Johnson Controls Reports Strong Revenue and EPS Growth in Q3; Updates FY23 Guidance

• Q3 reported sales +8% versus prior year; +9% organically
• Q3 GAAP EPS of $1.53; Adjusted EPS of $1.03, up 21% versus prior year
• Q3 Orders +8% organically year-over year
• Record backlog of $12.0 billion, increased 8% organically year-over-year
• Initiates fiscal Q4 and updates fiscal 2023 full year guidance

CORK, Ireland, Aug. 2, 2023 /PRNewswire/ -- Johnson Controls International plc (NYSE: JCI), a global leader for smart, healthy and sustainable buildings, today reported fiscal third quarter 2023 GAAP earnings per share ("EPS") from continuing operations of $1.53. Excluding special items, adjusted EPS from continuing operations was $1.03, up 21% versus the prior year period (see attached footnotes for non-GAAP reconciliation).

Sales in the quarter of $7.1 billion increased 8% compared to the prior year on an as reported basis and grew 9% organically. GAAP net income from continuing operations was $1.05 billion. Adjusted net income from continuing operations of $706 million was up 19% versus the prior year. Earnings before interest and taxes ("EBIT") was $873 million and EBIT margin was 12.2%. Adjusted EBIT was $981 million and adjusted EBIT margin was 13.8%, improving 160 basis points versus the prior year.

"Johnson Controls delivered strong third quarter results led by double-digit growth in sales and orders for our Service business," said George Oliver, chairman and CEO. "We remain confident in our longer cycle Building Solutions segments supported by our healthy order pipeline and resilient backlog. Our leading technologies position us well in making buildings smarter, healthier, and more sustainable."

"Our third quarter results met the high end of our guidance as we delivered robust margin expansion and strong adjusted EPS growth," said Olivier Leonetti, chief financial officer. "We have made great progress in improving our margins this fiscal year and we believe there remains runway for further margin expansion in fiscal 2024 and beyond."

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 2022.

Organic sales growth, adjusted sales, total segment EBITA, adjusted segment EBITA, adjusted corporate expense, EBIT, adjusted EBIT, adjusted net income from continuing operations, adjusted EPS from continuing operations, cash provided by operating activities from continuing operations, excluding JC Capital, and free cash flow are non-GAAP financial measures. For a reconciliation of non-GAAP measures and detail of the special items, refer to the attached footnotes.

This press release includes forward-looking statements regarding organic revenue growth, adjusted segment EBITA margin improvement and adjusted EPS, which are non-GAAP financial measures. These non-GAAP financial measures are derived by excluding certain amounts from the corresponding financial measures determined in accordance with GAAP. The determination of the amounts excluded is a matter of management judgment and depends upon, among other factors, the nature of the underlying expense or income amounts recognized in a given period and the high variability of certain amounts, such as mark-to-market adjustments. Organic revenue growth excludes the effect of acquisitions, divestitures and foreign currency. We are unable to present a quantitative reconciliation of the aforementioned forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures because such information is not available, and management cannot reliably predict the necessary components of such GAAP measures without unreasonable effort or expense. The unavailable information could have a significant impact on the Company's fiscal 2023 fourth quarter and full year GAAP financial results.

A slide presentation to accompany the results can be found in the Investor Relations section of Johnson Controls' website at http://investors.johnsoncontrols.com.

SEGMENT RESULTS

Building Solutions North America 

Sales in the quarter of $2.7 billion increased 10% versus the prior year. Organic sales increased 10% over the prior year with strong growth in both Service and Install, led by low-teens digit growth in HVAC & Controls and high single-digit growth in Fire & Security.

Orders in the quarter, excluding M&A and adjusted for foreign currency, increased 5% year-over-year. Backlog at the end of the quarter of $8.0 billion increased 11% compared to the prior year, excluding M&A and adjusted for foreign currency.

Segment EBITA was $385 million, up 48% versus the prior year. Segment EBITA margin of 14.4% expanded 370 basis points versus the prior year led by higher margin backlog conversion, ongoing productivity benefits and strong growth in Services.

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

Sales in the quarter of $1.0 billion increased 10% versus the prior year. Organic sales grew 9% versus the prior year, with mid-teens growth in Service and high single-digit growth in HVAC & Controls and Fire & Security. By region, Europe and Latin America experienced strong organic growth, while growth in the Middle East was more modest.

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 $2.3 billion increased 6% year-over-year, excluding M&A and adjusted for foreign currency.

Segment EBITA was $90 million, an increase of 8% versus the prior year. Segment EBITA margin of 8.6% declined 10 basis points versus the prior year and showed strong sequential improvement as higher margin backlog conversion and productivity improved.

Building Solutions Asia Pacific

Sales in the quarter of $736 million increased 11% versus the prior year. Sales increased 16% organically versus the prior year, with high-teen growth in Service and continued momentum in HVAC & Controls. Organic Sales in China grew greater than 25%, with strong double-digit growth in the Service and Install businesses, as China rebounded from Covid-19 shutdowns in the prior year.

Orders in the quarter, excluding M&A and adjusted for foreign currency, increased 14% year-over-year. Backlog at the end of the quarter of $1.7 billion increased 2% year-over-year, excluding M&A and adjusted for foreign currency.

Segment EBITA was $102 million, up 20% versus the prior year. Segment EBITA margin of 13.9% expanded 110 basis points versus the prior year led by strong Service performance, higher margin backlog conversion, and productivity.

Global Products

Sales in the quarter of $2.7 billion increased 5% versus the prior year. Organic sales grew 6% versus the prior year driven by growth in Applied, Fire Detection, Industrial Refrigeration, and Commercial Ducted HVAC products.

Segment EBITA was $593 million, up 4% versus the prior year. Segment EBITA margin of 22.1% declined 10 basis points versus the prior year against a tough comparison and further Residential weakness.

Corporate

Corporate expense was $122 million in the quarter, an increase of 27% compared to the prior year. Adjusted Corporate expense excludes transaction/separation costs in both Q3 2022 and Q3 2023.

OTHER Q3 ITEMS

• Cash provided by operating activities from continuing operations was $813 million, while cash provided by operating activities from continuing operations, excluding JC Capital, was $852 million. Capital expenditures were $111 million, resulting in a free cash flow from continuing operations of $741 million.
• The Company repurchased 6.0 million shares for approximately $366 million. Year-to-date through June the Company repurchased 10.3 million shares for approximately $613 million.
• The Company recorded net pre-tax mark-to-market gains of $17 million related primarily to the remeasurement of the Company's pension and postretirement benefit plans and restricted asbestos investments.
• The Company recorded pre-tax restructuring and impairment costs of $81 million
• The Company recorded a discrete period net tax benefit of $438 million resulting from tax audit resolutions, statute expirations and remeasurement of certain tax-related matters.
• The Company issued €800 million senior notes due 2035.

FOURTH QUARTER GUIDANCE

The Company initiated fiscal 2023 fourth quarter guidance:

• Organic revenue growth of ~+4% year-over-year
• Adjusted segment EBITA margin improvement of ~+60 basis points year-over-year
• Adjusted EPS before special items of ~$1.10; representing ~11% growth year-over-year

FULL YEAR GUIDANCE

The Company updated its fiscal 2023 full year EPS guidance:

• Organic revenue growth ~+HSD year-over year (previously guided at ~+10% growth)
• Adjusted segment EBITA margin improvement of ~+110 basis points, year-over-year (previously guided to 100 to 120 basis point improvement)
• Adjusted EPS before special items of ~$3.55; representing ~18% growth year-over-year (previously guided to $3.50 to $3.60)

CONFERENCE CALL & WEBCAST INFO

Johnson Controls will host a conference call to discuss this quarter's results at 8:30 a.m. ET today, which can be accessed by dialing 844-763-8274 (in the United States) or +1-412-717-9224 (outside the United States), or via webcast. A slide presentation will accompany the prepared remarks and has been posted on the investor relations section of the Johnson Controls website at https://investors.johnsoncontrols.com/news-and-events/events-and-presentations. A replay will be made available approximately two hours following the conclusion of the conference call.

About Johnson Controls

At Johnson Controls (NYSE:JCI), we transform the environments where people live, work, learn and play. As the global leader in smart, healthy and sustainable buildings, our mission is to reimagine the performance of buildings to serve people, places and the planet.

Building on a proud history of nearly 140 years of innovation, we deliver the blueprint of the future for industries such as healthcare, schools, data centers, airports, stadiums, manufacturing and beyond through OpenBlue, our comprehensive digital offering.

Today, with a global team of 100,000 experts in more than 150 countries, Johnson Controls offers the world`s largest portfolio of building technology and software as well as service solutions from some of the most trusted names in the industry.

Visit www.johnsoncontrols.com for more information and follow @Johnson Controls on social platforms.

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, debt levels and market outlook 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 its control, that could cause its 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 capital market conditions, including recessions and other economic downturns, the ability to manage macroeconomic and geopolitical volatility, including global price inflation, shortages impacting the availability of raw materials and component products and the conflict between Russia and Ukraine; the ability to develop or acquire new products and technologies that achieve market acceptance and meet applicable quality and regulatory requirements; the ability to innovate and adapt to emerging technologies, ideas and trends in the marketplace; the strength of the U.S. or other economies; fluctuations in currency exchange rates; changes or uncertainty in laws, regulations, rates, policies or interpretations that impact Johnson Controls business operations or tax status; changes to laws or policies governing foreign trade, including economic sanctions, increased tariffs or trade restrictions; maintaining the capacity, reliability and security of Johnson Controls enterprise information technology infrastructure; the ability to manage the lifecycle cybersecurity risk in the development, deployment and operation of Johnson Controls digital platforms and services; the outcome of litigation and governmental proceedings; the risk of infringement or expiration of intellectual property rights; Johnson Controls ability to manage the impacts of natural disasters, climate change, pandemics and outbreaks of contagious diseases and other adverse public health developments, such as the COVID-19 pandemic; the ability of Johnson Controls to drive organizational improvement; any delay or inability of Johnson Controls to realize the expected benefits and synergies of recent portfolio transactions; the ability to hire and retain senior management and other key personnel; the tax treatment of recent portfolio transactions; significant transaction costs and/or unknown liabilities associated with such transactions; labor shortages, work stoppages, union negotiations, labor disputes and other matters associated with the labor force; and the 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 2022 fiscal year filed with the SEC on November 15, 2022, 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
This 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, net mark-to-market adjustments, Silent-Aire other nonrecurring items, certain transaction/separation costs, Silent-Aire earn-out adjustment, charges attributable to the suspension of operations in Russia, warehouse fire loss, and discrete tax items. Financial information regarding organic sales growth, adjusted sales, EBIT, EBIT margin, adjusted EBIT, adjusted EBIT margin, total segment EBITA, adjusted segment EBITA, adjusted segment EBITA margin, adjusted Corporate expense, cash provided by operating activities from continuing operations, excluding JC Capital, free cash flow, free cash flow conversion and adjusted net income from continuing operations are also presented, which are non-GAAP performance measures. 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 Johnson Controls. 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 the non-GAAP measures and a reconciliation of these non-GAAP measures, refer to the attached footnotes.

SOURCE Johnson Controls International plc