operations for the quarter were $0.91. As a result of the previously announced sale of its Global Workplace Solutions (GWS) business, the Company has reclassified GWS results to discontinued operations. Prior year financial statements have been revised accordingly.
Excluding transaction / integration costs and non-recurring items in the third quarter, continuing operations highlights include:
• Net revenues of $9.6 billion versus $9.8 billion in Q3 2014. Excluding the impact of foreign exchange, sales increased 5 percent
• Income from business segment continuing operations of $848 million compared with $745 million a year ago, up 14 percent (up 19 percent excluding foreign exchange)
• Segment income margins increased 120 basis points vs. the 2014 third quarter
• Diluted earnings per share of $0.91 versus $0.79 in the same quarter last year, up 15 percent
• Reduced Euro headwind offset by higher diesel costs and certain currencies
Non-recurring items in third quarter earnings from continuing operations include:
Fiscal 2015 third quarter
• A non-cash tax charge of $75 million related to the future repatriation of foreign cash associated with the Interiors joint venture transaction
• Transaction / integration costs of $26 million ($23 million after-tax)
Fiscal 2014 third quarter
• Pre-tax restructuring charges of $162 million primarily related to the Automotive Interiors business ($151 million after-tax)
• Pre-tax losses from divested businesses and other transaction-related costs of $115 million ($149 million after-tax).
"Our Automotive and Power businesses delivered significant margin improvements, while Building Efficiency saw higher revenues, backlog and orders. The Building Efficiency backlog increase was the biggest quarterly year on year improvement since 2012," said Alex Molinaroli, Johnson Controls chairman and chief executive officer. "We continued to see growing demand across our global markets and are realizing the benefits from our Johnson Controls Operating System efforts."
Business results (Excluding transaction / integration costs and non-recurring items)
Automotive Experience revenues from continuing operations in the fiscal third quarter of 2015 were $5.4 billion, down 6 percent compared to the 2014 quarter, as slightly higher global automotive production was more than offset by the impact of foreign currency. Excluding foreign currency, revenues increased 3 percent. Automotive industry production in the quarter increased 2 percent in North America and China and was level versus last year in Europe. Revenues in China, which are primarily related to Seating and generated through non-consolidated joint ventures, increased 10 percent to $1.9 billion, reflecting market share gains.
Automotive Experience segment income from continuing operations of $342 million was up 19 percent (25 percent excluding currency) compared to $288 million in the third quarter of 2014. The increase reflects profitability improvements in both the company's Seating and Interiors businesses due to the higher volumes and the benefits of restructuring initiatives.
Building Efficiency sales in the fiscal third quarter of 2015 were $2.7 billion, 5 percent higher than the prior year due to incremental revenues from a 2014 acquisition and higher demand for systems and services in North America. Excluding foreign currency, revenues increased 10 percent.
Adjusted for currency, backlog was 5 percent higher than the prior year quarter, the largest quarterly year over year increase since third quarter fiscal 2012. Improvements were driven by North America, Asia and the Middle East, partially offset by lower backlog in Europe and Latin America. Adjusted for acquisitions and currency, third quarter orders were six percent higher versus last year driven by higher demand in existing institutional buildings markets in North America.
Building Efficiency segment income of $272 million was up 3 percent (6 percent excluding currency) compared with $265 million in the 2014 third quarter, due primarily to the higher volumes and incremental income from the acquisition.
Power Solutions sales in the fiscal third quarter of 2015 were $1.5 billion, down 2 percent versus the 2014 quarter. Excluding the impact of foreign exchange, sales increased 6 percent. Global unit shipments increased 6 percent, with global shipments of AGM batteries for start-stop vehicles increasing 47 percent compared with the prior year. Power Solutions segment income was $234 million, up 22 percent (28 percent excluding currency), versus $192 million in the third quarter of 2014 due to improved product mix, higher volumes and operational efficiencies.
For the fourth quarter of 2015, the company expects earnings from continuing operations of $1.00 - $1.03 per share, up approximately 5 percent versus the 2014 fourth quarter, excluding any transaction-related costs and non-recurring items. The company also reaffirmed its full fiscal year expectations for segment margin improvements in all three of its businesses.
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