10-QPeriod: Q1 FY2018

Johnson Controls International plc Quarterly Report for Q1 Ended Dec 31, 2017

Filed February 2, 2018For Securities:JCI

Summary

Johnson Controls International plc (JCI) reported a decrease in net income attributable to the company for the quarter ending December 31, 2017, primarily due to increased restructuring and impairment costs, along with a higher income tax provision stemming from discrete tax charges related to the recent U.S. Tax Reform. Despite these factors, consolidated net sales saw a 5% increase, driven by favorable foreign currency translation, higher sales in the Power Solutions business, and growth in Building Technologies & Solutions segments. The company also noted a significant reduction in selling, general, and administrative expenses due to a gain on business divestiture and productivity savings. Key financial shifts include a substantial increase in cash provided by investing activities, largely due to proceeds from the Scott Safety divestiture, and a decrease in cash used by operating activities compared to the prior year, which was impacted by significant prior-year tax payments related to the Adient spin-off. The company's net debt decreased by 10%, reflecting a stronger balance sheet with a lower net debt to total capitalization ratio. Management remains confident in the company's liquidity and capital resources to meet future obligations.

Financial Highlights

53 data points
Beta

Revenue

$5.30B

32.0% Gross Margin

Net Income

$230.00M

4.3% Net Margin

EPS (Diluted)

$0.25

Total Assets

$49.77B

Cash & Equivalents

$533.00M

Free Cash Flow

-$129.00M

Financial Statements
Beta
Revenue$5.30B
Cost of Revenue$3.61B
Gross Profit$1.70B
SG&A Expenses$1.32B
Operating Income-$75.00M
Interest Expense$102.00M
Net Income$230.00M
EPS (Basic)$0.25
EPS (Diluted)$0.25
Shares Outstanding (Basic)926.10M
Shares Outstanding (Diluted)926.10M

Key Highlights

  • 1Consolidated net sales increased by 5% to $7.435 billion, driven by foreign currency translation and growth in both the Power Solutions and Building Technologies & Solutions segments.
  • 2Net income attributable to Johnson Controls decreased by 30% to $230 million, largely due to higher restructuring and impairment costs ($158 million) and a significant increase in the income tax provision (from a benefit of $27 million to a provision of $267 million).
  • 3Selling, General, and Administrative (SG&A) expenses decreased by 10% to $1.417 billion, aided by a $114 million gain on the sale of the Scott Safety business and productivity savings.
  • 4Cash provided by investing activities increased significantly to $1.774 billion, primarily due to $2.011 billion in proceeds from the divestiture of the Scott Safety business.
  • 5Cash used by operating activities decreased substantially from $1.885 billion in the prior year to $129 million, due to favorable prior-year tax payments related to the Adient spin-off.
  • 6Total debt decreased by 8% to $12.500 billion, leading to a 10% reduction in net debt to $11.948 billion.
  • 7The company repurchased approximately $150 million of its ordinary shares during the quarter as part of its share repurchase program.

Frequently Asked Questions

The primary driver for the decrease in net income attributable to Johnson Controls was a significant increase in restructuring and impairment costs, which rose to $158 million from $78 million in the prior year quarter. Additionally, the company recorded a higher income tax provision ($267 million compared to a tax benefit of $27 million), impacted by discrete tax charges from the recent U.S. Tax Reform and other integration costs.

The sale of the Scott Safety business provided a significant boost to investing activities, generating $2.011 billion in proceeds, which contributed to the $1.774 billion in cash provided by investing activities for the quarter. The sale also resulted in a $114 million gain recorded within selling, general and administrative expenses, helping to offset higher costs elsewhere.

Johnson Controls' management expressed confidence in the company's liquidity and capital resources to meet projected needs. The company's total debt decreased by 8% to $12.5 billion, resulting in a 10% reduction in net debt to $11.9 billion, and a lower net debt to total capitalization ratio of 36.8%. The company has access to significant revolving credit facilities and expects to fund future operations and commitments from operations, supplemented by borrowings if necessary.

The company adopted ASU No. 2016-09 (Compensation - Stock Compensation) during the quarter, which resulted in a reclassification of employee withholding taxes paid for equity-based compensation from operating to financing activities in the cash flow statement for the prior year comparative period. The company also early adopted ASU 2017-12 (Derivatives and Hedging) which did not have a material impact. Several other new standards are under assessment for future adoption, including those related to leases, revenue recognition, and cash flow classification.