Tickers in this Article: JCI, NSANY, SI, HON, UTX, GNTX, XIDE
Passenger vehicles and non-residential building are two sectors that have seen some pretty ugly conditions in recent memory, and that certainly showed up in a 25% revenue decline for Johnson Controls (NYSE:JCI) in 2009. Economic conditions have turned around, though, and the company has seen a strong rebound in its results. Now with signs of life in the building efficiency segment, could even better results be on the way for shareholders?

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A Mixed Fiscal Second Quarter
Like so many other companies this quarter, Johnson Controls gave investors a mix of good news and some disappointment in its fiscal second quarter results. Revenue jumped 22% and was comfortably above even the high end of the range, as all units posted solid progress. The auto business led with over 25% growth, but even the building efficiency segment saw better than 18% improvement from last year. (For more, see Johnson Controls Sitting Well.)

Margins were more problematic, though. Gross margin ticked down 20 basis points, due largely to commodity inflation and product mix. Segment income did improve by over 30% and all segments did show year-on-year improvements in their operating margins. Unfortunately, analysts had expected even better improvement, particularly in the building segment. So while patient shareholders may not be too bothered or disappointed with 30% segment income growth, the short-term trading tenor may be negative.

Disruption from the Earthquake
At this point it looks like the impact of the Tohoku earthquake will be mostly on the timing of the company's revenue and profits. Nissan (Nasdaq:NSANY) is a big customer for Johnson Controls within Japan and production slowdowns are going to have an impact on this year, as make-up production looks like it will be shifted into the next fiscal year (late this calendar year).

A Turn in Buildings?
Non-residential construction has not really picked up yet, but it looks like Johnson Controls is seeing a better environment for its building efficiency segment. In point of fact, less than 15% of JCI's business in this segment is directly tied to new building; there is ample business opportunity in retrofitting and upgrading equipment and providing services.

Like rivals including Siemens (NYSE:SI), Honeywell (NYSE:HON) and United Technologies (NYSE:UTX), Johnson Controls is seeing good opportunities from services and retrofits designed to reduce energy consumption and improve efficiency. To some extent it's a win-win for customers - it lets them play to the green crowd while also reducing their energy costs. To that end, JCI saw its backlog of business grow 18% in this segment, while orders increased 21%.

The Bottom Line
Johnson Controls has beaten the market over the past year, though it has not benefited to the same extent that more focused auto part growth stories like Gentex (Nasdaq:GNTX) have, nor parts companies like Dana (NYSE:DAN) or Tenneco (NYSE:TEN) with more exposure to trucks and off-highway vehicles. By the same token, JCI did not fall as far during the bad times.

The company certainly has upside from its building efficiency operations and long-term growth potential in its batteries business, but none of this is news. Investors looking for above-returns from those stories are going to need to take their chances with ideas like OM Group (NYSE:OMG), Lennox (NYSE:LII) or Exide (Nadaq:XIDE). As it stands now, Johnson Controls looks like a stock where the good news in the story is already expected and built into the price. (For more, see The Value Investor's Handbook.)

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