01—Abstract
Summary
Summary of the 10-Q filed January 31, 2020. Cited figures are marked; the original filing is the authoritative source.
Johnson Controls International plc's (JCI) Q1 fiscal 2020 results for the period ending December 31, 2019, show a modest increase in net sales driven by organic growth across all segments, partially offset by unfavorable foreign currency translation and divestitures.
The company reported a notable increase in gross profit and a decrease in SG&A expenses as a percentage of sales, signaling improved operational efficiency. However, a significant increase in restructuring and impairment costs ($111 milliona) negatively impacted net income attributable to Johnson Controls, which decreased by 55% compared to the prior year. This was largely due to the absence of the significant income from discontinued operations reported in the prior year and the current period's restructuring charges.
The company's liquidity remains adequate, with a strong cash position and available credit facilities. JCI continues its share repurchase program, demonstrating a commitment to returning value to shareholders.
Management is focused on aligning resources with growth strategies and reducing operational costs, as evidenced by ongoing restructuring initiatives aimed at generating annual operating cost reductions. Investors should note the ongoing environmental and legal matters, particularly concerning PFAS contamination, which have led to increased reserves and contingent liabilities.
02—Key points
Key Highlights
- Net sales increased by 2% to $5.58 billion, driven by organic sales growth across all segments.
- Gross profit increased by 5% to $1.80 billion, with gross profit margin improving to 32.3% from 31.6% in the prior year.
- Selling, general, and administrative (SG&A) expenses decreased by 1% to $1.43 billion, and as a percentage of sales, improved to 25.6% from 26.3%.
- Significant restructuring and impairment costs of $111 million were recognized in the current quarter, compared to none in the prior year, impacting net income.
- Net income attributable to Johnson Controls decreased by 55% to $159 million, primarily due to lower income from discontinued operations in the prior year and current period restructuring charges.
- Diluted earnings per share (EPS) from continuing operations was $0.21, down from $0.38 in the prior year (which included significant discontinued operations income).
- The company maintained a strong liquidity position with $2.16 billion in cash and cash equivalents and substantial availability under its revolving credit facilities.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2020, Johnson Controls International plc kept $0.03.
- Revenue$5.58B100.0%
- Cost of revenue−$3.77B67.7%
- Gross profit$1.80B32.3%
- Operating costs−$1.64B29.5%
- Operating income$159.0M2.9%
- Interest, other & tax$-00.0%
- Net income$159.0M2.9%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2020filed January 31, 2020Financial Statements
Q1 FY2020 against Q1 FY2019
| Line item | Q1 FY2020Q1 FY2019 | Change |
|---|---|---|
| Revenue | $5.58B$5.46B | +2.0% |
| Cost of Revenue | $3.77B$3.74B | +0.9% |
| Gross Profit | $1.80B$1.73B | +4.5% |
| SG&A Expenses | $1.43B$1.44B | −0.8% |
| Operating Income | $159.00M$107.00M | +48.6% |
| Interest Expense | $62.00M$91.00M | −31.9% |
| Net Income | $159.00M$355.00M | −55.2% |
| EPS (Basic) | $0.21$0.39 | −46.2% |
| EPS (Diluted) | $0.21$0.38 | −44.7% |
| Shares Outstanding (Basic) | 769.90M921.60M | −16.5% |
| Shares Outstanding (Diluted) | 774.00M925.20M | −16.3% |
05—Questions
Frequently Asked Questions
What was the primary driver for the increase in net sales?
The increase in net sales was primarily driven by organic sales growth across all business segments, totaling $138 million, along with $8 million from acquisitions. This growth was partially offset by unfavorable foreign currency translation effects ($27 million) and lower sales from business divestitures ($7 million).
Why did net income attributable to Johnson Controls decrease significantly?
The significant decrease in net income attributable to Johnson Controls (55%) was mainly due to the absence of substantial income from discontinued operations that was reported in the prior year. Additionally, the current period incurred $111 million in restructuring and impairment costs, which negatively impacted profitability.
What is the company's current liquidity and financial position?
Johnson Controls maintains a strong liquidity position with $2.16 billion in cash and cash equivalents as of December 31, 2019. The company also has access to committed revolving credit facilities totaling $3.0 billion, with no outstanding draws. Total net debt as a percentage of total capitalization was 20.9%, indicating a manageable debt level.
Are there any significant ongoing legal or environmental matters that investors should be aware of?
Yes, the company is involved in significant environmental matters, including PFAS contamination related to fire-fighting foams, which has resulted in increased reserves. There are also ongoing asbestos litigation and other class-action lawsuits, particularly related to AFFF litigation, although the company believes it has strong defenses and is pursuing insurance coverage.
06—Continue