01—Abstract
Summary
Summary of the 10-Q filed February 8, 2017. Cited figures are marked; the original filing is the authoritative source.
Johnson Controls International plc (JCI) reported its first quarterly results following the significant merger with Tyco International plc in September 2016.
The company experienced a substantial increase in net sales, driven primarily by the inclusion of Tyco's operations, which accounted for a significant portion of the 51%a year-over-year growth. However, this growth was accompanied by increased operating expenses, including selling, general, and administrative costs, and notable restructuring and impairment charges. The company also completed the spin-off of its Automotive Experience business (Adient) in October 2016, which is now reflected as a discontinued operation.
Despite the top-line growth, net income attributable to Johnson Controls declined due to these factors, including a loss from discontinued operations and increased financing charges. The company's financial position shows a decrease in cash and cash equivalents, and a significant increase in short-term debt, indicating a focus on managing post-merger integration and operational adjustments.
02—Key points
Key Highlights
- Net sales increased significantly by 51% year-over-year, largely due to the recent merger with Tyco International plc.
- The company recorded substantial restructuring and impairment costs of $78 million related to cost reduction initiatives in Building Technologies & Solutions and Corporate.
- Net income attributable to Johnson Controls decreased to $329 million from $450 million in the prior year's comparable quarter, impacted by discontinued operations, restructuring costs, and higher financing charges.
- The spin-off of the Automotive Experience business (Adient) was completed in October 2016 and is now reported as discontinued operations, contributing a loss of $43 million for the quarter.
- The company's balance sheet shows a decrease in cash and cash equivalents to $377 million from $579 million sequentially, while short-term debt increased significantly to $2,379 million from $1,078 million.
- Segment EBITA for Building Technologies & Solutions and Power Solutions showed increases, with Building Technologies & Solutions benefiting from the Tyco merger and Asia's performance, while Power Solutions saw growth from higher volumes and pricing.
- The company is actively managing its capital structure, having completed a debt exchange offer and continuing to evaluate its financial resources, with cash management and operational integration as key focus areas.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2017, Johnson Controls International plc kept $0.06.
- Revenue$5.58B100.0%
- Cost of revenue−$3.47B62.1%
- Gross profit$2.11B37.9%
- Operating costs−$1.74B31.2%
- Operating income$372.0M6.7%
- Interest, other & tax−$43.0M0.8%
- Net income$329.0M5.9%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2017filed February 8, 2017Financial Statements
Q1 FY2017 against Q1 FY2016
| Line item | Q1 FY2017Q1 FY2016 | Change |
|---|---|---|
| Revenue | $5.58B$4.70B | +18.9% |
| Cost of Revenue | $4.97B$3.44B | +44.6% |
| Gross Profit | $2.11B$1.26B | +68.2% |
| SG&A Expenses | $1.57B$847.00M | +85.4% |
| Operating Income | $372.00M$293.00M | +27.0% |
| Interest Expense | $110.00M$72.00M | +52.8% |
| Net Income | $329.00M$450.00M | −26.9% |
| EPS (Basic) | $0.35$0.69 | −49.3% |
| EPS (Diluted) | $0.35$0.69 | −49.3% |
| Shares Outstanding (Basic) | 937.20M647.70M | +44.7% |
| Shares Outstanding (Diluted) | 947.40M652.80M | +45.1% |
05—Questions
Frequently Asked Questions
What was the primary driver of the significant increase in net sales?
The primary driver of the 51% increase in net sales was the business combination with Tyco International plc, which closed on September 2, 2016. Tyco's operations were consolidated into Johnson Controls' financial statements for the current period, contributing significantly to the top-line growth.
How did the Adient spin-off impact the financial results?
The spin-off of the Automotive Experience business, Adient, was completed on October 31, 2016. Adient's historical financial results are now classified as discontinued operations. For the quarter ended December 31, 2016, this resulted in a loss from discontinued operations of $43 million attributable to Johnson Controls, which negatively impacted net income.
What is the company doing to manage costs and improve efficiency post-merger?
Johnson Controls has initiated significant restructuring plans. In the first quarter of fiscal year 2017, the company recorded $78 million in restructuring and impairment costs aimed at cost reduction initiatives within its Building Technologies & Solutions business and at Corporate. These actions primarily involve workforce reductions, plant closures, and asset impairments, with the goal of reducing annual operating costs.
How is the company's debt and liquidity position following the merger?
Following the Tyco merger, the company's debt levels have increased. Total debt rose to $13.25 billion from $12.76 billion sequentially, with a significant increase in short-term debt. While cash and cash equivalents decreased, the company states that its capital resources and liquidity position are adequate to meet projected needs, supported by operations and available credit facilities. The company also completed a significant debt exchange offer in December 2016.
06—Continue