Johnson Controls reports first quarter earnings and re-affirms full year guidance

CORK, Ireland, Jan. 31, 2018 /PRNewswire/ -- Johnson Controls International plc (NYSE: JCI) today reported fiscal first quarter 2018 GAAP earnings per share ("EPS") from continuing operations, including special items, of $0.25.  Excluding these items, adjusted EPS from continuing operations was $0.54, up 2% versus the prior year period (see attached footnotes for non-GAAP reconciliation).

Sales of $7.4 billion increased 5% compared to the prior year.  Excluding the impacts of M&A, foreign exchange and changes in lead prices, total sales grew 3% organically.     

GAAP earnings before interest and taxes ("EBIT") was $654 million and the EBIT margin was 8.8%. Adjusted EBIT was $748 million and adjusted EBIT margin of 10.1% includes a 30 basis point headwind related to the divestiture of Scott Safety, foreign exchange and lead prices.

"Despite anticipated margin pressure in the quarter, we were able to deliver earnings growth.  We are seeing solid traction around our efforts to increase sales capacity and gross margins on orders are beginning to improve, both of which support our confidence in delivering fiscal 2018 adjusted earnings per share guidance of $2.75 to $2.85," said George Oliver, Johnson Controls chairman & CEO. 

"Additionally, we continue to strive for increased accountability and improved execution.  During the quarter, we nominated two highly accomplished female executives to our Board, and more closely aligned executive compensation incentives with shareholder expectations and improved financial performance.  We remain intensely focused on improving the cash generation potential of the Company, both near and long-term, while at the same time achieving our cost synergy and productivity targets," Oliver added. 

U.S. Tax Reform

In connection with the passage of U.S. Tax Reform during the quarter, the Company recorded a provisionally estimated one-time net tax charge of approximately $200 million.  This was comprised of a non-cash benefit of approximately $100 million, related to the remeasurement of the Company's net U.S. deferred tax liabilities and a one-time tax charge of approximately $300 million based on the preliminary estimate of income taxes on unremitted foreign earnings, payable over an 8-year period in accordance with the new legislation. The Company continues to expect a 14% adjusted effective tax rate in fiscal 2018.  As certain other provisions of the new legislation become effective for the Company in fiscal 2019, the effective tax rate is expected to increase to 16 to 18%. 

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 first quarter of 2017.  The spin-off of Adient plc occurred on Oct. 31, 2016 and the results of this business are reported in discontinued operations for all historical periods presented. 

Organic sales 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 reviewing first quarter results can be found in the Investor Relations section of Johnson Controls' website at http://investors.johnsoncontrols.com.

BUSINESS RESULTS

Sales in the first quarter of 2018 were $2.0 billion, an increase of 4% versus the prior year quarter.  Excluding M&A and foreign exchange, organic sales increased 3% versus the prior year driven by growth in HVAC and Controls.        

Orders in the quarter, excluding M&A and adjusted for foreign exchange, increased 4% year-over-year.  Backlog at the end of the quarter of $5.3 billion was 4% higher year-over-year, excluding M&A and adjusted for foreign exchange.

Adjusted segment EBITA was $236 million, consistent with the prior year.  Adjusted segment EBITA margin of 11.7% declined 50 basis points over the prior year as the benefit of cost synergies and productivity savings, as well as volume leverage, were more than offset by expected low margin backlog conversion and salesforce additions. 

Sales in the first quarter of 2018 were $915 million, an increase of 4% versus the prior year quarter.  Excluding M&A and foreign exchange, organic sales also increased 4% versus the prior year driven by strong growth in the Middle East & Africa and the Latin America regions.        

Orders in the quarter, excluding M&A and adjusted for foreign exchange, increased 6% year-over-year.  Backlog at the end of the quarter of $1.4 billion increased 1% year-over-year, excluding M&A and adjusted for foreign exchange.

Adjusted segment EBITA was $71 million, up 9% versus the prior year.  Adjusted segment EBITA margin of 7.8% improved 40 basis points over the prior year driven by cost synergies and productivity savings, as well as volume leverage. 

Sales in the first quarter of 2018 were $597 million, an increase of 4% versus the prior year quarter.  Excluding M&A and foreign exchange, organic sales increased 2% versus the prior year driven by strong growth in service.        

Orders in the quarter, excluding M&A and adjusted for foreign exchange, increased 9% year-over-year.  Backlog at the end of the quarter of $1.4 billion was 11% higher year-over-year, excluding M&A and adjusted for foreign exchange.

Adjusted segment EBITA was $74 million, up 3% versus the prior year.  Adjusted segment EBITA margin of 12.4% declined 10 basis points over the prior year, including a 30 basis point headwind related to foreign exchange.  Adjusting for foreign exchange, the underlying margin improved 20 basis points driven by the benefit of cost synergies and productivity savings, as well as volume leverage, partially offset by pricing pressure in China.    

Sales in the first quarter of 2018 were $1.8 billion, a decrease of 1% versus the prior year quarter.  Excluding M&A and foreign exchange, organic sales increased 6% versus the prior year driven by mid-single digit growth across Building Management, HVAC and Refrigeration Equipment, and Specialty Products.     

Adjusted segment EBITA was $178 million, a 13% decline versus the prior year primarily attributable to the impact of the Scott Safety divestiture.  Adjusted segment EBITA margin of 10.0% declined 140 basis points over the prior year including a 110 basis point headwind related to the divestiture of the Scott Safety business.  The underlying margin declined 30 basis points as the benefit of cost synergies and productivity savings, as well as volume leverage, was more than offset by planned product and channel investments and expected price/cost pressure. 

Sales in the first quarter of 2018 were $2.1 billion, an increase of 12% versus the prior year.  Excluding the impact of higher lead pass-through and foreign exchange, organic sales grew 1% versus the prior year as favorable technology mix more than offset lower unit volumes.  Global original equipment battery shipments declined 1% and aftermarket shipments declined 2% compared to the prior year.  Start-stop battery shipments increased 20% year-over-year, led by growth in China and the Americas.  

Power Solutions adjusted segment EBITA was $384 million, a 2% decline compared to the prior year, as favorable product mix and productivity benefits were more than offset by higher transportation costs and planned incremental investments.  Adjusted segment EBITA margin of 18.0% decreased 250 basis points compared with the prior year, including a 150 basis point headwind related to the impact of foreign exchange and lead, and a decrease of 100 basis points primarily due to higher transportation costs and planned investments.    

Adjusted Corporate expense was $101 million in the first quarter, a decrease of 6% compared to the prior year driven primarily by cost synergies and productivity initiatives.   

OTHER ITEMS

• During the quarter, the Company repurchased 3.6 million shares for approximately $150 million.
• The sale of the Scott Safety business to 3M closed on Oct. 4, 2017. The net cash proceeds from the transaction of approximately $1.9 billion were used to repay a portion of the Tyco International Holding Sarl's ("TSarl") $4.0 billion merger-related debt.
• During the quarter, the Company issued €750 million, 0.0% Senior Notes due 2020. Additionally, the Company repaid a $300 million bond and a €150 million loan.
• For the quarter, cash from operating activities was a cash outflow of $0.1 billion. Adjusted free cash outflow was $0.3 billion for the quarter, in-line with normal seasonality. Adjusted free cash flow excludes net cash outflows of $0.1 billion primarily related to integration costs.
• The Company nominated Gretchen R. Haggerty, former Executive Vice President & Chief Financial Officer of United States Steel Corporation, and Simone Menne, former Chief Financial Officer at Boehringer Ingelheim GmbH to the Board of Directors. Both Gretchen and Simone have extensive senior leadership experience and deep financial acumen. In addition, the Board has addressed various corporate governance areas, including executive compensation, which are outlined in the Company's recently filed proxy.

About Johnson Controls:

Johnson Controls is a global diversified technology and multi industrial leader serving a wide range of customers in more than 150 countries. Our 120,000 employees create intelligent buildings, efficient energy solutions, integrated infrastructure and next generation transportation systems that work seamlessly together to deliver on the promise of smart cities and communities. 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 and creating greater value for all of our stakeholders through strategic focus on our buildings and energy growth platforms. 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, automotive vehicle production levels, mix and schedules, energy and commodity prices, the availability of raw materials and component products, currency exchange rates, 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 2017 year filed with the SEC on November 21, 2017, and 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 mark-to-market for pension and postretirement plans, transaction/integration/separation costs, restructuring and impairment costs, nonrecurring purchase accounting impacts related to the Tyco merger, Scott Safety gain on sale and discrete tax items. Financial information regarding adjusted sales, organic sales, adjusted segment EBITA, adjusted segment EBITA margin and adjusted free cash flow are also presented, which are non-GAAP performance measures. Adjusted segment EBITA excludes special items such as transaction/integration/separation costs and nonrecurring purchase accounting impacts 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.