Johnson Controls Reports Wednesday: Optimistic Predictions

Predictions are lame, but I can’t resist, because they are also fun.

Johnson Controls (JCI) announces Q2 for 2008 this Wednesday, April 16th. For more reasons than I have time to blog, I am going to predict they announce in-line, and either reiterate or up guidance (and if they do beat or up guidance, it will be marginal). I think last quarter they were being conservative with numbers because of fears in the economy that they couldn’t control - despite them verbally saying otherwise.

In the last conference call, they said something to the effect of, "We don’t see the extreme downside that economists are pointing to and other companies are foreshadowing/blaming" (I paraphrased that quote). The street didn’t get the raised guidance it was expecting, nor liked that stance. That could mean two things - 1. They are dumb, and things slowed down, so they will miss. I’m more optimistic and to lean towards - 2. They are smart, the market didn’t believe them, and since they are an international brand and well diversified with a very long term backlog, things will be okay for them. My conclusion is their conservatism, combined with the economy not slowing as much as the stock priced in, could give the shares a boost this week.

They recently announced that they are going to be one of the 12 suppliers of an expected $10B contract, spread over 5 years. That can hypothetically add a number somewhere around $166M per year in revenue. This is nearly negligible to JCI’s revenue, however I’m hoping JCI is going to supply more than one twelfth of the work. The $166M figure comes from the math that $10B/(5 years x 12 companies) = $166M.

Some recent analyst commentary contained negative things regarding the outlook for 2009. That’s too far away to accurately predict right now. A very respected economist, whom I know personally, said recently, “We have never been in more economically uncertain times.” Seriously - the fed cuts vs. not cuts - Fed lends vs. not lends - China’s growth slows fast vs. slows slowly - India ramps up the army of engineers faster or slower - all these things can swing the story of 2009. I leave 2009 in the hands of the capable management at Johnson Controls, who have an extremely great track-record of delivering.

I stay optimistic, and side with Robert Baird. Then again, I’m crossing my fingers they have an off quarter and I get to load up on shares under $30 - for the long haul.

Disclosure: Long JCI and short puts for 2009.

Comments

[nyka:]

Who's the "very respected economist"? What are the "things" you refer to? The whole article reads like someone trying to boost JCI, but with nothing substantive to support a positive viewpoint. Void for vagueness.

2008 Apr 15 11:49 AM

[John Thomas:]

Bought 5 shares today @ $32.69. Hopefully it will aprreciate.

2008 Apr 15 09:08 PM

[Jeffrey McL...:]

Nyka,

Yup I was vague, but gave full disclosure that I was long, just wanted to quickly give my opinion before the conference call. I don't care if you call my post 'void'. My call was dead on, wasn't it?

John Thomas - glad to hear it buddy! I don't think you'll go wrong with JCI.

2008 Apr 19 10:33 PM