By Angela Chen
Johnson Controls Inc. expects its joint venture with Japan's
Hitachi Ltd. will generate sales of $2.6 billion in 2016, as the
Milwaukee manufacturing conglomerate broadens its product lines in
air conditioning equipment and gains greater access to Asian
markets.
The company revealed details of its agreement with Hitachi as it
released fiscal first-quarter results. Johnson Controls announced
in late 2013 that it would enter into a joint venture with Hitachi,
but the agreement took a year to complete. The deal still faces
regulatory approval, which the company expects to be completed this
spring.
Johnson Controls said it would own 60% of the venture with
Hitachi owning the remaining 40%. The arrangement will expand the
product lines and geographic reach of the companies' commercial air
conditioning businesses. Johnson Controls, whose brands include
York heating and air conditioning systems, will gain access to
Hitachi's distribution networks in China and Japan, as well as
Hitachi's compressors and variable refrigerant flow gear, an energy
efficiency technology that is popular in Asia. Hitachi, meanwhile,
will be able to distribute its equipment through Johnson Controls'
North America distribution network.
"Between Hitachi and our existing products our portfolio in the
commercial [air conditioning and ventilation] business is really
second to none," said Johnson Controls Chairman and Chief Executive
Alex Molinaroli during a conference call Thursday with
analysts.
Johnson Controls said it would invest about $525 million in the
venture and expects initial profit margins 4% to 5%.
The company racked up about $10 billion of sales from heating,
ventilation and air conditioning equipment for the fiscal year
ended Sept. 30, 2014. Expanding the building equipment business has
been a priority for Mr. Molinaroli since he became CEO in 2013. The
company last year bought Air Distribution Technologies for $1.6
billion. ADT makes air ventilation equipment, such as fans,
registers and diffusers.
Fiscal first-quarter sales from Johnson Controls' building
efficiency unit rose 5% from a year earlier to $3.5 billion, as
income grew 38% to $201 million.
Mr. Molinaroli has steered the company away from service
businesses and lines of low-margin automotive components. The
company, which makes replacement car batteries and automotive
seating, is spinning off a majority of its auto interiors business
to China's Yanfeng Automotive Trim Systems Co. Johnson Controls
will maintain a minority stake in the new joint venture.
"We've had a blueprint that we're following and, for the most
part, I'd say we're on [course] or even further ahead than I
expected," Mr. Molinaroli said.
For the quarter ended Dec. 31, the company reported a profit of
$507 million, or 76 cents a share, compared with $451 million, or
66 cents a share, a year earlier. Excluding transaction and
business integration costs, the company earned 79 cents a share, as
net sales climbed less than 1% to $10.67 billion. Analysts polled
by Thomson Reuters had expected the company to earn 77 cents a
share from revenue of $10.67 billion.
For the current quarter, Johnson Controls expects earnings from
continuing operations of 74 cents to 76 cents a share, compared
with analysts' forecast for 76 cents a share. The company
reaffirmed its guidance for the year of $3.55 to $3.70 per share,
excluding business integration costs.
Johnson Controls stock was up 4.7% at $48.04 in late trade
Thursday.
Angela Chen contributed to this article.
Write to Bob Tita at robert.tita@wsj.com
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