JCI Johnson Controls International PLC

CORK, Ireland, July 31, 2019 /PRNewswire/ -- Johnson Controls International plc (NYSE: JCI) today reported fiscal third quarter 2019 GAAP earnings per share ("EPS") from continuing operations, including special items, of $0.16.  Excluding special items, adjusted EPS from continuing operations was $0.65, up 20% versus the prior year period (see attached footnotes for non-GAAP reconciliation).

Sales of $6.5 billion increased 3% compared to the prior year.  Excluding the impacts of M&A and foreign currency, sales grew 6% organically.     

GAAP earnings before interest and taxes ("EBIT") was $583 million and EBIT margin was 9.0%. Adjusted EBIT was $809 million and adjusted EBIT margin was 12.5%, up 50 basis points over the prior year.  Excluding the impact of M&A and foreign currency, underlying adjusted EBIT grew 11% versus the prior year and margin increased 60 basis points.

"We delivered another strong quarter of organic revenue, order and backlog growth as well as solid free cash flow.  These results reflect the continued emphasis on driving underlying fundamentals with a focus on new product development, talent management and enhanced commercial excellence across the organization," said George Oliver, chairman and CEO.  "We are pleased with the execution of our capital deployment actions related to the proceeds from the Power Solutions sale, which has positioned us to tighten our EPS guidance to the high end of the previous range," Oliver added.   

Income and EPS amounts attributable to Johnson Controls ordinary shareholders
($ millions, except per-share amounts)

The financial highlights presented in the tables below are in accordance with GAAP, unless otherwise indicated. All comparisons are to the fiscal third quarter of 2018.  The results of Power Solutions are reported as discontinued operations in all periods presented.

Organic sales growth, organic EBITA growth, adjusted segment EBITA, adjusted EBIT, adjusted EPS from continuing operations and adjusted free cash flow are non-GAAP financial measures. For a reconciliation of these non-GAAP measures and detail of the special items, refer to the attached footnotes.  A slide presentation to accompany the results can be found in the Investor Relations section of Johnson Controls' website at http://investors.johnsoncontrols.com.

BUSINESS RESULTS

Building Solutions North America

Sales in the quarter of $2.3 billion increased 4% versus the prior year.  Excluding M&A and foreign currency, organic sales also increased 4% versus the prior year driven by strong growth in HVAC & Controls and, to a lesser extent, growth in Fire & Security. This was partially offset by a decline in Performance Solutions due to the timing of projects.        

Orders in the quarter, excluding M&A and adjusted for foreign currency, increased 6% year-over-year.  Backlog at the end of the quarter of $5.7 billion increased 6% year-over-year, excluding M&A and adjusted for foreign currency.

Adjusted segment EBITA was $310 million, down 3% versus the prior year. Adjusted segment EBITA margin of 13.3% declined 90 basis points versus the prior year as favorable volume leverage as well as cost synergies and productivity savings, were more than offset by unfavorable mix and run-rate salesforce additions. 

Building Solutions EMEA/LA (Europe, Middle East, Africa/Latin America)

Sales in the quarter of $922 million declined slightly versus the prior year.  Excluding M&A and foreign currency, organic sales grew 6% versus the prior year driven by strong growth in project installations. Growth was positive across most regions, led by strength in HVAC, Fire & Security and Industrial Refrigeration in Europe and Latin America.        

Orders in the quarter, excluding M&A and adjusted for foreign currency, increased 8% year-over-year.  Backlog at the end of the quarter of $1.7 billion increased 11% year-over-year, excluding M&A and adjusted for foreign currency.

Adjusted segment EBITA was $103 million, up 5% versus the prior year. Adjusted segment EBITA margin of 11.2% expanded 60 basis points over the prior year, including a 30 basis point headwind related to foreign currency.  Adjusting for foreign currency, the underlying margin improved 90 basis points driven by favorable volume as well as the benefit from cost synergies and productivity savings, partially offset by run-rate salesforce additions. 

Building Solutions Asia Pacific

Sales in the quarter of $691 million increased 1% versus the prior year.  Excluding M&A and foreign currency, organic sales increased 6% versus the prior year driven primarily by strong growth in project installations and solid growth in China.        

Orders in the quarter, excluding M&A and adjusted for foreign currency, increased 1% year-over-year.  Backlog at the end of the quarter of $1.6 billion increased 7% year-over-year, excluding M&A and adjusted for foreign currency.

Adjusted segment EBITA was $98 million, up 1% versus the prior year. Adjusted segment EBITA margin of 14.2% was flat versus the prior year as favorable volume was offset by unfavorable mix, run-rate salesforce additions and expected underlying margin pressure.    

Global Products

Sales in the quarter of $2.5 billion increased 3% versus the prior year. Excluding M&A and foreign currency, organic sales increased 7% versus the prior year with solid growth across Building Management Systems, HVAC & Refrigeration Equipment, and Specialty Products.   

Adjusted segment EBITA was $481 million, up 9% versus the prior year. Adjusted segment EBITA margin of 19.2% expanded 100 basis points over the prior year. This increase was driven by favorable volume and mix, positive price/cost as well as the benefit of cost synergies and productivity savings, partially offset by ongoing product investments. 

Corporate

Adjusted Corporate expense was $90 million in the quarter, a decrease of 13% compared to the prior year, driven primarily by continued cost synergies and productivity savings.                                                                

OTHER ITEMS

• For the quarter, cash provided by operating activities from continuing operations was $0.6 billion and capital expenditures were $0.1 billion, resulting in free cash flow from continuing operations of $0.5 billion. Adjusted free cash flow was $0.6 billion, which excludes net cash outflows of $0.1 billion primarily related to integration costs.
• Year-to-date, cash provided by operating activities from continuing operations was $0.7 billion and capital expenditures were $0.4 billion, resulting in a free cash flow from continuing operations of $0.3 billion. Adjusted free cash flow was $0.6 billion, which excludes net cash outflows of $0.3 billion primarily related to restructuring and integration costs.
• During the quarter, the Company repurchased approximately 105 million shares for $4.1 billion, including the completion of the share tender on June 5, 2019. Year-to-date, the Company repurchased approximately 135 million shares for $5.1 billion, representing ~14% of shares outstanding.
• During the quarter, the Company repaid $5.1 billion of short and long-term debt, including the completion of the $1.5 billion debt tender on May 30, 2019. As a result of the tender, the Company recorded a net pre-tax charge of $60 million as a loss on the early extinguishment of debt. During the quarter, the Company also repaid all outstanding financial obligations under the Tyco International Holding S.à.r.l (TSarl) term loan, revolving credit facility and TSarl other indebtedness.
• Due to favorable resolution in the quarter, the Company released an indemnification reserve of $226 million related to a post-sale tax contingency for a previously divested Tyco business.
• The Company recorded a $235 million non-cash asset impairment charge in the quarter related to the disposition of a non-core business now reported as held for sale.
• The Company recorded a charge in the amount of $140 million related to environmental remediation costs associated with its facilities in Marinette, Wisconsin.
• The Company recorded a discrete period tax charge of $226 million related primarily to newly enacted regulations related to U.S. Tax Reform in the quarter.
• In connection with the sale of Power Solutions, the Company recorded a pre-tax gain of $5.2 billion which is reported in discontinued operations.

About Johnson Controls:

Johnson Controls is a global leader creating a safe, comfortable and sustainable world. Our 105,000 employees create intelligent buildings, efficient energy solutions and integrated infrastructure that work seamlessly together to deliver on the promise of smart cities and communities in 150 countries. Our commitment to sustainability dates back to our roots in 1885, with the invention of the first electric room thermostat. We are committed to helping our customers win everywhere, every day and creating greater value for all of our stakeholders through our strategic focus on buildings. For additional information, please visit http://www.johnsoncontrols.com or follow us @johnsoncontrols on Twitter.

Johnson Controls International plc Cautionary Statement Regarding Forward-Looking Statements

Johnson Controls International plc has made statements in this communication that are forward-looking and therefore are subject to risks and uncertainties. All statements in this document other than statements of historical fact are, or could be, "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In this communication, statements regarding Johnson Controls' future financial position, sales, costs, earnings, cash flows, other measures of results of operations, synergies and integration opportunities, capital expenditures and debt levels are forward-looking statements. Words such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "should," "forecast," "project" or "plan" and terms of similar meaning are also generally intended to identify forward-looking statements. However, the absence of these words does not mean that a statement is not forward-looking. Johnson Controls cautions that these statements are subject to numerous important risks, uncertainties, assumptions and other factors, some of which are beyond Johnson Controls' control, that could cause Johnson Controls' actual results to differ materially from those expressed or implied by such forward-looking statements, including, among others, risks related to: any delay or inability of Johnson Controls to realize the expected benefits and synergies of recent portfolio transactions such as the merger with Tyco and the spin-off of Adient, changes in tax laws (including but not limited to the recently enacted Tax Cuts and Jobs Act), regulations, rates, policies or interpretations, the loss of key senior management, the tax treatment of recent portfolio transactions, significant transaction costs and/or unknown liabilities associated with such transactions, the outcome of actual or potential litigation relating to such transactions, the risk that disruptions from recent transactions will harm Johnson Controls' business, the strength of the U.S. or other economies, changes to laws or policies governing foreign trade, including increased tariffs or trade restrictions, mix and schedules, energy and commodity prices, the availability of raw materials and component products, currency rates and cancellation of or changes to commercial arrangements, and with respect to the disposition of the Power Solutions business, whether the strategic benefits of the Power Solutions transaction can be achieved. A detailed discussion of risks related to Johnson Controls' business is included in the section entitled "Risk Factors" in Johnson Controls' Annual Report on Form 10-K for the 2018 fiscal year filed with the SEC on November 20, 2018, and its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019 filed with the SEC on May 3, 2019, which are available at www.sec.gov and www.johnsoncontrols.com under the "Investors" tab. Shareholders, potential investors and others should consider these factors in evaluating the forward-looking statements and should not place undue reliance on such statements. The forward-looking statements included in this communication are made only as of the date of this document, unless otherwise specified, and, except as required by law, Johnson Controls assumes no obligation, and disclaims any obligation, to update such statements to reflect events or circumstances occurring after the date of this communication.

Non-GAAP Financial Information

The Company's press release contains financial information regarding adjusted earnings per share, which is a non-GAAP performance measure. The adjusting items include net mark-to-market adjustments, transaction/integration costs, restructuring and impairment costs, Scott Safety gain on sale, tax indemnification reserve release, environmental reserve, loss on extinguishment of debt, Power Solutions gain on sale (net of transaction and other costs), the impact of ceasing the depreciation/amortization expense for the Power Solutions business as the business is held for sale and discrete tax items. Financial information regarding organic sales, adjusted segment EBITA, adjusted organic segment EBITA, adjusted segment EBITA margin, adjusted free cash flow, adjusted free cash flow conversion and net debt are also presented, which are non-GAAP performance measures. Adjusted segment EBITA excludes special items such as transaction/integration costs, environmental reserve and Scott Safety gain on sale because these costs are not considered to be directly related to the underlying operating performance of its business units.  Management believes that, when considered together with unadjusted amounts, these non-GAAP measures are useful to investors in understanding period-over-period operating results and business trends of the Company. Management may also use these metrics as guides in forecasting, budgeting and long-term planning processes and for compensation purposes. These metrics should be considered in addition to, and not as replacements for, the most comparable GAAP measure.