Johnson Controls Auto Parts Business Expects Higher Profit After Spinoff
September 15 2016 - 3:10PM
Dow Jones News
Johnson Controls Inc.'s automotive parts business expects to
boost profits and investments in 2017 after it is spun off
following the Milwaukee company's merger with Tyco International
PLC, executives said.
The world's largest maker of car seats, which will be known as
Adient when it becomes independent, forecasts adjusted net income
between $850 million and $900 million for the fiscal year ending
Sept. 30, 2017, company executives said.
Adient Chairman and Chief Executive Bruce McDonald briefed
analysts and investors Thursday on the pending independent
company's financial projections. The merger between Johnson
Controls and Tyco was completed earlier this month. Adient is
poised to start trading on the New York Stock Exchange Oct. 31.
Adient predicts capital expenditures to reach up to $575 million
and free cash flow of $250 million, with the latter squeezed from
some $400 million in costs associated with new internal technology
systems and other financial outlays associated with getting the new
company on its feet. The company also expects improved margins.
Adient, which employs some 75,000 people, will have a tax rate
between 10% and 12% as a Dublin-based company, among the wrinkles
associated with the so-called tax-driven inversion deal making
Johnson Controls an Irish firm. Shares in Adient will be treated a
taxable dividend for recipients, according to a previous regulatory
filing, cutting the company's tax bill.
Adient's sales in the 2017 fiscal year are expected to reach up
to $17 billion, relatively flat compared with the forecast for the
current year. The company expects sales to grow once freed from
capital expenditure constraints tied to being housed within Johnson
Controls. The automotive parts business logged $20 billion in sales
last year, which included $3 billion from its interiors business.
The company controls more than a third of the global seating
market.
"We were constraining investment in the business and, as a
result of that, we were sort of flatlining it from a revenue
perspective," said Mr. McDonald, currently Johnson Controls' vice
chairman and executive vice president, in an interview. He said
boosting capital expenditures as an independent company would "get
the business back on a growth trajectory."
Johnson Controls decided to spin off the bulk of its automotive
parts business as part of the Tyco merger to focus on heating and
air-conditioning equipment and car batteries.
Adient provides seats to auto giants including General Motors
Co., Ford Motor Co., Volkswagen AG and Nissan Motor Co., with
diversified sales that top out at 14% of its business for any one
car manufacturer.
The company also has 45% of the seating business in China, the
world's largest car market, with 17 joint ventures operating 60
manufacturing locations in 32 cities. It owns a 30% stake in
China's Yanfeng Automotive Trim Systems Co., a venture creating the
world's largest producer of instruments, door panels and other
interior components that reaps about $8.5 billion in annual
sales.
Adient is looking to get another foothold in Silicon Valley,
where traditional auto makers, technology giants and startups are
racing to develop autonomous-driving technologies and electric
cars, with parts suppliers investing in radar systems and other
components.
Adient has an office in the San Francisco area in an effort to
collaborate with the likes of Alphabet Inc. and Apple Inc.
depending on how driverless car efforts develop. Mr. McDonald
likened the forays to early relationships developed with Japanese
companies in the early 1980s that solidified business with Toyota
Motor Corp., Honda Motor Co. and Nissan when they made inroads in
the U.S. and challenged Detroit's auto titans.
"We want to be the first ones out there, introducing ourselves,"
Mr. McDonald said of auto industry activities in Silicon Valley. He
said significant opportunities exist for supplying driverless cars
that could require seats to swivel and face one another, and
interiors with workspaces or other configurations should motorists
eventually be out of the loop.
In the short term, Adient is booking gains in the U.S. amid low
gasoline prices that send consumers flocking to less-efficient
sport-utility vehicles that feature more seats than passenger cars.
"That's a huge benefit," Mr. McDonald said, adding that U.S. car
sales are likely to start plateauing after a record total of 17.5
million light vehicles last year, but remain at elevated
levels.
Corrections & Amplifications: The merger between Johnson
Controls and Tyco International was completed earlier this month.
An earlier version of this article incorrectly stated that the
merger was expected to close Oct. 3.
Write to Mike Spector at mike.spector@wsj.com
(END) Dow Jones Newswires
September 15, 2016 14:55 ET (18:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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