Johnson Controls Sees Hitachi Deal Generating $2.6 Billion in Sales in 2016 -- Update

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 [e-mail]

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