Building Efficiency, Batteries Drive Johnson Controls' Record Growth
Building Efficiency, Batteries Drive Johnson Controls' Record Growth
Green is proving to be a good bet for Johnson Controls, Inc. Despite the anemic condition of its two key markets -- automotive and construction -- JCI recently announced record sales and profits for 2011. And the record run will continue next year, too, company executives predicted at an analysts meeting in New York this week, with green technologies providing much of the lift.
With overall GDP growth inching along at close to one percent and talk of a double dip recession echoing widely, Johnson's rapid resurgence and bullish guidance came as a surprise. Based on preliminary figures, JCI's revenues hit a record $40.7 billion, growing by 19 percent as net income climbed by 24 percent, to $1.7 billion, in its 2011 fiscal year ending Sept. 30.
Looking out to next year CEO Steve Roell predicted revenue would expand by another nine percent to $44 billion, while earnings per share would surge by some 20 percent. Long term, Roell anticipates 10 to 15 percent annual sales growth, a pace that if realized, could double JCI's size in five years.
How is JCI growing so quickly when the overall economy is stuck in neutral? There's a hint in the breakdown of where JCI expects growth next year.
Sales will expand by about 10 percent next year in its Building Efficiency unit, spurred by accelerating spending on retrofits and efficiency upgrades. Likely to expand faster still is the Power Solutions unit, where revenues will rise by around 12 percent, stoked in part by rising demand for batteries for hybrids and electric vehicles.
The company's largest unit, Automotive Experience, will grow by 6 percent, supplying interior components and subsystems to auto makers -- think seats, dashboards and doors.
Roell made the case that while broad pessimism was probably overstated -- there's a risk that the market will "talk itself" back into a recession, he said -- JCI's green focus is part of the reason it's well positioned to grow in emerging markets and to grab share in slower-growth developed markets.
"Our market strength, product technology, and global distribution make us uniquely positioned to take advantage of the global mega-trends of energy efficiency and sustainability, and growth in emerging markets," said Roell.
The green tint to these rosy results stems from JCI's growing bets on building efficiency and electric vehicles. While VC-backed start-ups, and exotic new technology tend to attract the spotlight in discussions about the potential of clean tech, JCI's outlook offers evidence of how methodically developed green offerings, coupled with strong execution, can mine huge growth from both established and emerging markets.
Panoptix and Bending Company Culture to the Cloud
Consider JCI's last building efficiency initiative. Long a market leader in building control hardware, earlier this month JCI announced plans to push into the software services space. At Greenbuild, on Oct. 4 JCI unveiled Panoptix, a suite of cloud-hosted applications that promise to improve the collection and management of building performance data.
Building management software is complex challenge that has attracted, and spat out, quite a few players, such as Cisco, as I was reminded by Dave Myers, JCI's president of building efficiency after the meeting. It's a tricky space for pure IT experts to understand, so while they may "get" the challenge of connecting varied building systems, they often lack a deep fluency in the insular world of building control technology and practices, a world where Johnson Controls is a 125-year veteran.
"We have the presence in the market, the intelligence to operate buildings, and our gap was more of the connectivity," Myers said.
To fill that gap, Johnson Controls built an in-house software development lab, importing coders from outside the building industry, specifically to cultivate a very open sensibility about standards. Doing so also meant bending corporate culture that the system must be open to communicate with competitors' offerings. "It's essential that Panoptix be able to talk with building control systems, including our competitors," said Myers.
JCI's entry into this space comes at a time when building owners are pressing harder for verification that investments in green technologies and retrofits deliver a payback. As critics of the USGBC's LEED green building standard have emphasized, design standards don't guarantee more efficient performance.
Better building performance data, Myers added, will not only spur programs like LEED, but should make it easier to finance retrofits too, by giving lenders clear data about improved operating costs.
The second green growth area that JCI emphasized was batteries -- but not, to my surprise, the lithium-ion type that rule the roost in most advanced electric vehicles (EVs). Rather JCI sees big promise in old-school lead acid batteries, the sort cars have relied on for a century or so to start, for lighting and ongoing ignition.
In an era of space-age EVs packed with thousands of exotic li-ion power packs, where do lead-acid batteries fit in? JCI's answer: start-stop systems for conventional cars.
While maybe not as sexy as Chevy's Volt or Nissan's Leaf, these lower-cost systems can stop a car's engine when at idle, then fire it back up when the gas is pressed. At a premium that pays for itself in a year or 18 months, car makers can deliver 5 percent to 7 percent fuel savings.
Those mileage gains may be modest, but Alex Molinaroli, JCI's president of power solutions explains, given its affordability, start-stop systems will have a deeper impact on the industry, and overall mileage, far sooner than advanced EVs. In the coming decade, Molinaroli said, advanced electrified vehicles -- from plug-in hybrids to pure battery EVs -- will make up only a few percent of sales. In the interim, the true "mass market" approach to EVs will come from start-stop systems added to conventional cars.
"It's the math. Let's say EVs mean 5 percent of cars improve their mileage by 100 percent," said Molinaroli. "You have more impact improving the mileage of 100 percent of cars by 5 or 10 percent." Already widely adopted in Europe, start-stop systems will make their way into the majority of U.S. models in coming years, Molinaroli added, as automakers begin the push to hit new federal 54.5 mpg standards by 2025.
In parallel, li-ion batteries will grow continue to grow, as well, and JCI rationalized its control of its advanced battery operations. On Sept. 30, JCI completed the $145-million buyout of its joint venture with France's Saft, gaining ownership of Li-ion battery technology, rights to licenses and a recently completed plant in Holland, Mich.
JCI currently supplies Li-ion batteries to Azure (which makes electric trucks for FedEx and others), BMW, Daimler, Ford, China's Geely, Jaguar/Land Rover, Odyne (another truck maker) and VW.
Lead acid batteries were recently at the center of a dust-up at JCI's plant near Shanghai. Built by and acquired from Delco, JCI had to shutter its lead-acid battery plant in Pudong New Area last month when authorities requested the factory halt operations after exceeding its quota of lead emissions.
Molinaroli said the closing came despite the fact, in the past, JCI has been solicited by Chinese authorities to transfer practices to help local plants lower their lead emissions. The Shanghai plant, Molinaroli emphasized, operates at the same standard as JCI's facilities in Europe and the Americas. JCI has the right to resume operations at the plant on Jan. 1, and is developing four additional facilities elsewhere in China.