Multi-industrial company Johnson Controls, Inc. (JCI) Friday morning announced plans to initiate another round of restructuring activities in order to further align its cost structure with global automotive market conditions. Restructuring includes workforce reductions and closure of 10 manufacturing plants. The restructuring initiatives would result in pre-tax charges in the second quarter of fiscal 2009 and is expected to be completed in 2010. The company also affirms expectations of profitable fiscal 2009 second-half.
In a statement, chairman and chief executive officer, Stephen Roell said, Today's announcement demonstrates our continued ability to improve our cost structure. Earlier this month, we completed a debt offering that significantly improves our liquidity and gives us the flexibility to take advantage of opportunities that may arise as a result of the economic environment. Both of these actions provide further competitive advantage.
The Milwaukee, Wisconsin-based company noted that the latest round of restructuring activities would see workforce reductions and closure of 10 manufacturing plants. These restructuring activities would result in an estimated pre-tax charge of $200 million to $215 million in the second quarter of fiscal 2009, of which 80% is associated with the company's automotive experience business.
Johnson Controls had announced previously that it expected tax benefits to total $150 million to $200 million in the second, third and fourth quarters of fiscal 2009. The company currently expects the about $75 million non-recurring tax benefit in the second quarter to partially offset the restructuring charges. The company anticipates completing the latest restructuring activities in fiscal 2010, with expected payback of one-and-a-half years.
These restructuring activities primarily focus on the excess manufacturing capacity at automotive experience business resulting from lower industry production in the European, North American and Japanese automotive markets. The company's automotive experience business expects to achieve a break-even run-rate by the end of fiscal 2009, while Johnson Controls affirmed that it expects a return to profitability in the third and fourth quarters of fiscal 2009.
These restructuring activities also target the company's power solutions business, where focus would be on optimizing manufacturing capacity to reflect lower overall demand for original equipment batteries amid lower vehicle production levels.
Johnson Controls revealed that North American production in the March quarter, on an annualized basis, was at a 27-year low. The company currently sees fiscal 2009 vehicle production of 8.8 million units in North America and 14.3 million units in Europe, lower than its prior forecast. In December, the company predicted production estimates of 9.3 million units in North America and 16.2 million units in Europe for fiscal 2009.
In September, Johnson Controls announced a $495 million restructuring program with cost reduction initiatives across all three of its businesses. The company has completed two-thirds of the first round of restructuring activities. Under the program, 21 plants will be closed in 2009 in North America and Europe. The company noted that they could close the plants sooner than originally planned due to lower automotive production levels.
The company is expected to reap the benefits from the September restructuring program in the third quarter of fiscal 2009 and anticipates completing the restructuring activities by the end of fiscal 2009. The company also sees an earnings benefit in a range of $0.20 to $0.25 per share in fiscal 2010 from the first round of restructuring activities.
While we don't expect near-term recoveries in our markets, we believe we can manage through this environment from a position of strength and enhance our ability to gain further market share while improving our margins, Roell added.
The company also confirmed that it does not expect any further restructuring activities in the foreseeable future. The company is scheduled to report second quarter financial results on April 21, 2009. On average, fourteen analysts polled by Thomson Reuters currently anticipate second quarter loss of $0.15 per share. Twelve Wall Street analysts have a consensus revenue estimate of $7.02 billion for the quarter.
The economic woes and the crisis in the auto sector have negatively impacted all auto parts makers and prompted many of them to update or withdraw their forecasts. Johnson Controls withdrew its 2009 financial guidance in December, citing the rapid decline in global automotive production and uncertain industry conditions.
Earlier, Johnson Controls also reduced its fiscal 2009 capital expenditure forecast to $600 million-$650 million from the previously estimated budget of $975 million, primarily reflecting the elimination of automotive capacity expansion investments. The auto parts maker said it is continuing to adjust its cost structure and evaluate other cost reduction options in response to the environment.
The company is optimistic about the new U.S. Administration's infrastructure investment plans that target energy efficiency improvements in federal buildings and schools, which are two of Johnson Controls' Building Efficiency businesses' largest markets. This could substantially strengthen the growth opportunities for the company.
In January, Johnson Controls reported a loss for the first quarter compared to a profit last year, hurt by charges and the rapid decline in global automotive production as well as the uncertain industry conditions. The building efficiency business of the company has been less swayed by the market turbulence, which partially offset the 32% drop in sales in each of the automotive experience and power solutions businesses.
Though the company did not provide any forecast at that time, it revealed that it is expected to report a loss in the second quarter similar to the first quarter operating loss, but with improved performance over the first quarter by its building efficiency and power solutions businesses. However, the company expects the automotive experience segment's North American production levels in the second quarter to be much worse than the first quarter, at 46% below the prior year levels.
In Friday's regular trading session, JCI is currently trading at $12.69, down $0.21 or 1.63% on a volume of 6,000 shares. In the past 52-week period, the stock has been trading in a broad range of $8.35 to $36.49.
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