Johnson Controls reports strong finish to fiscal 2019; Initiates fiscal 2020 guidance

CORK, Ireland, Nov. 7, 2019 /PRNewswire/ -- Johnson Controls International plc (NYSE: JCI) today reported fiscal fourth quarter 2019 GAAP earnings per share ("EPS") from continuing operations, including special items, of $0.77.  Excluding special items, adjusted EPS from continuing operations was $0.78, up 37% versus the prior year period (see attached footnotes for non-GAAP reconciliation).

Sales of $6.3 billion increased 1% compared to the prior year.  Excluding the impacts of M&A and foreign currency, sales grew 3% organically.     

GAAP earnings before interest and taxes ("EBIT") was $75 million and EBIT margin was 1.2%, including a pre-tax net mark-to-market loss of $626 million. Adjusted EBIT was $812 million and adjusted EBIT margin was 12.9%, up 80 basis points over the prior year.  Excluding the impact of M&A and foreign currency, underlying adjusted EBIT grew 10% versus the prior year.

"Our fourth quarter results cap off a solid fiscal 2019, having delivered on all of our financial and strategic commitments, with continued momentum in our Field businesses globally, as well as strong margin execution and cash generation as we exit the year," said George Oliver, chairman & CEO.  "Looking ahead to fiscal 2020, we are well positioned to build upon the performance in 2019 by leveraging our strong backlog position, remaining focused on operational execution and continuing to redeploy capital to our shareholders.  Moving forward as a pure play buildings company, our unique portfolio of smart, sustainable products and solutions enables Johnson Controls to lead the evolution of smart buildings, infrastructure and cities," 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 fourth quarter and full year 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.

SUMMARY RESULTS

BUSINESS RESULTS

Building Solutions North America

Sales in the quarter of $2.4 billion increased 3% versus the prior year.  Excluding M&A and foreign currency, organic sales also increased 3% 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 7% year-over-year.  Backlog at the end of the quarter of $5.8 billion increased 8% year-over-year, excluding M&A and adjusted for foreign currency.

Adjusted segment EBITA was $357 million, up 6% versus the prior year. Adjusted segment EBITA margin of 14.9% expanded 40 basis points versus the prior year driven by favorable volume leverage as well as cost synergies and productivity savings. 

Sales for the full year were $9.0 billion, an increase of 4% versus the prior year on both a reported and organic basis.  Adjusted segment EBITA for the full year was $1.2 billion and adjusted segment EBITA margin was flat year-over-year, at 13.1%.

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

Sales in the quarter of $948 million were flat with the prior year.  Excluding M&A and foreign currency, organic sales grew 4% versus the prior year driven by strong growth in both service and project installations. Growth was positive across most regions, led by strength in Industrial Refrigeration in Europe and Fire & Security in 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 $1.6 billion increased 10% year-over-year, excluding M&A and adjusted for foreign currency.

Adjusted segment EBITA was $111 million, up 8% versus the prior year. Adjusted segment EBITA margin of 11.7% expanded 80 basis points over the prior year, including a 40 basis point headwind related to foreign currency.  Adjusting for foreign currency, the underlying margin improved 120 basis points driven by favorable volume as well as the benefit from cost synergies and productivity savings, partially offset by run-rate salesforce additions. 

Sales for the full year were $3.7 billion, a decrease of 1% versus the prior year, with organic growth of 4%.  Adjusted segment EBITA for the full year was $372 million and adjusted segment EBITA margin expanded 70 basis points year-over-year, including a 30 basis point headwind related to foreign currency, to 10.2%.

Building Solutions Asia Pacific

Sales in the quarter of $726 million increased 5% versus the prior year.  Excluding M&A and foreign currency, organic sales increased 7% 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, were flat year-over-year.  Backlog at the end of the quarter of $1.5 billion increased 4% year-over-year, excluding M&A and adjusted for foreign currency.

Adjusted segment EBITA was $103 million, down 2% versus the prior year. Adjusted segment EBITA margin of 14.2% was down 100 basis points versus the prior year as favorable volume was offset by unfavorable mix and expected underlying margin pressure.    

Sales for the full year were $2.7 billion, an increase of 4% versus the prior year, with organic growth of 7%.  Adjusted segment EBITA for the full year was $343 million and adjusted segment EBITA margin of 12.9% decreased 70 basis points year-over-year.

Global Products

Sales in the quarter of $2.2 billion declined 1% versus the prior year. Excluding M&A and foreign currency, organic sales were flat with the prior year as solid growth in Building Management Systems and Specialty Products, was offset by a slight decline in HVAC & Refrigeration Equipment.   

Adjusted segment EBITA was $419 million, up 6% versus the prior year. Adjusted segment EBITA margin of 19.1% expanded 130 basis points over the prior year. This increase was driven by positive price/cost as well as the benefit of cost synergies and productivity savings, partially offset by volume de-leverage and investments. 

Sales for the full year were $8.6 billion, up 2% versus the prior year, with organic growth of 5%.  Adjusted segment EBITA for the full year was $1.3 billion and adjusted segment EBITA margin expanded 80 basis points year-over-year to 15.6%.

Corporate

Adjusted Corporate expense was $89 million in the quarter, and $376 million for the full year, a decrease of 6% and 10%, respectively, when compared to the prior year.  The improvement in both periods was driven primarily by continued cost synergies and productivity savings and, to a lesser extent, cost reductions related to the Power Solutions sale. 

OTHER ITEMS

• For the quarter, cash provided by operating activities from continuing operations was $1.0 billion and capital expenditures were $0.2 billion, resulting in free cash flow from continuing operations of $0.8 billion. Adjusted free cash flow was $1.0 billion, which excludes net cash outflows of $0.2 billion primarily related to integration costs and non-recurring tax payments.
• For the full year, cash provided by operating activities from continuing operations was $1.7 billion and capital expenditures were $0.6 billion, resulting in a free cash flow from continuing operations of $1.2 billion. Adjusted free cash flow was $1.7 billion, which excludes net cash outflows of $0.5 billion primarily related to restructuring and integration costs and non-recurring tax payments.
• During the quarter, the Company repurchased approximately 20 million shares for $861 million. Year-to-date, including the completion of the share tender on June 5, 2019, the Company repurchased approximately 155 million shares for $6.0 billion, representing ~17% of shares outstanding.
• During the quarter, the Company recorded net pre-tax mark-to-market losses of $626 million related primarily to year-end pension adjustments as a result of lower interest rates.
• During the quarter, the Company recorded a tax benefit of $586 million related to tax audit reserve adjustments.

FY20 GUIDANCE 

The Company also announced fiscal 2020 guidance:

• Organic revenue growth in the low to mid-single digits.
• Incremental synergy and productivity savings of ~$150 million.
• Adjusted EBIT margin expansion of 60 to 80 basis points, year-over-year.
• Share repurchases of ~$2.2 billion.
• Adjusted EPS before special items of $2.50 to $2.60, representing a 28% to 33% increase year-over-year.
• Adjusted free cash flow conversion of approximately 95%, excluding special items.

About Johnson Controls:

At Johnson Controls, we transform the environments where people live, work, learn and play. From optimizing building performance to improving safety and enhancing comfort, we drive the outcomes that matter most. We deliver our promise in industries such as healthcare, education, data centers, and manufacturing. With a global team of 105,000 experts in more than 150 countries and over 130 years of innovation, we are the power behind our customers' mission. Our leading portfolio of building technology and solutions includes some of the most trusted names in the industry, such as Tyco^®, YORK^®, Metasys^®, Ruskin^®, Titus^®, Frick^®, PENN^®, Sabroe^®, Simplex^®, Ansul^® and Grinnell^®. For more information, visit 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 Reports on Form 10-Q for the quarterly periods ended December 31, 2018, March 31, 2019 and June 30, 2019, filed with the SEC on February 1, 2019, May 3, 2019 and August 1, 2019, respectively, 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.