Automotive recovery revs up Johnson Controls

Glendale-based Johnson Controls Inc. is uniquely positioned for growth by capitalizing on the remarkable recovery of the U.S. automotive industry.

The company’s stock has been trading at or near its 52-week high recently.

Johnson Controls’ Automotive Experience unit accounts for 49 percent of the company’s revenues. So, with each of the “Big Three” American automobile makers reporting strong June sales, the outlook is bright for key suppliers such as Johnson Controls.

* General Motors Co.’s June sales rose 6.5 percent to 264,843 vehicles.

* Ford Motor Co.’s June sales rose 13 percent to 228,174 vehicles.

* Chrysler Group LLC’s June sales rose 8.2 percent to 156,686 vehicles.

In April, Robert W. Baird & Co. Inc. analysts David Leiker and Joseph Veruwink took note of the positive tailwinds building behind behind Johnson Controls and reiterated their “outperform” rating on the company’s stock, which trades with the ticker symbol of “JCI.”

“We upgraded Johnson Controls to ‘outperform.’ Higher earnings expected over the next several years with improving margins, growing automotive end markets and increasing demand for advanced batteries and building efficiency,” the Baird analysts wrote in their research note.

Johnson Controls’ automotive battery segment, which employs around 13,000 people, is the largest global supplier of lead-acid batteries with a 36-percent market share.

“North American (automotive) production will rebound with growth of 4.4 percent and 6.8 percent respectively in the upcoming third and fourth fiscal quarters. Then finally, China production will be up 9 percent in the next six-month period consistent with the comment I made earlier about the prospects for the full fiscal year,” Johnson Controls chief executive officer Stephen Roells said in a second-quarter conference call with analysts.

The company received another boost when it won a contract to provide automotive batteries to Walmart stores nationwide. That decision by the retailer prompted Milton, Ga.-based Exide Technologies Inc., which previously held the Walmart account, to file for Chapter 11 bankruptcy on June 10, clearing the way for Johnson Controls to gain even greater market share.

At the same time, Johnson Controls also is investing to increase production capacity of its start-stop batteries, which have seen increasing adoption from consumers and original equipment manufacturers, especially in Europe. The batteries power start-stop vehicles, which turn off automatically when the vehicle comes to a rest and restart, when the clutch is engaged or brake is released.

The company estimates that the global annual market for new start-stop vehicles will reach 35 million by 2017.

Johnson Controls also is investing to grow its footprint in the emerging markets and expand margins through a lead recycling facility in South Carolina.

Meanwhile, Johnson Controls is attempting to narrow its focus by selling its $1 billion automotive electronics business. The company has opened up talks to sell the business unit to private equity firms. The sale of that business will enable Johnson Controls to focus on its higher-margin businesses, including building controls, next-generation car batteries and car seating.

Steve Jagler is executive editor of BizTimes.

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