MILWAUKEE - Johnson Controls Inc. said Tuesday that cost cuts and operational improvements bolstered its profit in the fourth quarter, helping to offset the effects of the continued weak economy on its sales.

Johnson Controls, which makes both automotive and building systems, also backed predictions made earlier this month of better earnings and sales for the next fiscal year, citing expectations of higher global automotive production and the resumption of higher growth rates in emerging markets.

The company said it also expects building-efficiency markets to start to improve in the second half of the fiscal year and for cost-structure improvements taken over the last year to also boost its profitability.

"We feel good about the quarter, we feel good that business has stabilized and we feel good about where our business is going," Steve Roell, the company's chairman and CEO said during a conference call with investors.

Investors evidently didn't feel so comfortable, sending shares of Johnson Controls down $1.06, or 4 percent, to $25.22 in afternoon trading.

For the three months ended Sept. 30, the company based in Milwaukee posted a profit of $300 million, or 47 cents per share, compared with $16 million, or 3 cents per share, a year ago.

Last year's results included $495 million in restructuring charges related to the consolidation of facilities, job cuts and other cost-cutting actions .

The 2009 quarter's profit included pretax charges of $105 million related to a warranty charge in the residential HVAC business and $111 million for costs stemming from a debt exchange offer. It also included an income tax benefit of $114 million.

Excluding items, Johnson Controls earned 52 cents per share, topping estimates by a penny, according to a poll of analysts by Thomson Reuters. The profit was consistent with the company's guidance issued earlier this month.

Sales fell 16 percent to $7.87 billion, beating average predictions of $7.83 billion.

The drop included a 14 percent decrease in automotive division sales stemming from lower vehicle production levels, but the business returned to profitability due to the company's restructuring efforts, said Bruce McDonald, chief financial officer.

Although it may appear that automotive demand has reached a bottom, McDonald said the company will hold off for a few months before changing its production plans or guidance for the year.

"We would acknowledge that we're encouraged by the positive auto trends in North America, but we're a little bit cautious and are looking for some signs that consumer demand will pick up," he said.

Baird analyst David Leiker said problems in the auto industry remain the biggest threat to Johnson Controls' profitability.

"The single greatest challenge facing the company is the severe downturn in global automotive markets with year-over-year declines in excess of 25 percent being seen in upcoming quarters," Leiker wrote in a note to investors.

"The battery and building markets are also showing weakness, but the declines are nowhere near the downturn seen in automotive."

Sales at Johnson Controls' power-solutions business, which produces batteries for both traditional and hybrid vehicles, fell 17 percent but were relatively flat excluding the effects of lower lead prices and currency translation.

Building-efficiency sales, which involve commercial and residential climate-control systems, fell 16 percent.

For the year, Johnson Controls lost $338 million, or 57 cents per share, compared with a profit of $979 million, or $1.63 per share, in fiscal 2008. Sales fell to $28.5 billion from $38.06 billion.

The company said earlier this month that it expects to post a fiscal 2010 profit of $1.35 to $1.45 per share on a sales increase of 9 percent to about $31 billion. Analysts, on average, expect a profit of $1.54 per share on $31.07 billion in sales.

Efraim Levy, an analyst for Standard & Poor's Equity Research, backed his "Buy" rating for Johnson Controls saying he expects all of the company's businesses to see increased demand in the new fiscal year and for its 2010 profit to reach $1.45 per share.

"Automotive sales should benefit from rising industry volume and a post-"clunkers" replenishment of vehicle inventories," he said referring to the government's Cash for Clunkers program.

"The controls business should benefit from improving economies as well as stimulus program projects starting in the second half of fiscal year 2010. Margins should benefit from cost cutting," he said.

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