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Johnson Controls and Its Plan to Build a Battery Plant

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Price movement

Johnson Controls (JCI) rose by 0.09% to close at $44.46 per share at the end of the second week of June 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 0.09%, 9.1%, and 14.2%, respectively. This means that JCI is trading 2.6% above its 20-day moving average, 7.9% above its 50-day moving average, and 11.8% above its 200-day moving average.

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Related ETF and peers

The Vanguard Large-Cap ETF (VV) invests 0.15% of its holdings in Johnson Controls. VV tracks a market-cap-weighted index that covers 85% of the market capitalization of the US equity market. The YTD price movement for VV was 3.3% as of June 10, 2016.

The market caps of Johnson Controls’ competitors are as follows:

  • Honeywell International (HON): $89.3 billion
  • Raytheon (RTN): $40.6 billion
  • Lear (LEA): $8.7 billion

Johnson Controls plans to build battery plant

In a press release on June 9, 2016, “Johnson Controls is forming a joint venture with Binzhou Bohai Piston Co., Ltd., an auto parts affiliate of Beijing Automotive Industry Group Co., Ltd. (BAIC Group), to build its fourth Chinese automotive battery manufacturing plant.” The company went on to say that the “plant will employ 650 people who will manufacture both conventional flooded and absorbent glass mat ([or] AGM) battery technologies.”

The company plans to start construction of the plant in 2017 and begin production two years later.

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Performance in fiscal 2Q16

Johnson Controls reported fiscal 2Q16 net sales of $9.0 billion, a decline of 1.8% compared to net sales of $9.2 billion in fiscal 2Q15. The company’s cost of sales as a percentage of net sales and income from continuing operations before income taxes fell by 2.4% and 34.7%, respectively, in fiscal 2Q16 compared to the same period last year. It reported restructuring and impairment costs of $2.3 billion in fiscal 2Q16.

Its net income and EPS (earnings per share) fell to -$5.3 billion and -$0.82, respectively, in fiscal 2Q16. That compares to $5.3 billion and $0.80, respectively, in fiscal 2Q15.

Johnson Controls’ cash and cash equivalents fell by 40.0%, and its inventories rose by 22.9% in fiscal 2Q16 compared to fiscal 4Q15. Its current ratio fell to 0.94x in fiscal 2Q16 compared to 1.0x in fiscal 4Q15.

Projections

The company has made the following projections:

  • EPS of $3.85–$4 per share for fiscal 2016
  • effective tax rate of 17% for fiscal 2016
  • EPS of $1.01–$1.04 for fiscal 3Q16
  • repurchase $5.0 billion in shares before the end of fiscal 2016

This guidance doesn’t include transaction, integration, separation costs, and other non-recurring items.

Next, let’s take a look at Mead Johnson Nutrition.

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