01—Abstract
Summary
Summary of the 10-K filed November 21, 2019. Cited figures are marked; the original filing is the authoritative source.
Johnson Controls International plc (JCI) reported its fiscal year 2019 results, marked by the significant divestiture of its Power Solutions business for $13.2 billiona in April 2019.
This strategic move has reshaped the company's focus, allowing it to concentrate on its core building technologies and services. Despite a slight increase in net sales driven by organic growth, the company's profitability was impacted by higher selling, general, and administrative expenses, partly due to unfavorable mark-to-market adjustments. The company also continued its commitment to shareholder returns through substantial share repurchases, utilizing proceeds from the Power Solutions sale.
Management highlights ongoing efforts in restructuring and efficiency improvements across its global operations to drive future growth and profitability. Operationally, Johnson Controls continues to lead in building automation, HVAC, security, and fire suppression systems. The company's backlog remained robust at $9.2 billionb, with an additional $5.2 billion in remaining performance obligations indicating strong future revenue potential.
Investors should note the company's significant goodwill balance and the ongoing management of environmental liabilities, including those related to PFAS contamination. The company's financial position remains solid, with a notable reduction in net debt following the Power Solutions divestiture, providing flexibility for future strategic initiatives and capital allocation.
02—Key points
Key Highlights
- Divestiture of Power Solutions business for $13.2 billion completed in April 2019, shifting focus to building technologies and services.
- Net sales increased by 2% year-over-year to $23.97 billion, driven by organic sales growth across segments.
- Selling, General, and Administrative (SG&A) expenses increased by 11% year-over-year, impacting profitability, partly due to mark-to-market adjustments.
- Significant share repurchases totaling $5.98 billion were made during fiscal year 2019.
- Backlog stood at $9.2 billion as of September 30, 2019, with $14.4 billion in remaining performance obligations.
- Net debt significantly decreased by 59% to $4.41 billion following the Power Solutions divestiture.
- The company continues to manage environmental liabilities, notably increasing reserves for PFAS contamination remediation.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Johnson Controls International plc kept $0.24.
- Revenue$23.97B100.0%
- Cost of revenue−$16.27B67.9%
- Gross profit$7.69B32.1%
- Operating costs−$6.59B27.5%
- Operating income$1.10B4.6%
- Interest, other & tax$4.57B19.1%
- Net income$5.67B23.7%
Where FY2019 revenue went
$23.97B- Cost of revenue: $16.27B, 68% of revenue
- SG&A: $6.24B, 26% of revenue
- Operating income: $1.10B, 4.6% of revenue
- R&D: $319.0M, 1.3% of revenue
Kept 4.6% as operating incomeOperating income $1.10B · 4.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed November 21, 2019Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $23.97B$23.40B | +2.4% |
| Cost of Revenue | $16.27B$15.73B | +3.4% |
| Gross Profit | $7.69B$7.67B | +0.3% |
| R&D Expenses | $319.00M$310.00M | +2.9% |
| SG&A Expenses | $6.24B$5.64B | +10.7% |
| Operating Income | $1.10B$1.18B | −6.4% |
| Interest Expense | $335.00M$409.00M | −18.1% |
| Net Income | $5.67B$2.16B | +162.4% |
| EPS (Basic) | $6.52$2.34 | +178.6% |
| EPS (Diluted) | $6.49$2.32 | +179.7% |
| Shares Outstanding (Basic) | 870.20M925.70M | −6.0% |
| Shares Outstanding (Diluted) | 874.30M931.70M | −6.2% |
05—Questions
Frequently Asked Questions
What was the impact of the Power Solutions divestiture on Johnson Controls in FY2019?
The divestiture of the Power Solutions business for $13.2 billion was completed in April 2019. This significantly impacted the financial statements by reclassifying the business as discontinued operations and provided substantial cash proceeds ($11.6 billion net) which were used for debt reduction and share repurchases. The gain on sale contributed significantly to the company's net income for the year.
How did Johnson Controls manage its debt and capital structure in FY2019?
Johnson Controls significantly improved its capital structure by reducing total debt by 34% and net debt by 59% to $4.41 billion. This was largely achieved by utilizing the proceeds from the Power Solutions divestiture to pay down debt, including a $1.5 billion debt tender offer and other repayments. The company's net debt as a percentage of total capitalization also decreased substantially.
What are the key risks highlighted in the filing for investors?
Key risks for investors include economic downturns affecting construction and industrial spending, volatility in commodity prices impacting profitability, cybersecurity threats, potential liabilities from environmental matters (such as PFAS contamination), and the successful integration of past strategic transactions. The company also notes risks related to its Irish domicile and potential changes in U.S. tax law.
How is Johnson Controls addressing environmental liabilities, particularly PFAS?
The company has increased its environmental reserves by $140 million related to remediation efforts for firefighting foam containing PFAS compounds at or near its Fire Technology Center in Wisconsin, as well as for arsenic contamination at another facility. The company is working with regulatory bodies but notes that predicting the full extent of liability is difficult due to ongoing investigations and potential regulatory actions.
06—Continue