Fitch Ratings on Monday lowered its outlook for manufacturer Johnson Controls Inc. to "Stable" from "Positive," citing weaker-than-expected free cash flow and leverage.
Fitch affirmed its investment-grade "BBB+" issuer default and long-term credit ratings.
The ratings service said the Milwaukee-based company, which makes both automotive and building systems, is spending substantial cash to develop battery technology and expand in emerging markets, especially China.
In addition, Johnson Controls spent a lot in recent quarters to support sales growth of 18 percent in the year that ended June 30. But the company's working capital position could improve later this year as a result of seasonality and operating efficiency improvements, Fitch said.
In addition, leverage has increased this fiscal year as a result of debt-funded acquisitions, including German auto suppliers C. Rob Hammerstein Group and Keiper/Recaro, that totaled $1.1 billion through the first nine months. Fitch said it expects that debt could be stable in the near term while the company spends cash to support growth internally and potentially through additional acquisitions.
Over the long term, Fitch said Johnson Controls' operating performance could improve because of its investments and an eventual recovery in the construction markets served by its building climate-control business.
In afternoon trading, Johnson Controls shares fell 5 cents to $26.68.