Johnson Controls Inc., one of the world's largest auto suppliers, said a drop in auto production following last month's earthquake in Japan would cut earnings and revenue in its third quarter.
The company Monday forecast a $500 million drop in revenue in the third quarter, which ends in June, that would reduce earnings by 16 to 18 cents per share. It said it now sees third-quarter earnings between 51 and 53 cents per share. On average, analysts culled by Thomson Reuters I/B/E/S had projected third-quarter earnings of 67 cents per share.
Johnson Controls said it expects to recoup the shortfall in the first half of its fiscal 2012 year, which begins in October. The company now projects fiscal 2011 earnings between $2.40 and $2.45 per share.
"Were it not for the Japan, we would have been talking today about upping our guidance to $2.58 to $2.65," Chief Financial Officer Bruce McDonald said during a call with analysts.
The company's shares fell more than 3 percent to $39.42 on the New York Stock Exchange. Shares of other auto suppliers including Gentex Corp. and TRW Automotive Holdings Corp. also slipped, alongside a slide in the Standard & Poor's 500 index.
Johnson Controls provided the outlook as part of its second-quarter earnings report, which edged out Wall Street estimates. The company also lifted its revenue outlook for the 2011 fiscal year.
The company reported net income of $354 million, or 51 cents per share, up from $274 million, or 40 cents per share, a year earlier. Excluding one-time costs linked to acquisitions, the company earned 56 cents per share, slightly better than the average analyst estimate of 55 cents per share.
Revenue in the quarter rose 22 percent to $10.14 billion.
A stronger euro and a 15 percent jump in revenue in its building efficiency unit will boost Johnson Controls' 2011 revenue to $39.5 billion, the company said. This was $1 billion higher than its previous forecast of $38.5 billion.
The building efficiency unit makes heating and ventilation systems for buildings.
SUPPLY CHAIN WOES
The March 11 earthquake, tsunami and nuclear crisis in Japan has disrupted the supply of key auto parts and forced auto companies to idle plants and cut output.
McDonald said production in Japan is expected to fall 50 percent in the third quarter. Before the earthquake, the company's sales to Japanese automakers worldwide amounted to about $4 billion, including joint ventures, for fiscal 2011.
Baird analyst David Leiker noted that about 85 percent of the company's business in Japan is with Nissan Motor Co.
"The only impact on JCI is the company's ability to secure microcontrollers for some of its automotive products," Leiker said in a research note, citing seat controllers as among the affected products.
The crisis also revealed the shortcomings of the just-in-time production system, which involves keeping low quantities of parts and supplies on hand on avoid high costs.
Many automakers are still amending production schedules on the fly, McDonald said. Over the next month, suppliers and automakers will likely have a better handle on how supply chain disruptions will affect their business.
"We still get things like, over the weekend, a revised schedule to take a day out of the next week or something like that," McDonald said. "They are grappling to try and figure out what the impact is and I would say, as time goes on, it is getting worse."
Fifty of Johnson Controls' 250 just-in-time distribution facilities worldwide will be affected by the crisis in the third quarter, he added.
Johnson Controls' earnings report came shortly after Japanese automakers including Toyota Motor Co. reported bleak production figures for March.
Ford Motor Co. and AutoNation Inc. are expected to report quarterly earnings on Tuesday.
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