An assembly line at a Johnson Controls joint venture produces lithium-ion batteries.
Fabrice Dimier/Bloomberg
Another earnings report from a cyclical company, another so-called beat-and-raise quarter.
Friday morning, building technology giant Johnson Controls International (ticker: JCI) reported better than expected earnings for its fiscal second quarter ended in March and increased its financial forecasts for the full year.
It was good news, but the truly interesting thing to investors focused on industrial companies is that after a brief, modest upsurge, the stock turned lower in premarket trading, for a loss of 1.2% to $62.50.
Many cyclical stocks, including Johnson Controls peers such as Honeywell, have been selling off modestly after posting similar results. The sell off, to some extent, is understandable. Investors may be cashing in, given that industrial stocks in the S&P 500 are beating the market year to date as money pours into areas seen as likely to benefit from the reopening of the economy.
The big winners from 2020. meanwhile, are being sold off to some extent. Stock in stay-at-home plays such as the FAANG stocks and Microsoft (MSFT) are trailing behind the overall market by a hair so far in 2021.
Johnson Controls’ quarterly results look solid. The company reported 52 cents in per-share earnings from $5.6 billion in sales. Wall Street was looking for 49 cents from $5.6 billion in sales.
Management predicted earnings for the fiscal third quarter of 80 to 82 cents a share, in line with Wall Street estimates. For the full year, the midpoint of the company’s range of forecasts is now $2.62 cents a share, up about 7 cents. Wall Street had expected $2.59 a share.
Credit Suisse analyst John Walsh called the guidance conservative in a Friday report. Walsh rates shares Buy and has a $64 price target for shares.
“Momentum in many of our end markets continues to build,’ said CEO George Oliver in the company’s news release. “Led by continued strength in Residential, while order activity in our nonresidential businesses is accelerating.”
Johnson sells everything buildings need to operate, including air conditioning. That market is booming as the homeowners spend more upgrading systems and as U.S. housing starts accelerate. What’s more, businesses are focused more on air quality, which is another opportunity for the industry.
Along with solid earnings, Johnson announced a plan to cut another $250 million in costs, raising its target for savings to about $550 million between 2021 and 2023.
The company scheduled a conference call for 8:30 a.m. Eastern time to discuss the results. Investors and analysts will be eager to hear about the economic recovery and how big the commercial building air quality opportunity is for the company.
Year to date, Johnson shares are up about 36%, far better than comparable returns of the S&P 500 and Dow Jones Industrial Average.
Write to Al Root at [email protected]
