Johnson Controls reports strong organic revenue and earnings growth in fiscal Q2; Closes sale of Power Solutions business and increases fiscal 2019 guidance

CORK, Ireland, May 1, 2019 /PRNewswire/ -- Johnson Controls International plc (NYSE: JCI) today reported fiscal second quarter 2019 GAAP earnings per share ("EPS") from continuing operations, including special items, of $0.26.  Excluding these items, adjusted EPS from continuing operations was $0.32, up 23% versus the prior year period (see attached footnotes for non-GAAP reconciliation).

Sales of $5.8 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 $419 million and EBIT margin was 7.3%. Adjusted EBIT was $469 million and adjusted EBIT margin was 8.1%, up 60 basis points over the prior year.  Excluding the impact of M&A and foreign currency, the underlying adjusted EBIT margin increased 70 basis points.

On April 30, 2019, the Company closed the previously announced sale of the Power Solutions business to Brookfield Business Partners for net cash proceeds of approximately $11.6 billion.  As previously stated, net cash proceeds are expected to be used to reduce $3.4 billion in existing debt, and fund the repurchase of up to $8.2 billion in ordinary shares.  

Separately, in connection with the closing of the transaction, the Company announced today that it plans to launch a "modified Dutch auction" tender offer in the coming days for up to $4.0 billion of its ordinary shares with a price range between $36.00 and $40.00 per share. The Company also announced that it has commenced a cash tender offer to purchase up to $1.5 billion in aggregate principal amount of certain of its outstanding notes.  For additional information regarding the debt tender, please refer to the debt tender offer press release issued by the Company concurrently with this release.

"Johnson Controls delivered another strong quarter, demonstrating continued organic top-line momentum and our commitment to operational execution," said George Oliver, chairman and CEO.  "Given the strength of our backlog, visibility into our order pipeline, and strategic initiatives to improve profitability, I am confident in our outlook for the second half.  Additionally, we closed the Power Solutions transaction ahead of schedule, which enables us to accelerate our efforts to return capital to shareholders." 

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 second 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 $2.2 billion increased 4% versus the prior year.  Excluding M&A and foreign currency, organic sales increased 5% versus the prior year driven by solid growth across HVAC & Controls and Fire & Security.        

Orders in the quarter, excluding M&A and adjusted for foreign currency, increased 2% year-over-year.  Backlog at the end of the quarter of $5.6 billion increased 5% year-over-year, excluding M&A and adjusted for foreign currency.

Adjusted segment EBITA was $259 million, up 6% versus the prior year. Adjusted segment EBITA margin of 11.8% expanded 20 basis points versus the prior year as favorable volume leverage as well as cost synergies and productivity savings, were partially offset by unfavorable mix and run-rate salesforce additions. 

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

Sales in the quarter of $878 million declined 3% versus the prior year.  Excluding M&A and foreign currency, organic sales grew 4% versus the prior year driven by strong growth in service and project installation. Growth was positive across most regions, led by strength in Fire & Security and Industrial Refrigeration in Europe and Latin America.        

Orders in the quarter, excluding M&A and adjusted for foreign currency, increased 3% year-over-year.  Backlog at the end of the quarter of $1.7 billion increased 9% year-over-year, excluding M&A and adjusted for foreign currency.

Adjusted segment EBITA was $81 million, up 4% versus the prior year. Adjusted segment EBITA margin of 9.2% expanded 60 basis points over the prior year, including a 40 basis point headwind related to foreign currency.  Adjusting for foreign currency, the underlying margin improved 100 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 $628 million increased 7% versus the prior year.  Excluding M&A and foreign currency, organic sales increased 12% versus the prior year driven primarily by double digit growth in project installations.        

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 8% year-over-year, excluding M&A and adjusted for foreign currency.

Adjusted segment EBITA was $76 million, up 7% versus the prior year. Adjusted segment EBITA margin of 12.1% was unchanged versus the prior year as favorable volume was more than offset by unfavorable mix, run-rate salesforce additions and expected underlying margin pressure.    

Global Products

Sales in the quarter of $2.1 billion increased 2% versus the prior year. Excluding M&A and foreign currency, organic sales increased 7% versus the prior year with low-double digit growth in Building Management Systems, mid-single digit growth in HVAC & Refrigeration Equipment, and low-double digit growth in Specialty Products.     

Adjusted segment EBITA was $255 million, up 8% versus the prior year. Adjusted segment EBITA margin of 12.2% expanded 60 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, slightly offset by ongoing product investments. 

Corporate

Adjusted Corporate expense was $104 million in the quarter, a decrease of 8% 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 $0.2 billion and capital expenditures were $0.1 billion, resulting in free cash flow from continuing operations of $0.1 billion.  Adjusted free cash flow was $0.2 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 $0.1 billion and capital expenditures were $0.3 billion, resulting in a free cash outflow from continuing operations of $0.2 billion.  Adjusted free cash flow was neutral, which excludes net cash outflows of $0.2 billion primarily related to restructuring and integration costs. 
• During the quarter, the Company repurchased approximately 16 million shares for $533 million.  Year-to-date, the Company repurchased approximately 30 million shares for $1 billion.
• The Company is increasing its outlook for fiscal 2019 adjusted EPS before special items from continuing operations to a range of $1.85 to $1.95, representing a year-over-year increase of 16% to 23%.  The updated outlook reflects the incremental use of Power Solutions sale proceeds, which are now expected to result in an approximate $0.15 benefit versus a $0.05 benefit previously expected. 

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, automotive vehicle production levels, 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, which is 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, 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 and adjusted free cash flow conversion are also presented, which are non-GAAP performance measures. Adjusted segment EBITA excludes special items such as transaction/integration costs 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.

Additional Information and Where to Find It

This news release is for informational purposes only, is not a recommendation to buy or sell any securities of Johnson Controls, and does not constitute an offer to buy or the solicitation to sell any securities of Johnson Controls.

The equity tender offer has not yet commenced, and there can be no assurances that Johnson Controls will commence the equity tender offer on the terms described in this new release or at all. On the commencement date of the equity tender offer, Johnson Controls will file a tender offer statement on Schedule TO, including an offer to purchase, letter of transmittal and related materials, with the SEC.  The equity tender offer will be made only pursuant to the offer to purchase, the related letter of transmittal and other related materials filed as part of the Schedule TO with the SEC upon commencement of the equity tender offer.  When available, shareholders should read carefully the offer to purchase, letter of transmittal and related materials because they will contain important information, including the various terms of, and conditions to, the equity tender offer. Once the equity tender offer is commenced, shareholders will be able to obtain a free copy of the tender offer statement on Schedule TO, the offer to purchase, letter of transmittal and other documents that Johnson Controls will be filing with the SEC at the SEC's website at www.sec.gov or from Johnson Control's information agent in connection with the equity tender offer.

Additionally, the debt tender offer described in this news release is being made solely on the terms and subject to the conditions set forth in the offering materials relating to the debt tender and the information in this press release is qualified by reference to such offering materials.