Johnson controls is a company that controls, adjusts and provides equipment and mechanical parts for the internal environment temperature of buildings. The company has a strong automobile battery and seat business, which makes it control the market share of automobile power supply and interior products larger than any similar enterprise in the world. The company formulates its business development strategy with unique principles, long-term planning, striving for the best positioning in the industry and the region, as well as smart allocation of capital and friendly to shareholders.
The above characteristics are in line with the rebound of automobile production in the future and the rapid growth of the demand for greener, cleaner and lower-cost construction management technology, which seems to make the company’s shares whose current valuation is lower than the expected earnings per share of 12 times next year may perform very well in the future.
Considering the company’s market value of nearly $20 billion and its 125-year history, johnson controls is among the quietest iconic enterprise groups in the United States, and its reputation is worthy of the historical heritage of the Midwest and the reputation that its products play a vital behind-the-scenes role in a larger system. Warren Johnson)1883 obtained the invention patent of thermostat in 1883, which is only one of the 50 invention patents he obtained, and most of them are related to the regulation and deployment of heat and electric energy. The three important business branches of the company today are all related to these inventions.
Among them, the largest business called AutomotiveExperience by the company is mainly to supply seats and control panels with various instruments installed in cars to automobile manufacturers. Secondly, it is called Power Solutions, which provides storage batteries and backup batteries for automobile products. These two businesses of the company are the best in the automobile supporting industry.
However, the fastest growing business in recent years is from the branch called BuildingEfficiency. Its business is to provide heating, ventilation, safety monitoring, lighting system products and related services for various large buildings such as office buildings, schools and large enterprises. As its most glorious work, the company took the lead in updating the entire internal environment system for the Empire State Building in New York with a history of nearly 80 years in less than four years to ensure that the building saves energy consumption.
The building function control business represents the long-term efforts of powerful competitors in the industry to assemble or outsource some important building functions in order to continuously pursue cost saving and optimize building performance. Automation of temperature control, air flow, lighting, elevator operation and security functions has enabled companies such as johnson controls, HoneywellInternational, Siemens, and Carrier, a subsidiary of United Technologies (UT), to create a stable and well-growing market in this obscure field.
Johnson Controls began to significantly enhance the company’s influence in the industry with the acquisition of YorkInternational five years ago. This acquisition later proved to be a rare transaction among large companies, which can enhance the company’s value. From 2005 to 2009, the sales revenue and profit growth of building function control business was more than twice the original scale. The proportion of sales revenue of this business in the company’s total revenue increased from 21% in fiscal year 2005 to 37% in the first nine months of 2010.
This makes johnson controls, which used to be regarded as an authentic supplier of large-scale auto parts, turn to diversified development and be less affected by cyclical business. A better business balance strategy not only helps the company avoid the greater negative impact of the recession in 2008-2009 on the automobile industry, but also helps the company to withstand the greater losses it might have suffered, thus enabling it to attack the city and plunder the land in the market when other competitors have no respite, and putting itself in a favorable position to achieve long-term business goals.
In the fiscal year ending September 30th last year, the sales revenue of johnson controls’s three major businesses reached US$ 28.5 billion. However, due to the shrinking car sales caused by the financial crisis and recession, the company’s net profit of $979 million and $1.63 per share in the previous year turned into a loss of 338 million or a poor performance of 57 cents per share. The company’s share price also dropped from a high of $40 per share at the end of 2007 to $9 in March last year due to the sluggish automobile and commercial real estate markets.
At present, the company’s share price is US$ 28, which is 14 times the estimated earnings of US$ 1.96 per share in this fiscal year and 11.5 times the estimated earnings of US$ 2.42 per share in the next fiscal year, which is slightly lower than the estimated price-earnings ratio of 12-14 times for the whole industry next year. Some analysts believe that with the full recovery of the company’s various businesses next year, its share price should be around $35. At its peak in 2007, the company earned $2.16 per share and earned $34.6 billion in sales.
The company itself predicts that its core business will continue to grow at a rate of 5% compound interest in the next five years. The CEO of the company believes that it is a great challenge for every core business to grow at twice the market growth rate.
The company’s financial situation is very healthy, the asset-liability ratio is below 20%, and its efficient use of funds is impressive. The company’s long-term net debt of $2.6 billion is equivalent to the profit before deducting interest, tax, depreciation and amortization in a fiscal year. The company’s cash flow this fiscal year can reach $1.3 billion.
Although the business of improving the efficiency of building functions continues to grow, Wall Street still regards it as an automobile industry. Most securities brokers assign automobile analysts to provide their analysis information to investors. What’s worse, the company’s competitive advantage in the automobile industry has hardly been recognized by the market. The most obvious concern of Wall Street is that the company announced its earnings per share of 54 cents in the third quarter of this fiscal year, which is 1 cent less than the common earnings forecast of analysts, thus causing the company’s share price to fall by 5% that day.
This is because some accruals related to real estate obscure the company’s excellent performance. Because the company’s performance announcement is very transparent and unwilling to hide anything that has a negative impact, the company’s stock was sold off. In fact, in the company’s performance briefing conference call, shareholders also questioned the cautious accounting principles of senior management.
Other factors that have a negative impact on the company’s profit in the third quarter are that the company has invested heavily in new facilities for spare parts storage and supply, as well as promising automobile interior engineering. As these investments gradually show results in the future, the company will benefit greatly.
Other reasons that lead to the profit not meeting expectations are related to the weakness of the euro, because about 40% of Johnson Controls’ business is in Europe. In addition, the weak automobile market in North America has made the sluggish business worse. However, with the recovery of automobile production and the rapid increase of demand for technology to improve building efficiency, all these unfavorable factors can not change the company’s long-term growth prospects.
Johnson controls has been praised by investors for his shareholder-friendly management style. Judging from its sound development strategy and the practice of sharing more profits with shareholders, the company’s reputation in the industry must be deserved. (eastern Anhui)