01—Abstract
Summary
Summary of the 10-K filed November 20, 2018. Cited figures are marked; the original filing is the authoritative source.
Johnson Controls International plc's (JCI) 2018 10-K filing reveals a company undergoing significant strategic shifts, most notably the impending sale of its Power Solutions business for $13.2 billiona.
This move signifies a strategic pivot towards its core Building Technologies & Solutions (Buildings) segment, which accounted for 75% of net sales in fiscal year 2018. The Buildings segment demonstrated steady growth, with net sales increasing by 2% to $23.4 billionb, driven by higher volumes and favorable foreign currency translation, though gross profit as a percentage of sales saw a slight decrease due to higher operating costs. Financially, JCI reported a 34% increase in net income attributable to shareholders, reaching $2.16 billion in FY2018, driven by improved operational performance, lower tax provisions, and reduced financing charges.
The company also continued its share repurchase program, highlighting a commitment to returning value to shareholders. While the company navigates the sale of its automotive battery division, it remains focused on innovation and growth within its intelligent building solutions, aiming to capitalize on trends in smart cities and energy efficiency.
02—Key points
Key Highlights
- Johnson Controls International plc (JCI) announced the sale of its Power Solutions business for $13.2 billion, expected to close by June 30, 2019, with net proceeds of $11.4 billion.
- The Building Technologies & Solutions (Buildings) segment generated 75% of the company's consolidated net sales in FY2018, with total segment sales of $23.4 billion, up 2% from the prior year.
- Net income attributable to Johnson Controls increased by 34% to $2.16 billion in FY2018, compared to $1.61 billion in FY2017.
- Diluted earnings per share (EPS) increased to $2.32 in FY2018 from $1.71 in FY2017.
- The company repurchased approximately $300 million of its shares during FY2018 and had approximately $1.0 billion remaining under its share repurchase program as of September 30, 2018.
- Effective tax rate decreased significantly to 18% in FY2018 from 28% in FY2017, largely due to U.S. Tax Reform impacts.
- Restructuring and impairment costs decreased by 28% in FY2018 to $263 million, reflecting ongoing efforts to align resources with growth strategies.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Johnson Controls International plc kept $0.09.
- Revenue$23.40B100.0%
- Cost of revenue−$15.73B67.2%
- Gross profit$7.67B32.8%
- Operating costs−$6.49B27.7%
- Operating income$1.18B5.0%
- Interest, other & tax$987.0M4.2%
- Net income$2.16B9.2%
Where FY2018 revenue went
$23.40B- Cost of revenue: $15.73B, 67% of revenue
- SG&A: $5.64B, 24% of revenue
- Operating income: $1.18B, 5.0% of revenue
- R&D: $310.0M, 1.3% of revenue
- Other operating costs: $540.0M, 2.3% of revenue
Kept 5.0% as operating incomeOperating income $1.18B · 5.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed November 20, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $23.40B$22.84B | +2.5% |
| Cost of Revenue | $15.73B$15.30B | +2.8% |
| Gross Profit | $7.67B$7.53B | +1.8% |
| R&D Expenses | $310.00M$307.00M | +1.0% |
| SG&A Expenses | $5.64B$5.72B | −1.4% |
| Operating Income | $1.18B$672.00M | +74.9% |
| Interest Expense | $409.00M$446.00M | −8.3% |
| Net Income | $2.16B$1.61B | +34.2% |
| EPS (Basic) | $2.34$1.72 | +36.0% |
| EPS (Diluted) | $2.32$1.71 | +35.7% |
| Shares Outstanding (Basic) | 925.70M935.30M | −1.0% |
| Shares Outstanding (Diluted) | 931.70M944.60M | −1.4% |
05—Questions
Frequently Asked Questions
What is the strategic direction for Johnson Controls following the sale of its Power Solutions business?
Following the sale of its Power Solutions business, Johnson Controls is strategically focusing on its Building Technologies & Solutions segment. This segment, which includes HVAC, controls, security, and fire protection systems, is targeted for growth, leveraging trends in smart buildings, energy efficiency, and integrated infrastructure solutions for smart cities.
How did the company perform financially in fiscal year 2018 compared to 2017?
In fiscal year 2018, Johnson Controls reported a 34% increase in net income attributable to shareholders, reaching $2.16 billion, with diluted EPS rising to $2.32 from $1.71 in fiscal year 2017. This improvement was driven by growth in the Buildings segment, favorable foreign currency translation, and a significant decrease in the effective tax rate following U.S. Tax Reform.
What is the company's approach to capital allocation and shareholder returns?
Johnson Controls continues to prioritize returning value to shareholders through its share repurchase program. In fiscal year 2018, the company repurchased approximately $300 million of its shares, with about $1.0 billion remaining available under its authorization. The company also paid dividends, increasing its annual dividend per share to $1.04 in FY2018.
Are there any significant ongoing legal or environmental matters that could impact the company?
The company is involved in several legal and environmental matters, including asbestos-related litigation and lawsuits concerning Aqueous Film-Forming Foam (AFFF) products. While the company is vigorously defending these claims and believes it has meritorious defenses, the ultimate financial exposure from these matters is difficult to predict, and there is no assurance that such exposure will not be material.
06—Continue