July 24, 2015 / 8:29 PM / 2 years ago

UPDATE 2-Johnson Controls plans spinoff of automotive business in 12 months

3 Min Read

(Adds CEO comments from conference call, analyst comment, details)

July 24 (Reuters) - Johnson Controls Inc said on Friday it planned to spin off its $22 billion automotive business in the next 12 months and reported quarterly earnings roughly in line with analysts' expectations.

Shares of the company fell 4.5 percent to $44.24.

"I think there is a little disappointment with the spin versus a sale," said UBS analyst Colin Langan. "But personally, I don't think it is a big deal either way; only if they sell it, JCI would have gotten a lot of cash."

The company said automotive income from continuing operations rose 19 percent to $342 million in the third quarter ended on June 30 from a year earlier. The segment's revenue fell 6 percent to $5.4 billion as the stronger dollar reduced the value of overseas sales.

The business includes automotive seating, overhead systems, floor consoles, door panels and instrument panels.

"It is the largest seating supplier in the world," Langan said. "There are only a handful of people that could come up with that size of the financing to do the deal."

Last month the company said it was exploring options to exit the automotive seating and interiors business to focus on its higher-margin building efficiency and automotive battery operations.

But some analysts were surprised at how quickly Johnson Controls decided to spin off rather than sell the automotive business.

"We see it as another sign that JCI is making progress toward recasting itself as a multi-industry company," Barclays analyst Brian Johnson said in a research note.

Chief Executive Officer Alex Molinaroli said the uncertainty surrounding the transaction was not good for its customers, especially those in China.

Asked about why the company decided on a spinoff, Molinaroli said: "We had the opportunity to speak with those potential buyers ... and it became very clear to us that we needed to make sure that we focused on the spin."

Molinaroli added that the potential to sell at a later time had not been ruled out.

Johnson Controls Vice Chairman and Executive Vice President Bruce McDonald will be CEO of the spinoff.

Johnson Controls said income rose 3 percent in the quarter to $272 million in the building efficiency segment and increased 22 percent to $234 million in the power solutions segment.

Overall earnings, excluding special items, were 91 cents per share, slightly exceeding the 90 cents that analysts expected.

Reporting by Meredith Davis; Editing by Lisa Von Ahn

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