Nov. 2, 2009 (Business Wire) -- Fitch Ratings has affirmed the Issuer Default Rating (IDR) and long-term ratings for Johnson Controls, Inc. (JCI) at 'BBB'. The short-term IDR and commercial paper ratings have been affirmed at 'F2'. The Rating Outlook has been revised to Stable from Negative. A detailed list of rating actions follows at the end of this release.
As of Sept. 30, 2009 JCI had nearly $4 billion of outstanding debt, including $46 million of equity units to which Fitch has assigned 100% equity credit.
The revision of the Rating Outlook to Stable reflects JCI's recent debt reduction, extensive restructuring that has contributed to lower costs, and a slowly improving economy that is raising automotive production modestly from extremely weak levels earlier in the year. JCI's financial profile remains weaker than it was prior to the recession, and leverage remains somewhat high for the ratings. However, the company's restructuring should allow it to be profitable at lower sales volumes and reduce leverage during the next several quarters. JCI has been clear about its intent to rebuild credit metrics that could be accomplished through a combination of better operating performance and debt reduction. Future rating upgrades are possible but will depend on the path of the economy, the amount and timing of government stimulus spending, and JCI's discretionary spending.
The ratings are supported by JCI's strong position as a global automotive supplier and its well-established market presence in the Building Efficiency (BE) business. The company is well positioned to benefit from the growing importance of environmental sustainability, and it has a large proportion of profitable aftermarket revenue in the Power and BE segments.
Free cash flow in fiscal 2010 is expected to improve substantially compared to 2009 when it was negative due to the sharp economic contraction and restructuring costs. By the end of fiscal 2009 destocking had largely been completed in the Power segment, and the Automotive Experience (AE) segment had returned to profitability. However, free cash flow could remain below the solid levels that JCI generated prior to the recession until end-market demand improves further. Rating concerns include future automotive production levels, expected weakness through 2010 in JCI's late-cycle BE business, risks related to JCI's development of new battery technology, and commodity costs.
Many of the concerns surrounding JCI's AE segment have been resolved or reduced, including the exit from bankruptcy of GM and Chrysler and JCI's gradual assumption of certain parts production from distressed suppliers. Most of JCI's restructuring efforts were concentrated at AE which reported a profit in the fourth fiscal quarter ended Sept. 30, 2009 following several quarterly losses.
