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Johnson Controls (NYSE: JCI) generated $34.6 billion in 2007 revenue. The company offers its customers control systems, mechanical equipment and services relating to heating ventilation and air conditioning (HVAC). The company also designs and manufactures automotive interiors and interior components for companies like Ford Motor Company (F). Johnson Controls' third business segment produces lead acid automobile batteries, which are mostly sold through aftermarket retailers like Pep Boys-Manny, Moe & Jack (PBY), and batteries that power hybrid vehicles.

A decrease in the total number of new cars sold in the U.S. from 16.5 million in 2006 to 16.1 million in 2007 resulted in decreased sales for the company's Automotive Experience segment.[1] On the other hand, favorable exchange rates gave the company a $1.5 billion revenue boost in 2007.[2] Likewise, a $0.31 per kilowatt hour increase in the price of electricity between 2006 and 2007 resulted in more sales for the company's Building Efficiency operations.[3] Johnson Controls competes with companies like Ingersoll-Rand Company (IR), Siemens AG (SI), Honeywell International (HON) and United Technologies (UTX) in the HVAC products and services market and companies like Lear (LEA) and Magna International (MGA) in the automotive interiors market.

Contents

[edit] Business Segments

[edit] Building Efficiency (37%)

Building Efficiency generated 37% of the company's 2007 revenue. The segment manufactures and sells control systems and mechanical equipment for heating, ventilation and air conditioning (HVAC) applications. The company's HVAC products are designed to maximize the energy efficiency of commercial buildings. In addition to manufacturing HVAC products, Building Efficiency offers services such as energy efficiency consulting and on site maintenance and property management. Customer relationships often last for the life of a building as the company installs HVAC systems in new buildings and maintains them over time.[5] Building Efficiency competes with similar products and services from Trane, Siemens Building Technologies, Honeywell International (HON), and Carrier Corporation.[6]

[edit] Automotive Experience (50%)

Automotive Experience generated 50% of the company's 2007 revenue. The segment designs and manufactures automotive interiors and interior components for automobile companies such as Ford Motor Company (F), General Motors (GM) and Daimler AG (DAI).[7] The company's Automotive Experience products include seats, instrument panels, information displays, headliners and doors.[8] The segment's products compete with similar products from companies such as Lear (LEA) and Magna International (MGA).[9]

[edit] Power Solutions (13%)

Power Solutions generated 13% of the company's 2007 revenues and produces lead-acid automobile batteries. The company sells most of it's automobile batteries to aftermarket purchasers through retail outlets like Pep Boys-Manny, Moe & Jack (PBY) and Wal-Mart Stores (WMT). The company also sells batteries to automobile manufacturers. Power Solutions also manufactures absorbent glass matt (AGM), nickel-metal-hydride and lithium-ion batteries that power hybrid vehicles.[10]

[edit] Business Financials

Johnson Controls Revenue, Operating Income and Net Income for years ending Sept. 30[12][13] ($ in millions)

Segment 2007 2006 2005
Building Efficiency 12,737 10,245 5,718
Automotive Experience 17,552 18,274 18,833
Power Solutions 4,335 3,716 2,928
Total Revenues 34,624 32,235 27,479
Operating Income 1,795 1,299 1,066
Net Income 1,252 1,028 909

[edit] Key Trends and Forces

[edit] Demand for automobiles affects the demand for Johnson Controls' automobile components

When consumers purchase more automobiles, Johnson Controls' sales increase, as automobile manufacturers need to purchase more of the company's interior equipment for the cars they make. On the other hand, when automobile sales decrease, automobile manufacturers purchase less of the company's interior equipment. Between 2006 and 2007 U.S. sales of automobiles fell from 16.5 million new cars to 16.1 million new cars.[14] Despite attempting to minimize the effects of decreased automobile demand by negotiating contracts, Johnson Controls' Automotive Experience revenues decreased by $722 million dollars between 2006 and 2007.[15]

[edit] Exchange Rates resulting in a weak dollar boost Johnson Controls' revenue

Because Johnson Controls reports their revenues in U.S. dollars but does 61% of their business outside of North America, it is exposed to fluctuations in exchange rates. If foreign currencies depreciate, the dollar value of Johnson Controls' international revenues decreases. On the other hand, if the dollar value decreases (foreign currencies appreciate), the dollar value of Johnson Controls' international revenues increases. Between June 18, 2007 and June 18, 2008 the Euro value of one U.S. dollar decreased from 0.75€ to 0.65€.[17] During the same period of time, the dollar also depreciated in relationship to the Japanese Yen.[18] As a result of the dollar's depreciation, Johnson Controls received a revenue boost to the tune of $1.5 billion in 2007.[19]

[edit] Rising electricity costs result in more demand for Johnson Controls' Building Efficiency products and services

As the price of electricity rises, individuals and businesses that own office buildings and other commercial real estate spend more money on products and services offered by Johnson Controls that help them cut electricity costs. On the other hand, when the price of electricity falls, commercial real estate owners are less likely to purchase Johnson Controls' Building Efficiency products and services because the savings generated by the new products and services don't cover the costs of implementing them. Between 2006 and 2007, the price of electricity supplied to commercial customers rose from $9.46 per kilowatt hour to $9.67 per kilowatt hour.[20] During the same period of time, Building Efficiency revenues increased 24%.[21]

[edit] Key Competitors

  • Ingersoll-Rand Company (IR) supplies its customers with climate control, industrial, and security products and services. The company acquired Trane, Inc in December 2007. The company's climate control operations, including Trane, compete with Johnson Controls' Building Efficiency products and services.[22]
  • Siemens AG (SI) offers it's customers products and services based on its expertise in electrical engineering. Siemens competes directly with Johnson Controls' Building Efficiency products and services through its Siemens Building Technologies brand.[23]
  • Honeywell International (HON) provides customers with products and services including aerospace products, building products and services, turbochargers, and chemicals. The company's building products and services compete directly with Johnson Control's Building Efficiency segment.[24]
  • United Technologies (UTX) provides technology driven products and services to the building systems and aerospace industries. The company also owns the Carrier Corporation, which competes directly with Johnson Controls' Building Efficiency operations.[25]
  • Lear (LEA) provides automobile manufacturers with seats and electrical distribution systems. The company's seats compete with the seats offered by Johnson Controls' Automotive Experience segment.[26]
  • Magna International (MGA) designs and manufactures automotive assemblies, modules and components such as seats, interiors, metal body systems and metal chassis systems. The company's seats and interiors compete with those produced by Johnson Controls' Automotive Experience segment.[27]

Johnson Controls and Key Competitors 2007 ($ in millions)

Company Revenue Net Income Net Profit Margin
Johnson Controls 34,624 1,252 3.6%
Ingersoll-Rand Company (IR) 8,763 3,966 45.3%
Siemens AG (SI) 993,055 3,313 0.3%
Honeywell International (HON) 34,589 2,444 7.1%
United Technologies (UTX) 54,759 4,224 7.7%
Lear (LEA) 15,995 242 1.5%
Magna International (MGA) 26,067 648 2.5%

Note: Johnson Controls ends its year on September 30. Figures for Siemens AG (SI) were converted from Euros using average 2007 exchange rates.[28]


[edit] References

  1. Sacramento Bee: Auto experts see annual new-car sales below 15 million
  2. JCI 2007 10-K: Fiscal year 2007 compared to fiscal year 2008, pg 20
  3. Average Retail Price of Electricity to Ultimate Customers: Total by End-Use Sector
  4. JCI 2007 10-K Segment Information, pg 78
  5. JCI 2007 10-K: Business, pg 2
  6. JCI 2007 10-K: Business, pg 3
  7. 2007 JCI 10-K: Notes to Consolidated Financial Statements, pg 79
  8. JCI 2007 10-K: Business, pg 2
  9. JCI 2007 10-K: Business, pg 3
  10. JCI 2007 10-K, pg 3
  11. JCI 2007 10-K Segment Information, pg 78
  12. JCI 2007 10-K: Consolidate Statements of Income, pg 44
  13. JCI 2007 10-K Segment Information, pg 78
  14. Sacramento Bee: Auto experts see annual new-car sales below 15 million
  15. JCI 2007 10-K: Fiscal year 2007 compared to fiscal year 2006, pg 22
  16. EUR to USD Exchange Rates
  17. EUR-USD Exchange Rates
  18. USD-JPY Exchange Rates
  19. JCI 2007 10-K: Fiscal year 2007 compared to fiscal year 2008, pg 20
  20. Average Retail Price of Electricity to Ultimate Customers: Total by End-Use Sector
  21. JCI 2007 10-K: Fiscal year 2007 compared to fiscal year 2008, pg 21
  22. Google Finance: IR
  23. Google Finance: SI
  24. Google Finance: HON
  25. Google Finance: UTX
  26. Google Finance: LEA
  27. Google Finance: MGA
  28. Monthly Average Graph (American Dollar, Euro) 2007
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