01—Abstract
Summary
Summary of the 10-Q filed May 4, 2022. Cited figures are marked; the original filing is the authoritative source.
Johnson Controls International plc (JCI) reported its financial results for the third quarter of fiscal year 2022, ending March 31, 2022.
The company experienced a significant increase in net sales, driven by organic growth and acquisitions, though profit margins were compressed due to supply chain inefficiencies and cost pressures. Restructuring and impairment costs were notably higher compared to the prior year, largely impacting net income and comprehensive income attributable to Johnson Controls. The company also provided insights into ongoing macroeconomic challenges, including inflation and supply chain disruptions, which are expected to continue impacting results.
While revenue showed a healthy increase, the substantial rise in restructuring and impairment costs, alongside increased selling, general, and administrative expenses, significantly reduced net income and diluted earnings per share compared to the prior year. The company continues to manage its capital structure, with a robust share repurchase program and dividend payments, while navigating a complex global economic environment characterized by persistent supply chain issues and inflationary pressures. Investors should monitor the company's ability to effectively manage these costs and supply chain challenges to improve profitability in future periods.
02—Key points
Key Highlights
- Net sales increased by 9% year-over-year for both the three and six months ended March 31, 2022, driven by organic sales growth and acquisitions.
- Gross profit saw a modest increase of 1% for the quarter and 5% year-to-date, but gross profit margin declined due to supply chain inefficiencies and price/cost pressures.
- Restructuring and impairment costs surged significantly, from $96 million in the prior year's quarter to $384 million in the current quarter, and from $96 million year-to-date to $433 million.
- Net income attributable to Johnson Controls decreased substantially by 97% for the quarter and 51% year-to-date, largely due to increased restructuring and impairment costs and higher SG&A expenses.
- Diluted earnings per share also saw a significant decline, to $0.02 for the quarter and $0.56 year-to-date, down from $0.48 and $1.10, respectively, in the prior year.
- The company continues to repurchase shares, with approximately $4 billion remaining under its authorization, and declared a dividend of $0.35 per common share.
- Persistent supply chain disruptions, inflation, and geopolitical factors (like the Russia-Ukraine conflict) are noted as ongoing challenges expected to impact results for the remainder of fiscal 2022.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2022, Johnson Controls International plc kept $0.00.
- Revenue$6.10B100.0%
- Cost of revenue−$4.14B67.9%
- Gross profit$1.96B32.1%
- Operating costs−$1.56B25.7%
- Operating income$392.0M6.4%
- Interest, other & tax−$381.0M6.2%
- Net income$11.0M0.2%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2022filed May 4, 2022Financial Statements
Q2 FY2022 against Q2 FY2021
| Line item | Q2 FY2022Q2 FY2021 | Change |
|---|---|---|
| Revenue | $6.10B$5.59B | +9.0% |
| Cost of Revenue | $4.14B$3.65B | +13.4% |
| Gross Profit | $1.96B$1.94B | +0.7% |
| SG&A Expenses | $1.45B$1.25B | +16.0% |
| Operating Income | $392.00M$670.00M | −41.5% |
| Interest Expense | $56.00M$53.00M | +5.7% |
| Net Income | $11.00M$343.00M | −96.8% |
| EPS (Basic) | $0.02$0.48 | −95.8% |
| EPS (Diluted) | $0.02$0.48 | −95.8% |
| Shares Outstanding (Basic) | 699.10M717.10M | −2.5% |
| Shares Outstanding (Diluted) | 702.70M721.30M | −2.6% |
05—Questions
Frequently Asked Questions
What was the primary driver behind the significant drop in net income attributable to Johnson Controls?
The primary driver for the significant decrease in net income attributable to Johnson Controls was the substantial increase in restructuring and impairment costs, which rose from $96 million in the prior year's comparable periods to $433 million year-to-date. Additionally, higher Selling, General, and Administrative (SG&A) expenses also contributed to the decline.
How did the company's revenue performance look in this quarter, and what are the key factors affecting it?
Johnson Controls reported a solid 9% increase in net sales for both the three and six months ended March 31, 2022. This growth was primarily driven by higher organic sales and contributions from acquisitions. However, the company also noted the unfavorable impact of foreign currency translation and lower sales due to business divestitures. Management attributed the sales increase to higher volumes and increased pricing in response to inflation pressures, though this was partially offset by supply chain inefficiencies and cost pressures that impacted gross margins.
What are the main challenges Johnson Controls is facing, and how do they expect them to impact future performance?
The company is facing several macroeconomic challenges, including increased input material cost inflation, component shortages, and disruptions in its supply chain. These issues are exacerbated by global economic trends and the conflict in Ukraine. Management expects these trends to continue impacting the company's results for the remainder of fiscal 2022, potentially leading to further disruptions, shortages, and cost increases. These factors have negatively impacted profit margins and delayed the conversion of backlog into revenue.
What is the status of Johnson Controls' share repurchase program and dividend payments?
Johnson Controls continues to actively engage in its share repurchase program, with approximately $4 billion remaining under its authorization as of March 31, 2022. The company also declared a dividend of $0.35 per common share for the quarter ended March 31, 2022, marking an increase for two consecutive quarters and a 30% rise since Q4 2021. They intend to continue paying dividends throughout fiscal 2022.
06—Continue