Johnson Controls reports fiscal Q4 2018 and full year earnings with strong organic revenue growth and free cash flow conversion; announces an additional $1B share repurchase authorization

CORK, Ireland, Nov. 8, 2018 /PRNewswire/ -- Johnson Controls International plc (NYSE: JCI) today reported fiscal fourth quarter 2018 GAAP earnings per share ("EPS") from continuing operations, including special items, of $0.83.  Excluding these items, adjusted EPS from continuing operations was $0.93, up 7% versus the prior year period (see attached footnotes for non-GAAP reconciliation).

Sales of $8.4 billion increased 3% compared to the prior year.  Excluding the impacts of M&A, foreign currency and lead prices, total sales grew 6% organically.     

GAAP earnings before interest and taxes ("EBIT") was $1.0 billion and EBIT margin was 12.0%. Adjusted EBIT was $1.2 billion and adjusted EBIT margin was 14.0%, up 10 basis points over the prior year.  Excluding the impact of the Scott Safety divestiture, foreign currency and lead prices, the underlying adjusted EBIT margin increased 50 basis points.

The Company announced that the Board of Directors has approved an additional $1 billion share repurchase authorization.  There is currently $900 million remaining on a previous authorization.

"Solid fourth quarter results close out a year of significant progress for Johnson Controls, with positive momentum as we enter fiscal 2019," said George Oliver, chairman and CEO. "Our teams around the globe successfully delivered on our operating goals, with strong organic growth and cash flow performance."   

"We are in the final stages of the strategic review of our Power Solutions business.  We have assessed multiple options and have made significant progress toward making a final decision."

"As we look forward to fiscal 2019, we remain focused on driving execution across our portfolio to further enhance our growth trajectory supported by our strong backlog, order momentum and new business wins.  We expect our overall financial performance to continue to improve by intensely focusing on top-line growth, margin expansion and free cash flow conversion," Oliver continued. 

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 fiscal year of 2017.

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 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 were $2.3 billion, an increase of 7% versus the prior year.  Excluding M&A and foreign currency, organic sales increased 8% versus the prior year, driven primarily by strong growth in Fire & Security and HVAC & Controls.        

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 $5.4 billion increased 6% year-over-year, excluding M&A and adjusted for foreign currency.

Adjusted segment EBITA was $336 million, up 7% versus the prior year. Adjusted segment EBITA margin of 14.5% was consistent with the prior year as favorable volume leverage as well as cost synergies and productivity savings, were offset by unfavorable mix and salesforce additions. 

Sales for the full year were $8.7 billion, representing organic growth of 4% versus the prior year.  Adjusted segment EBITA for the full year was $1.1 billion and adjusted segment EBITA margin expanded 20 basis points year-over-year to 13.1%.

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

Sales in the quarter were $948 million, an increase of 3% versus the prior year.  Excluding M&A and foreign currency, organic sales grew 6% versus the prior year driven by stronger service growth. Growth was positive across all regions, led by Europe and Latin America.        

Orders in the quarter, excluding M&A and adjusted for foreign currency, increased 10% year-over-year.  Backlog at the end of the quarter of $1.5 billion increased 9% year-over-year, excluding M&A and adjusted for foreign currency.

Adjusted segment EBITA was $103 million, up 8% versus the prior year. Adjusted segment EBITA margin of 10.9% 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 and mix as well as the benefit from cost synergies and productivity savings, partially offset by salesforce additions. 

Sales for the full year were $3.7 billion, an increase of 3% versus the prior year, with organic growth of 2%.  Adjusted segment EBITA for the full year was $350 million and adjusted segment EBITA margin expanded 30 basis points year-over-year, including a 10 basis point headwind related to foreign currency to 9.5%.

Building Solutions Asia Pacific

Sales in the quarter were $689 million, an increase of 2% versus the prior year.  Excluding M&A and foreign currency, organic sales increased 4% versus the prior year, with double-digit growth in service and modest growth in project installations.        

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 $1.5 billion increased 11% year-over-year, excluding M&A and adjusted for foreign currency.

Adjusted segment EBITA was $105 million, down 4% versus the prior year. Adjusted segment EBITA margin of 15.2% declined 90 basis points over the prior year as the benefit of cost synergies and productivity savings as well as favorable volume was more than offset by salesforce additions and expected underlying margin pressure.    

Sales for the full year were $2.6 billion, an increase of 4% versus the prior year, with organic growth of 3%.  Adjusted segment EBITA for the full year was $347 million and adjusted segment EBITA margin of 13.6% was consistent year-over-year, including a 30 basis point headwind related to foreign currency.

Global Products

Sales in the quarter were $2.2 billion, a decrease of 1% versus the prior year. Excluding M&A and foreign currency, organic sales increased 9% versus the prior year led by high-single digit growth in HVAC & Refrigeration Equipment, high-teens growth in Building Management Systems, and low-double digit growth in Specialty Products.     

Adjusted segment EBITA was $395 million, up 3% versus the prior year. Adjusted segment EBITA margin of 17.8% expanded 60 basis points over the prior year, including a 100 basis point headwind related to the divestiture of the Scott Safety business. The underlying margin expanded 160 basis points 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 and channel investments. 

Sales for the full year were $8.5 billion, consistent versus the prior year, with organic growth of 7%.  Adjusted segment EBITA for the full year was $1.3 billion and adjusted segment EBITA margin declined 40 basis points year-over-year to 14.8%, including a 100 basis point headwind related to the divestiture of Scott Safety.

Power Solutions

Sales in the quarter were $2.2 billion, an increase of 3% versus the prior year. Excluding the impact of higher lead pass-through and foreign currency, organic sales increased 2% driven by favorable price and technology mix. Global original equipment battery shipments increased 5%, benefitting from several recent business wins. Aftermarket shipments declined 2% versus a tough prior year comparison. Start-stop battery shipments increased 20% year-over-year, led by strong growth in EMEA, the Americas and China.  

Power Solutions adjusted segment EBITA was $424 million, a 2% decline compared to the prior year.  Adjusted segment EBITA margin of 19.4% decreased 80 basis points compared with the prior year, including a 10 basis point headwind related to the impact of higher lead prices and foreign currency. Power Solution's underlying margin declined 70 basis points as volume leverage and productivity savings were more than offset by unfavorable mix, higher transportation costs and planned incremental investments.    

Sales for the full year were $8.0 billion, an increase of 9% versus the prior year, with organic growth of 3%.  Adjusted segment EBITA for the full year was $1.4 billion and adjusted segment EBITA margin declined 160 basis points year-over-year to 17.9%, including a 90 basis point headwind related to the impact of higher lead prices and foreign currency.  Excluding these items, Power Solution's underlying margin declined 70 basis points. 

Corporate

Adjusted Corporate expense was $95 million in the quarter and $408 million for the year, a decrease of 11% and 12%, respectively, compared to the prior year. The decline in both periods primarily reflects cost synergies and productivity savings. 

OTHER ITEMS

• Cash from operating activities less capex was $1.0 billion for the quarter and $1.5 billion for the year.  Adjusted free cash flow was $1.3 billion for the quarter and $2.3 billion for the year.  Adjusted free cash flow excludes net cash outflows of $0.3 billion in the quarter and $0.8 billion for the year primarily related to restructuring and integration costs and nonrecurring tax payments. 
• During the quarter, the Company repurchased 1.2 million shares for approximately $45 million; fiscal year 2018 share repurchases totaled 7.7 million shares for approximately $300 million.
• New Accounting Standard – ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," which clarifies the principals for recognizing revenue will be adopted by the Company on a modified retrospective basis beginning in the first quarter of fiscal 2019.  There is not a material financial impact to Buildings and no material segment EBITA impact for Power Solutions, but battery core return classification increases revenue for Power Solutions resulting in segment EBITA margin rate dilution of approximately 200 basis points.   

FISCAL 2019 GUIDANCE

The Company also announced fiscal 2019 guidance:

• Organic revenue growth in the mid-single digits.
• Incremental synergy and productivity savings of $250 million.
• Fiscal 2019 adjusted EPS before special items of $2.90 to $3.05, including a $0.12 headwind from an increased tax rate and an $0.08 headwind related to foreign currency.
• Adjusted free cash flow conversion of approximately 90%, excluding special items. 

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, 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 strategic review of the Power Solutions business, uncertainties as to the structure and timing of any transaction and whether it will be completed, the possibility that closing conditions for a transaction may not be satisfied or waived, the impact of the strategic review and any transaction on Johnson Controls and the Power Solutions business on a standalone basis if a transaction is completed, and whether the strategic benefits of any 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 2017 fiscal year filed with the SEC on November 21, 2017, and its Quarterly Reports on Form 10-Q for the quarterly periods ended December 31, 2017, March 31, 2018 and June 30, 2018 filed with the SEC on February 2, 2018, May 3, 2018 and August 2, 2018, respectively, which are 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, restructuring costs and discontinued operations losses in equity income, unfavorable arbitration award, Scott Safety gain on sale and discrete tax items. Financial information regarding adjusted sales, organic sales, adjusted 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 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.

SOURCE Johnson Controls

Related Links

http://www.johnsoncontrols.com