Johnson Controls Reports Fiscal Q3 Results Demonstrating Strong Execution In An Unprecedented Time; Provides Q4 Guidance

CORK, Ireland, July 31, 2020 /PRNewswire/ -- Johnson Controls International plc (NYSE: JCI) today reported a fiscal third quarter 2020 GAAP loss per share from continuing operations, including special items, of $0.24. Excluding these items, adjusted earnings per share ("EPS") from continuing operations was $0.67, up 3% versus the prior year period (see attached footnotes for non-GAAP reconciliation).

Sales of $5.3 billion decreased 17% compared to the prior year and declined 16% organically, driven by the COVID-19 pandemic.

GAAP earnings before interest and taxes ("EBIT") was a loss of $65 million and EBIT margin was (1.2%) driven primarily by a restructuring and impairment charge. Adjusted EBIT was $707 million and adjusted EBIT margin was 13.2%, up 70 basis points compared to prior year results.

"As we continue to navigate through an unprecedented environment we have maintained focus on our two top priorities – protecting the health and safety of our employees and their families, as well as supporting the continuous functionality of our customers' and partners' critical infrastructure and essential facilities," said George Oliver, chairman and CEO. "We have made significant progress in securing our facilities, implementing new policies, and ensuring the wellbeing of our employees, our customers, and their building occupants."

"At the same time, the decisive actions we took to control costs from the very beginning of the COVID-19 pandemic, have resulted in significant benefits in the quarter," Oliver continued.

"Although market conditions remain uncertain and visibility still somewhat limited, we are well positioned with improved operating fundamentals, a strong balance sheet and cash flow, and a leading position in intelligent and sustainable building solutions. It is because of our market leading position that we are excited to announce OpenBlue, our new digital platform. OpenBlue will allow our customers to manage their operations more systemically and seamlessly, delivering buildings that have memory, intelligence and a unique identity. The platform is infused with award-winning artificial intelligence, combining data from both inside and outside of buildings leveraging the cloud to provide unique occupant experiences. OpenBlue is the culmination of years of R&D led by our incredible engineers and data scientists around the globe, and reflects how we think about buildings evolving from inflexible assets to sustainable dynamic resources. As the world looks to re-open economies while dealing with the global pandemic, OpenBlue solutions contain innovative technologies that enhance our core capabilities, delivering the highest air quality and the safest and most secure buildings, to ensure an efficient return to a healthy workplace," 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 2019. The results of Power Solutions are reported as discontinued operations in all periods presented.

Organic sales growth, organic EBITA growth, segment EBITA, adjusted segment EBITA, EBIT, 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.

Special items in the quarter resulted in a $0.92 charge and included the following significant items:

• Non-cash goodwill impairment charge of $424 million pre-tax ($0.57 per share) related to our Retail business.
• Restructuring and impairment charge of $186 million pre-tax ($0.21 per share) related primarily to cost reduction initiatives.
• Non-cash net mark-to-market adjustments of $132 million pre-tax ($0.13 per share) related primarily to certain pension plans.

BUSINESS RESULTS

Building Solutions North America

Sales in the quarter of $2.0 billion, decreased 13% versus the prior year. Organic sales were also down 13% versus the prior year, driven by a decline in project installations and, to a lesser extent, service. Growth in Performance Solutions was more than offset by a decline in Fire & Security and HVAC & Controls.

Orders in the quarter, excluding M&A and adjusted for foreign currency, decreased 16% year-over-year driven by lower demand due to the COVID-19 pandemic. Backlog at the end of the quarter of $5.8 billion increased 2% year-over-year, excluding M&A and adjusted for foreign currency.

Adjusted segment EBITA was $311 million, essentially flat with the prior year. Adjusted segment EBITA margin of 15.4% expanded 210 basis points versus the prior year driven by significant cost mitigation actions taken in the quarter to offset the volume decline.

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

Sales in the quarter of $756 million decreased 18% versus the prior year. Organic sales declined 15% versus the prior year driven by a decline in project installations and, to a lesser extent, service. Volume declined across all regions and platforms.

Orders in the quarter, excluding M&A and adjusted for foreign currency, decreased 20% year-over-year driven by lower demand due to the COVID-19 pandemic. Backlog at the end of the quarter of $1.7 billion increased 2% year-over-year, excluding M&A and adjusted for foreign currency.

Adjusted segment EBITA was $62 million, down approximately 40% versus the prior year. Adjusted segment EBITA margin of 8.2% declined 300 basis points over the prior year, including a 40 basis point headwind related to foreign currency. Adjusting for foreign currency, the underlying margin declined 260 basis points driven by the significant volume declines, resulting from closures across the regions which more than offset positive mix and mitigating cost actions.

Building Solutions Asia Pacific

Sales in the quarter of $588 million decreased 15% versus the prior year. Organic sales declined 12% versus the prior year primarily driven by a decline in project installations and, to a lesser extent, service. China rebounded significantly from the previous quarter, although declines accelerated in certain other parts of the region.

Orders in the quarter, excluding M&A and adjusted for foreign currency, decreased 10% year-over-year driven by lower demand due to the COVID-19 pandemic. Backlog at the end of the quarter of $1.6 billion increased 4% year-over-year, excluding M&A and adjusted for foreign currency.

Adjusted segment EBITA was $92 million, down 6% versus the prior year. Adjusted segment EBITA margin of 15.6% expanded 140 basis points over the prior year as favorable mix and the benefit of mitigating cost actions more than offset the volume decline.

Global Products

Sales in the quarter of $2.0 billion decreased 21% versus the prior year. Organic sales declined 20% versus the prior year with declines across Building Management Systems, HVAC & Refrigeration Equipment and Specialty Products.

Adjusted segment EBITA was $385 million, down 20% versus the prior year. Adjusted segment EBITA margin of 19.5% expanded 30 basis points over the prior year as positive price/cost as well as the benefit of significant mitigating cost actions more than offset the volume decline.

Corporate

Adjusted Corporate expense was $48 million in the quarter, a decrease of 47% compared to the prior year, driven primarily by mitigating cost actions, continued productivity savings and cost synergies, and ongoing cost reductions related to the Power Solutions sale.

OTHER ITEMS

• In a separate release, the Company launched OpenBlue, its new digital platform.
• Cash provided by operating activities from continuing operations was $0.8 billion and capital expenditures were $0.1 billion in the quarter, resulting in free cash flow from continuing operations of approximately $0.7 billion. Adjusted free cash flow was $0.8 billion, which excludes net cash outflows of less than $0.1 billion, primarily related to restructuring and integration costs.
• As previously disclosed, in April 2020, the Company raised $675 million via European financing arrangements, with an average interest rate of 1.0% and a 6-month term, and raised $575 million in bank term loans, with an average interest rate of 2.7% and a 1-year term.

FISCAL Q4 GUIDANCE

The Company has provided the below guidance related to the fourth quarter of fiscal 2020.

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: Johnson Controls' ability to manage general economic, business and geopolitical conditions, including the impacts of natural disasters, pandemics and outbreaks of contagious diseases and other adverse public health developments, such as the COVID-19 pandemic, 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 disposition of the Power Solutions business, changes in tax laws (including but not limited to the Tax Cuts and Jobs Act enacted in December 2017), 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, energy and commodity prices, the availability of raw materials and component products, currency exchange rates, maintaining the capacity, reliability and security of our information technology infrastructure, the risk of infringement or expiration of intellectual property rights, work stoppages, union negotiations, labor disputes and other matters associated with the labor force, the outcome of litigation and governmental proceedings and cancellation of or changes to commercial arrangements. 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 2019 fiscal year filed with the SEC on November 21, 2019, which is available at www.sec.gov and www.johnsoncontrols.com under the "Investors" tab. The description of certain of these risks is supplemented in Item 1A of Part II of Johnson Controls' subsequently filed Quarterly Reports on Form 10-Q. 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 restructuring and impairment costs, transaction costs, integration costs, net mark-to-market adjustments, and discrete tax items. Financial information regarding organic sales, EBIT, EBIT margin, segment EBITA, adjusted segment EBITA, adjusted organic segment EBITA, adjusted segment EBITA margin, adjusted corporate expense, free cash flow, adjusted free cash flow, and adjusted net income (loss) from continuing operations are also presented, which are non-GAAP performance measures. Adjusted segment EBITA excludes special items such as transaction costs and integration costs 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. For further information on the calculation of thee non-GAAP measures and a reconciliation of these non-GAAP measures, refer to the attached footnotes.

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SOURCE Johnson Controls International plc